Registration No. ________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
SOUTHERN PACIFIC SECURED ASSETS CORP.
(Exact name of Registrant as specified in its Charter)
California
(State of Incorporation)
33-0659688
(I.R.S. Employer Identification Number)
One Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035
503-684-4700
(Address and telephone number of Registrant's principal executive offices)
Barney Guy
Southern Pacific Secured Assets Corp.
One Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035
503-684-4700
(Name, address and telephone number of agent for service)
----------------
Copies to:
Paul D. Tvetenstrand, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement, as
determined by market conditions.
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/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED PRICE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED (1) PER UNIT (2) PRICE (2) FEE (1)
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<S> <C> <C> <C> <C>
Pass-Through Certificates and Mortgage- $1,000,000,000 100% $1,000,000,000 $303,030.30
Backed Notes, issued in series
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</TABLE>
<PAGE>
(1) $261,463,000.00 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement No.
333-15473 referred to below and not previously sold are consolidated in this
Registration Statement pursuant to Rule 429. All registration fees in connection
with such unsold amount of Mortgage Pass-Through Certificates have been
previously paid by the Registrant under the foregoing Registration Statements.
Accordingly, the total amount registered under the Registration Statement as so
consolidated as of the date of this filing is $1,261,463,000.00.
(2) Estimated solely for the purpose of calculating the registration fee.
--------------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which is part
of this Registration Statement is a combined prospectus and includes all the
information currently required in a prospectus relating to the securities
Covered by Registration Statement No. 333-15473 previously filed by the
Registrant. This Registration Statement which related to $1,261,463,000.00
aggregate principal amount of Mortgage Pass-Through Certificates, constitutes
Post-Effective Amendment No. 1 to Registration Statement 333-15473.
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes (i) a basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes ("Version 1") and (iii) an illustrative form of prospectus supplement
for use in an offering of Mortgage Pass-Through Certificates which provides for
credit support in the form of a letter of credit ("Version 2").
<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 PRELIMINARY PROSPECTUS SUPPLEMENT 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.
VERSION 1
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED APRIL 30, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________, 19__)
$________________
SOUTHERN PACIFIC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER] [IMPERIAL CREDIT INDUSTRIES, INC.]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
$__________ ____% Class A-1 Certificates
$__________ ____% Class A-2 Certificates
$__________ ____% Class A-3 Certificates
$__________ ____% Class A-4 Certificates
$ 0 ____%* Class A-5 Certificates
$__________ ____% Class A-6 Certificates
$ 0 Variable Rate* Class A-7 Certificates
*Accrual of interest based on the related Notional Amount as described herein.
The Series 19__-__ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-__
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates" and, collectively with the
Senior Certificates and the Subordinate Certificates, the "Certificates"). Only
the Senior Certificates (the "Offered Certificates") are offered hereby.
The Senior Certificates in the aggregate will evidence an initial
undivided interest of approximately _____% in a trust fund (the "Trust Fund")
consisting primarily of a pool of certain conventional fixed-rate one- to
four-family first lien mortgage loans (the "Mortgage Loans") to be deposited by
Southern Pacific Secured Assets Corp. (the "Company") into the Trust Fund for
the benefit of the Certificateholders. Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool."
<PAGE>
Distributions on the Senior Certificates will be made on the 25th day
of each month or, if such day is not a business day, then on the next business
day, commencing on ____________, 19__ (each, a "Distribution Date"). As more
fully described herein, interest distributions on the Senior Certificates will
be based on the Certificate Principal Balance thereof (or the Notional Amount
(as defined herein) in the case of the Fixed Strip Certificates and Variable
Strip Certificates) and the then applicable Pass-Through Rate thereof, which
will be variable for the Variable Strip Certificates and fixed for all other
classes of Certificates. Distributions in respect of principal of the Senior
Certificates will be allocated among the various classes of the Senior
Certificates as described herein under "Description of the
Certificates--Principal Distributions." The rights of the holders of the
Subordinate Certificates to receive distributions with respect to the Mortgage
Loans will be subordinate to the rights of the holders of the Senior
Certificates. Certain losses incurred due to defaults on the Mortgage Loans and
not covered by the Subordinate Certificates will be allocated on a pro rata
basis between the Class A-1, Class A-5 and Class A-6 Certificates (collectively,
the "Tiered Certificates"), on the one hand, and the Class A-2, Class A-3, Class
A-4 and Variable Strip Certificates, on the other, as more particularly
described herein. Any such losses so allocated to the Tiered Certificates will
be allocated first to the Class A-6 Certificates until the Certificate Principal
Balance thereof is reduced to zero, and then on a pro rata basis to the Class
A-1 Certificates and Class A-5 Certificates, as more particularly described
herein.
There is currently no secondary market for the Senior Certificates.
__________________________________ (the "Underwriter") intends to make a
secondary market in the Senior Certificates, but is not obligated to do so.
There can be no assurance that a secondary market for the Senior Certificates
will develop or, if it does develop, that it will continue. The Senior
Certificates will not be listed on any securities exchange.
It is a condition of the issuance of the Senior Certificates that they
be rated "___" by _____________________________ and "____" by
____________________________________.
As described herein, a "real estate mortgage investment conduit"
("REMIC") election will be made in connection with the Trust Fund for federal
income tax purposes. Each class of Senior Certificates will constitute "regular
interests" in the REMIC. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF
THE CLASS A CERTIFICATES.
THE YIELD TO MATURITY ON THE SENIOR CERTIFICATES WILL DEPEND ON THE
RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING AS A RESULT OF PREPAYMENTS,
DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY
MAY BE PREPAID IN FULL OR IN PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO
INVESTORS ON THE SENIOR CERTIFICATES MAY BE ADVERSELY AFFECTED BY ANY SHORTFALLS
IN INTEREST COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR
OTHERWISE. THE YIELD TO INVESTORS ON THE FIXED STRIP CERTIFICATES AND THE
VARIABLE STRIP CERTIFICATES WILL BE EXTREMELY SENSITIVE TO THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) AND DEFAULTS ON THE MORTGAGE
LOANS,
<PAGE>
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WHICH RATE MAY FLUCTUATE SIGNIFICANTLY OVER TIME. A RAPID RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF INVESTORS IN SUCH
CERTIFICATES TO RECOVER THEIR INITIAL INVESTMENTS. SEE "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE COMPANY, THE MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Company from the sale of the
Offered Certificates will be equal to _________% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest thereon
from ___________ 1, 19__ (the "Cut-off Date"), net of any expenses payable by
the Company.
The Offered Certificates are offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject any order in whole or in
part. It is expected that delivery of the Offered Certificates will be made on
or about ____________, 19__ at the office of __________________________________,
_______________, _____________________ against payment therefor in immediately
available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
<PAGE>
-4-
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART
OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO
ITS PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS
A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
UNTIL __________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities................. Mortgage Pass-Through Certificates, Series
19__-__.
Company............................. Southern Pacific Secured Assets Corp. (the
"Company"), an affiliate of Southern
Pacific Funding Corporation, and an
indirect wholly-owned subsidiary of
Imperial Credit Industries, Inc. ("ICII").
See "The Company" in the Prospectus.
Seller[s]........................... [Southern Pacific Thrift & Loan
Association] [and] [Imperial Credit
Industries] (["SPTL" or] the "Seller[s]").
See ["Southern Pacific Thrift & Loan
Association"] and ["Imperial Credit
Industries"] herein.
Master Servicer..................... [Name of Master Servicer] [Imperial Credit
Industries, Inc. (the "Master Servicer" or
"ICII"), an affiliate of the Company]. See
"Pooling and Servicing Agreement--The
Master Servicer" herein.
Trustee............................. _______________, ___________________
___________________ (the "Trustee").
Cut-off Date........................ ____________ 1, 19__ (the "Cut-off Date").
Delivery Date....................... On or about ____________, 19__ (the
"Delivery Date").
Denominations....................... The Senior Certificates will be issued in
registered, certificated form, in minimum
denominations of $______ (or in minimum
Notional Amounts of $_____ in the case of
the Fixed Strip Certificates or Variable
Strip Certificates) and integral multiples
of $_____ in excess thereof.
<PAGE>
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The Mortgage Pool................... The Mortgage Pool will consist of a pool
of conventional, fixed-rate, fully
amortizing mortgage loans (the "Mortgage
Loans") with an aggregate principal
balance as of the Cut-off Date of
approximately $___________. The Mortgage
Loans are secured by first liens on one-
to four-family residential real properties
(each, a "Mortgaged Property"). The
Mortgage Loans have individual principal
balances at origination of at least
$______ but not more than $_________ with
an average principal balance at
origination of approximately $_________.
The Mortgage Loans have terms to maturity
from the date of origination or
modification of not more than __ years,
and a weighted average remaining term to
stated maturity of approximately ___
months as of the Cut-off Date. The
Mortgage Loans will bear interest at
Mortgage Rates of at least ____% per annum
but not more than _____% per annum, with a
weighted average Mortgage Rate of
approximately _______% per annum as of the
Cut-off Date. For a further description of
the Mortgage Loans, see "Description of
the Mortgage Pool" herein.
The Senior Certificates............. The Senior Certificates in the aggregate
evidence an initial interest of
approximately _____% in a trust fund (the
"Trust Fund") consisting primarily of the
Mortgage Pool. The Senior Certificates
will be issued pursuant to a Pooling and
Servicing Agreement, to be dated as of the
Cut-off Date, among the Company, the
Master Servicer, and the Trustee (the
"Pooling and Servicing Agreement"). The
Senior Certificates will have the
following Pass-Through Rates and
Certificate Principal Balances as of the
Cut-off Date:
Class A-1 Certificates ____% $__________
Class A-2 Certificates ____% $__________
Class A-3 Certificates ____% $__________
<PAGE>
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Class A-4 Certificates ____% $__________
Class A-5 Certificates ____% $ 0
Class A-6 Certificates ____% $__________
Class A-7 Certificates Variable Rate $ 0
The Offered Certificates are subject to
various priorities for payment of interest
and principal as described herein. For a
description of the allocation of interest
and principal distributions among the
Senior Certificates, see
"Summary--Interest Distributions,"
"--Principal Distributions," "Description
of the Certificates--Interest
Distributions" and "--Principal
Distributions on the Senior Certificates"
herein.
Interest Distributions.............. The Pass-Through Rates on the Senior
Certificates (other than the Variable
Strip Certificates) are fixed and set
forth on the cover hereof. The
Pass-Through Rate on the Variable Strip
Certificates on each Distribution Date
will equal the weighted average, as
determined on the Due Date in the month
preceding the month in which such
Distribution Date occurs, of the Pool
Strip Rates on each of the Mortgage Loans.
The Pool Strip Rate on each Mortgage Loan
is equal to the Net Mortgage Rate thereon
minus ____%. The Net Mortgage Rate on each
Mortgage Loan is equal to the Mortgage
Rate thereon minus the rate per annum at
which the related master servicing fees
accrue (the "Servicing Fee Rate"). The
Pool Strip Rates on the Mortgage Loans
range between _____% and _____%. The
initial Pass-Through Rate on the Variable
Strip Certificates is approximately
_____%. The Fixed Strip Certificates and
Variable Strip Certificates have no
Certificate Principal Balance and will
accrue interest at the then
<PAGE>
-8-
applicable Pass-Through Rate on the
Notional Amount (as defined herein).
Holders of the Senior Certificates will be
entitled to receive on each Distribution
Date, to the extent of the Available
Distribution Amount (as defined herein)
for such Distribution Date, interest
distributions in an amount equal to the
aggregate of all Accrued Certificate
Interest (as defined below) with respect
to such Certificates for such Distribution
Date and, to the extent not previously
paid, for all prior Distribution Dates
(the "Senior Interest Distribution
Amount").
With respect to any Distribution Date, the
Accrued Certificate Interest in respect of
each class of Senior Certificates will be
equal to one month's interest accrued at
the applicable Pass-Through Rate on the
Certificate Principal Balance (or, in the
case of the Fixed Strip Certificates and
Variable Strip Certificates, the Notional
Amount (as defined below)) of the
Certificates of such class immediately
prior to such Distribution Date, less any
interest shortfalls not covered by
Subordination (as defined herein) and
allocated to the Certificates of such
class as described herein, including any
Prepayment Interest Shortfall (as defined
herein), if any, for such Distribution
Date.
If the Senior Interest Distribution Amount
for any Distribution Date is less than the
Available Distribution Amount for such
date, then such shortfall shall be
allocated among the respective classes of
Senior Certificates as described herein,
and the unpaid Accrued Certificate
Interest in respect of the Certificates of
each such class will be payable to the
holders thereof on subsequent
<PAGE>
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Distribution Dates, to the extent of
available funds.
The Notional Amount of the Fixed Strip
Certificates and Variable Strip
Certificates as of any date of
determination is equal to the aggregate
Certificate Principal Balance of the
Certificates of all classes, including the
Subordinate Certificates, as of such date.
See "Description of the
Certificates--Interest Distributions"
herein.
References herein to the Notional Amount
of the Fixed Strip Certificates and
Variable Strip Certificates are used
solely for certain calculations and do not
represent the right of the holders of the
Fixed Strip Certificates and Variable
Strip Certificates to receive
distributions of such amount.
Principal Distributions............. Holders of the Senior Certificates will be
entitled to receive on each Distribution
Date, in the manner and priority set forth
herein, to the extent of the portion of
the Available Distribution Amount
remaining after the Senior Interest
Distribution Amount is distributed to the
holders of the Senior Certificates, a
distribution allocable to principal which
will, as more fully described herein,
include (i) the Senior Percentage (as
defined herein) of scheduled principal
payments due on the Mortgage Loans and of
the principal portion of any unscheduled
collections of principal (other than
mortgagor prepayments and amounts received
in connection with a Final Disposition (as
defined herein) of a Mortgage Loan
described in clause (ii) below), including
repurchases of the Mortgage Loans, (ii) in
connection with the Final Disposition of a
Mortgage Loan that did not incur any
Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses
<PAGE>
-10-
(each as defined herein), an amount equal
to the lesser of (a) the Senior Percentage
of the Stated Principal Balance (as
defined herein) of such Mortgage Loan and
(b) the Senior Accelerated Distribution
Percentage (as defined herein) of the
related collections, including any
Insurance Proceeds and Liquidation
Proceeds, to the extent applied as
recoveries of principal and (iii) the
Senior Accelerated Distribution Percentage
(as defined below) of mortgagor
prepayments on each Mortgage Loan.
Distributions in respect of principal of
the Senior Certificates on any
Distribution Date will be allocated among
the classes then entitled to such
distributions, as described herein. See
"Summary--Special Prepayment
Considerations" and "--Special Yield
Considerations" and "Certain Yield and
Prepayment Considerations" herein. The
Fixed Strip Certificates and Variable
Strip Certificates will not be entitled to
receive any principal distributions.
The Senior Percentage initially will be
approximately _____% and will be
recalculated after each Distribution Date
as described herein to reflect the
entitlement of the holders of the Senior
Certificates to subsequent distributions
allocable to principal. For each
Distribution Date occurring prior to the
Distribution Date in ________, ________,
the Senior Accelerated Distribution
Percentage will equal 100%. Thereafter, as
further described herein, during certain
periods, subject to certain loss and
delinquency criteria described herein, the
Senior Accelerated Distribution Percentage
may be 100% or otherwise
disproportionately large relative to the
Senior Percentage. See "Description of the
Certificates--Principal Distributions on
the Senior Certificates" herein.
<PAGE>
-11-
Advances............................ The Master Servicer is required to make
advances ("Advances") in respect of
delinquent payments of principal and
interest on the Mortgage Loans, subject to
the limitations described herein. See
"Description of the
Certificates--Advances" herein and in the
Prospectus.
Allocation of Losses;
Subordination..................... Subject to the limitations set forth
below, Realized Losses (as more
particularly described herein) on the
Mortgage Loans will be allocated first to
the Subordinate Certificates and then to
the Senior Certificates. The subordination
provided by the Subordinate Certificates
will cover Realized Losses on the Mortgage
Loans that constitute Defaulted Mortgage
Losses, Special Hazard Losses, Fraud
Losses and Bankruptcy Losses (each as
defined in the Prospectus) to the extent
described herein. The aggregate amounts of
Special Hazard Losses, Fraud Losses and
Bankruptcy Losses which may be allocated
to the Subordinate Certificates are
initially limited to $__________,
$_________ and $_______, respectively. All
of the foregoing amounts are subject to
periodic reduction as described herein. In
the event the Certificate Principal
Balance of the Subordinate Certificates is
reduced to zero, all additional losses
will be borne by the Senior
Certificateholders. In addition, any
Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, in excess of the
respective amounts of coverage therefor
will be borne by the holders of Senior
Certificates and Subordinate Certificates
on a pro rata basis. Any Default Losses
(as defined herein) incurred on the
Mortgage Loans and not covered by the
Subordinate Certificates will be allocated
on a pro rata basis between the Class A-1,
Class A-5 and Class A-6 Certificates (the
"Tiered Certificates"), on the one hand,
and the Class
<PAGE>
-12-
A-2, Class A-3, Class A-4 and Variable
Strip Certificates, on the other, as more
particularly described herein. Any such
losses so allocated to the Tiered
Certificates will be allocated first to
the Class A-6 Certificates until the
Certificate Principal Balance thereof is
reduced to zero and then on a pro rata
basis between the Class A-1 Certificates
and the Class A-5 Certificates, as more
particularly described herein. Because
principal distributions are paid to
certain classes of Senior Certificates
before other classes, holders of classes
of Senior Certificates having a later
priority of payment bear a greater risk of
such losses than holders of classes of
Senior Certificates having earlier
priorities for distribution of principal.
See "Description of the
Certificates--Allocation of Losses;
Subordination" herein.
Subordinate Certificates............ The Class B Certificates (the "Subordinate
Certificates") have an aggregate initial
Certificate Principal Balance of
approximately $__________, evidencing an
initial Subordinate Percentage of
approximately ____%, and a Pass-Through
Rate of ____%. The Subordinate
Certificates are not being offered hereby.
Optional Termination................ At its option, on any Distribution Date
when the aggregate principal balance of
the Mortgage Loans is less than [__]% of
the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, the
Master Servicer or the Company may (i)
purchase from the Trust Fund all remaining
Mortgage Loans and other assets thereof,
and thereby effect early retirement of the
Certificates or (ii) purchase in whole,
but not in part, the Certificates. See
"Pooling and Servicing
Agreement--Termination" herein and "The
<PAGE>
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Pooling Agreement-- Termination;
Retirement of Certificates" in the
Prospectus.
Special Prepayment
Considerations.................... The rate and timing of principal payments
on the Senior Certificates will depend on
the rate and timing of principal payments
(including by reason of prepayments,
defaults and liquidations) on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Senior
Certificates are subject to substantial
inherent cash-flow uncertainties because
the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease, resulting
in a slower return of principal to
investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates decline, prepayment rates
on mortgage loans tend to increase,
resulting in a faster return of principal
to investors at a time when reinvestment
at comparable yields may not be possible.
[The multiple class structure of the
Senior Certificates results in the
allocation of prepayments among certain
classes as follows [TO BE INCLUDED AS
APPROPRIATE]:]
[SEQUENTIALLY PAYING CLASSES: [All]
classes of the Senior Certificates are
subject to various priorities for payment
of principal as described herein.
Distributions of principal on classes
having an earlier priority of payment will
be affected by the rates of prepayments of
the Mortgage Loans early in the life of
the Mortgage Pool. The timing of
commencement of principal distributions
and the weighted average lives of classes
of Certificates with a later priority of
payment will be affected by the rates of
prepayments
<PAGE>
-14-
experienced both before and after the
commencement of principal distributions on
such classes.]
[PAC CERTIFICATES: Principal distributions
on the PAC Certificates generally will be
payable in amounts determined based on
schedules as described herein, assuming
that the prepayments on the Mortgage Loans
occur each month at a constant level
between approximately ___% SPA and
approximately ___% SPA and based on
certain other assumptions. However, as
discussed herein, actual principal
distributions may be greater or less than
the described amounts. If the prepayments
on the Mortgage Loans occur at a level
below or above the PAC Targeted Range, the
amount of principal distributions may
deviate from the described amounts and the
weighted average lives of the remaining
PAC Certificates may be extended or
shortened. The classes of PAC Certificates
with later priorities of payment are less
likely to benefit from the stabilization
of principal distributions provided by the
Companion Certificates as described
herein) than the PAC Certificates with
earlier priorities of payment. Investors
in the PAC Certificates should be aware
that the stabilization provided by the
Companion Certificates is limited.]
[TAC CERTIFICATES: Principal distributions
on the TAC Certificates generally will be
payable thereon in the amounts determined
by using the schedules described herein,
assuming that prepayments on the Mortgage
Loans occur each month at a constant level
of approximately ___% SPA, and based on
certain other assumption. However, as
discussed herein, actual principal
distributions may be greater or less than
the described amounts, because it is
highly unlikely that the actual prepayment
speed of the Mortgage
<PAGE>
-15-
Loans each month will remain at or near
___% SPA. If the Companion Certificates
are retired before all of the TAC
Certificates are retired, the rate of
principal distributions and the weighted
average lives of the remaining TAC
Certificates will become significantly
more sensitive to changes in the
prepayment speed of the Mortgage Loans,
and principal distributions thereon will
be more likely to deviate from the
described amounts.]
[COMPANION CERTIFICATES: Because all
amounts available for principal
distributions among the Senior
Certificates in any given month will be
applied first to the [PAC] [TAC]
Certificates up to the described amounts
and any excess other such amounts will be
applied to the Companion Certificates, the
rate of principal distributions on, and
the weighted average lives of the
Companion Certificates will be more
sensitive to changes in the rates of
prepayment of the Mortgage Loans than the
rate of principal distributions on and the
weighted average lives of the [PAC] [TAC]
Certificates.
See "Description of the
Certificates--Principal Distributions on
the Senior Certificates," and "Certain
Yield and Prepayment Considerations"
herein, and "Maturity and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations.................... The yield to maturity on each class of the
Senior Certificates will depend on the
rate and timing of principal payments
(including by reason of prepayments,
defaults and liquidations) on the Mortgage
Loans and the allocation thereof to reduce
the Certificate Principal Balance or
Notional Amount of such class. The yield
to maturity on each class of the Senior
Certificates will also depend on the
<PAGE>
-16-
Pass-Through Rate and any adjustments
thereto (as applicable) and the purchase
price for such Certificates. The yield to
investors on any class of Senior
Certificates will be adversely affected by
any allocation thereto of Prepayment
Interest Shortfalls on the Mortgage Loans,
which are expected to result from the
distribution of interest only to the date
of prepayment (rather than a full month's
interest) in connection with prepayments
in full and the lack of any distribution
of interest on the amount of any partial
prepayments. Prepayment Interest
Shortfalls resulting from principal
prepayments in full in any calendar month
will not adversely affect the yield to
investors in the Offered Certificates to
the extent such prepayment interest
shortfalls are covered by the Master
Servicer as discussed herein.
In general, if a class of Senior
Certificates is purchased at a premium and
principal distributions thereon occur at a
rate faster than anticipated at the time
of purchase, the investor's actual yield
to maturity will be lower than that
assumed at the time of purchase.
Conversely, if a class of Senior
Certificates is purchased at a discount
and principal distributions thereon occur
at a rate slower than that assumed at the
time of purchase, the investor's actual
yield to maturity will be lower than that
assumed at the time of purchase.
The Senior Certificates were structured
based on a number of assumptions,
including a prepayment assumption of ___%
SPA and corresponding weighted average
lives as set forth herein under "Special
Prepayment Considerations." The
prepayment, yield and other assumptions
for the respective classes that are to be
offered hereunder will vary as determined
at the time of sale.
<PAGE>
-17-
[The multiple class structure of the
Senior Certificates causes the yield of
certain classes to be particularly
sensitive to changes in the prepayment
speed of the Mortgage Loans and other
factors, as follows [TO BE INCLUDED AS
APPROPRIATE]:]
[INTEREST STRIP AND INVERSE FLOATER
CLASSES: The yield to investors on the
[identify classes] will be extremely
sensitive to the rate and timing of
principal payments on the Mortgage Loans
(including by reason of prepayments,
defaults and liquidations), which may
fluctuate significantly over time. A rapid
rate of principal payments on the Mortgage
Loans could result in the failure of
investors in the [identify interest strip
and inverse floater strip classes] to
recover their initial investments, and a
slower than anticipated rate of principal
payments on the Mortgage Loans could
adversely affect the yield to investors on
the [identify non-strip inverse floater
classes].]
[VARIABLE STRIP CERTIFICATES: In addition
to the foregoing, the yield on the
Variable Strip Certificates will be
materially adversely affected to a greater
extent than the yields on the other Senior
Certificates if the Mortgage Loans with
higher Mortgage Rates prepay faster than
the Mortgage Loans with lower Mortgage
Rates, because holders of the Variable
Strip Certificates generally have rights
to relatively larger portions of interest
payments on the Mortgage Loans with higher
Mortgage Rates than on Mortgage Loans with
lower Mortgage Rates.]
[ADJUSTABLE RATE (INCLUDING INVERSE
FLOATER) CLASSES: The yield to investors
on the [identify floating rate classes]
will be sensitive, and the yield to
investors on the [identify inverse floater
classes] will be extremely sensitive, to
fluctuations in the level
<PAGE>
-18-
of [the Index]. THE PASS-THROUGH RATE ON
THE [IDENTIFY INVERSE FLOATER CLASSES]
WILL VARY INVERSELY WITH, AND AT A
MULTIPLE OF, [THE INDEX].]
[INVERSE FLOATER COMPANION CLASSES: In
addition to the foregoing, in the event of
relatively low prevailing interest rates
(including [the Index]) and relatively
high rates of principal prepayments over
an extended period, while investors in the
[identify inverse floater companion
classes] may then be experiencing a high
current yield on such Certificates, such
yield may be realized only over a
relatively short period, and it is
unlikely that such investors would be able
to reinvest such principal prepayments on
such Certificates at a comparable yield.]
....................................
....................................
[RESIDUAL CERTIFICATES: Holders of the
Residual Certificates are entitled to
receive distributions of principal and
interest as described herein; however,
holders of such Certificates may have tax
liabilities with respect to their
Certificates during the early years of the
term of the REMIC that substantially
exceed the principal and interest payable
thereon during such periods. See "Certain
Yield and Prepayment Considerations,"
especially "--Additional Yield
Considerations Applicable Solely to the
Residual Certificates" herein, "Certain
Federal Income Tax Consequences" herein
and in the Prospectus and "Yield
Considerations" in the Prospectus.]
See "Certain Yield and Prepayment
Considerations" [, especially "--Yield
Considerations," "--Additional Yield
Considerations Applicable Solely to the
Residual Certificates" and "Certain
Federal Income Tax Consequences"] herein,
and "Yield Considerations" in the
Prospectus.
<PAGE>
-19-
Certain Federal Income
Tax Consequences.................. An election will be made to treat the
Trust Fund as a real estate mortgage
investment conduit ("REMIC") for federal
income tax purposes. Upon the issuance of
the Offered Certificates, __________
___________, counsel to the Company, will
deliver its opinion generally to the
effect that, assuming compliance with all
provisions of the Pooling and Servicing
Agreement, for federal income tax
purposes, the Trust Fund will qualify as a
REMIC within the meaning of Sections 860A
through 860G of the Internal Revenue Code
of 1986 (the "Code").
For federal income tax purposes, the Class
R Certificates will be the sole Class of
"residual interests" in the Trust Fund and
the Senior Certificates and the
Subordinate Certificates will constitute
the "regular interests" in the Trust Fund
and will generally be treated as
representing ownership of debt instruments
in the Trust Fund.
For federal income tax reporting purposes,
the _______ Certificates will not, and the
___________________ Certificates will, be
treated as having been issued with
original issue discount. The prepayment
assumption that will be used in
determining the rate of accrual of
original issue discount, market discount
and premium, if any, for federal income
tax purposes will be ___% SPA (as defined
herein). No representation is made that
the Mortgage Loans will prepay at that
rate or at any other rate.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
<PAGE>
-20-
Ratings............................. It is a condition of the issuance of the
Senior Certificates that they be rated
"___" by ________ ________________ and
"___" by _________________________. A
security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any
time by the assigning rating organization.
A security rating does not address the
frequency of prepayments of Mortgage
Loans, or the corresponding effect on
yield to investors. The ratings of the
Fixed Strip Certificates and Variable
Strip Certificates do not address the
possibility that the holders of such
Certificates may fail to fully recover
their initial investments. See "Certain
Yield and Prepayment Considerations" and
"Ratings" herein and "Yield
Considerations" in the Prospectus.
Legal Investment.................... The Senior Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so
long as they are rated in at least the
second highest rating category by one or
more nationally recognized statistical
rating agencies. Institutions whose
investment activities are subject to legal
investment laws and regulations,
regulatory capital requirements or review
by regulatory authorities may be subject
to restrictions on investment in the
Offered Certificates and should consult
with their legal advisors. See "Legal
Investment" herein and "Legal Investment
Matters" in the Prospectus.
<PAGE>
-21-
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary.]
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $____________. The
Mortgage Loans will consist of conventional, fixed-rate, fully-amortizing, level
monthly payment first lien Mortgage Loans with terms to maturity of not more
than ___ years from the due date of the first monthly payment. On or before the
Delivery Date, the Company will acquire the Mortgage Loans to be included in the
Mortgage Pool from Southern Pacific Funding Corporation ("SPFC"), an affiliate
of the Company [, which in turn acquired them pursuant to various mortgage loan
purchase agreements between SPFC and [ICII] [Southern Pacific] [_________] (the
"Sellers")]. The Seller[s] will make certain representations and warranties with
respect to the Mortgage Loans and, as more particularly described in the
Prospectus, will have certain repurchase or substitution obligations in
connection with a breach of any such representation and warranty, as well as in
connection with an omission or defect in respect of certain constituent
documents required to be delivered with respect to the Mortgage Loans, in any
event if such breach, omission or defect cannot be cured and it materially and
adversely affects the interests of Certificateholders. Neither the Company nor
any other entity or person will have any responsibility to purchase or replace
any Mortgage Loan if a Seller is obligated but fails to do so. See "Description
of the Mortgage Pool--Representations by Sellers" and "Description of the
Certificates--Assignment of Trust Fund Assets" in the Prospectus and "--The
Seller" below. The Mortgage Loans will have been originated or acquired by the
[Sellers] in accordance with the underwriting criteria described herein. See
"--Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
None of the Mortgage Loans will have been originated prior to
__________________ or will have a maturity date later than __________________.
No Mortgage Loan will have a remaining term to maturity as of the Cut-off Date
of less than ____ months. The weighted average remaining term to maturity of the
Mortgage Loans as of the Cut-off Date will be approximately ____ months. The
weighted average original term to maturity of the Mortgage Loans as of the
Cut-off Date will be approximately ____ months.
<PAGE>
-22-
As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.
Approximately _____% of the Mortgage Loans in the Mortgage Pool will
have been purchased from ______________, and each of _______ other Sellers sold
more than ____% but less than ____% of the Mortgage Loans to SPFC. Except as
indicated in the preceding sentence, no Seller sold more than ____% of the
Mortgage Loans to SPFC.
No Mortgage Loan provides for deferred interest or negative
amortization.
None of the Mortgage Loans in the Mortgage Pool will be Buydown
Mortgage Loans.
Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-off Date (except as otherwise indicated).
All percentages of the Mortgage Loans are approximate percentages by aggregate
principal balance as of the Cut-off Date.
MORTGAGE RATES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
- ------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
.................................... $ %
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
Total..................... $ . %
=== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans
was approximately ______% per annum.
<PAGE>
-23-
<TABLE>
CUT-OFF DATE MORTGAGE LOAN PRINCIPAL BALANCES
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
PRINCIPAL BALANCE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
----------------- -------------- ----------------- -------------
<S> <C> <C> <C>
$................................... $ %
....................................
....................................
....................................
....................................
....................................
....................................
....................................
- -...................................
- -...................................
- -................................... .
---- -------------- -----
Total.................... $ . %
=== ============ ======
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $_______.
<TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
LOAN-TO-VALUE RATIO MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
.................................... $ %
....................................
....................................
....................................
....................................
....................................
....................................
....................................
.................................... .
Total.......................... $ . %
=== ============ =======
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will have been approximately ____%.
<PAGE>
-24-
<TABLE>
GEOGRAPHIC DISTRIBUTIONS OF MORTGAGED PROPERTIES
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ----- -------------- ----------------- -------------
<S> <C> <C> <C>
[NAME OF STATE]..................... $ %
[NAME OF STATE].....................
[NAME OF STATE].....................
[NAME OF STATE].....................
[NAME OF STATE].....................
Other (1)........................... .
--- ------------- ----
Total..................... $ . %
=== ============ ======
</TABLE>
(1) "Other" includes states and the District of Columbia with less than __%
concentrations individually.
[No more than ____% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area].
<TABLE>
MORTGAGED PROPERTY TYPES
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
PROPERTY MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- -------- -------------- ----------------- -------------
<S> <C> <C> <C>
Single-family detached............... $ %
Planned Unit Developments (detached).
Two- to four-family units............
Condo Low-Rise (less than 5 stories).
Condo Mid-Rise (5 to 8 stories)......
Condo High-Rise (9 stories or more)..
Townhouse............................
Planned Unit Developments (attached).
Leasehold............................ .
---- -------------- ----
Total..................... $ . %
=== ============ =======
</TABLE>
MORTGAGE LOAN PURPOSES
<PAGE>
-25-
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------ -------------- ----------------- -------------
<S> <C> <C> <C>
Purchase............................ $ %
Rate/Term Refinance.................
Equity Refinance.................... .
--- ------------- ----
Total...................... $ . %
=== ============ ======
</TABLE>
The weighted average Loan-to-Value Ratio at origination of equity
refinance Mortgage Loans will have been ____%. The weighted average
Loan-to-Value Ratio at origination of rate and term refinance Mortgage Loans
will have been ____%.
<TABLE>
MORTGAGE LOAN DOCUMENTATION
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
TYPE OF PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Full................................ $ %
Reduced............................. .
--- ------------- ----
Total...................... $ . %
=== ============ ======
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans which were underwritten under a reduced loan documentation program will
have been ____%. No more than ____% of such reduced loan documentation Mortgage
Loans will be secured by Mortgaged Properties located in California.
<TABLE>
OCCUPANCY TYPES
<CAPTION>
NUMBER AGGREGATE PERCENTAGE OF
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------- -------------- ----------------- -------------
<S> <C> <C> <C>
Primary Residence................................... $ %
Second/Vacation.....................................
Non Owner-occupied.................................. .
---- ---------------- ----
Total..................................... $ . %
=== ============ ======
</TABLE>
<PAGE>
-26-
[Specific information with respect to the Mortgage Loans will be
available to purchasers of the Certificates on or before the time of issuance of
such Certificates. If not included in the Prospectus Supplement, such
information will be included in the Form 8-K.]
UNDERWRITING
[Underwriting standards as appropriate. The following underwriting
standards are those presently applicable for Southern Pacific and ICII for
adjustable rate mortgage loans].
[The Mortgage Loans were originated, directly or through mortgage
brokers and/or correspondents, by either [Southern Pacific Thrift & Loan
("SPTL")] or [ICII] (together, the "Sellers"), with each originating
[approximately 50%] of the Mortgage Loans.]
The Mortgage Loans were underwritten in accordance with the respective
underwriting criteria of [SPTL] or [ICII] which are substantially identical
except to the extent described herein. The Sellers recently began underwriting
mortgage loans in accordance with such standards in July 1993.
The Sellers' underwriting standards are primarily intended to assess
creditworthiness of the mortgagor, the value of the mortgaged property and the
adequacy of such property as collateral for the mortgage loan. While their
primary consideration in underwriting a mortgage loan is the mortgagor's
employment stability and debt service-to-income ratio, the value of the
mortgaged property relative to the amount of the mortgage loan is another
critical factor. In addition, they also consider, among other things, a
mortgagor's credit history and repayment ability, as well as the type and use of
the mortgaged property. All of the Mortgage Loans are [adjustable] rate loans,
and generally bear higher rates of interest than mortgage loans that are
originated in accordance with FNMA and FHLMC standards. The mortgage loans are
likely to have rates of delinquencies and foreclosures that may be substantially
higher than those experienced by portfolios of mortgage loans underwritten in a
more traditional manner.
As a result of the Sellers' underwriting criteria, changes in the
values of Mortgaged Properties may have a greater effect on the foreclosure and
loss experience on the Mortgage Loans than on mortgage loans which are
originated in a more traditional manner. No assurance can be given that the
values of the Mortgaged Properties have remained or will remain at the levels in
effect on the dates of origination of the related Mortgage Loans. Approximately
_____% of the Mortgage Loans are secured by Mortgaged Properties located in the
state of [California.]
The Sellers' current single family mortgage loan volume is generally
originated based on loan packages submitted through a mortgage broker network.
Such loan packages, which generally contain relevant credit, property and
underwriting information on the loan request, are
<PAGE>
-27-
compiled by the applicable mortgage broker and submitted to [SPTL] or [ICII,]
respectively, for approval and funding. The mortgage broker receives as
compensation all or a portion of the loan origination fee charged to the
mortgagor at the time the loan is made. As part of their quality control
procedures, the Sellers accept loan packages submitted by mortgage brokers that
have been preapproved by [SPTL] or [ICII], respectively. In connection with the
approval process, they require that the mortgage broker be licensed by the
appropriate state agencies, as required, and review a package of documents
consisting of, among other things, an application, resumes of key personnel,
narrative of the company, organizational documentation and audited financial
statements. At least annually, each of the Sellers reviews each of its
respective mortgage broker's performance for poor processing, misrepresentation,
fraud or delinquency, and substandard mortgage brokers are terminated.
Each prospective mortgagor completes a mortgage loan application that
includes information with respect to the applicant's liabilities, income, credit
history, employment history and personal information. At least two credit
reports on each applicant from national credit reporting companies are required.
The report typically contains information relating to such matters as credit
history with local and national merchants and lenders, installments debt
payments and any record of defaults, bankruptcies, repossessions, or judgments.
Mortgaged properties are appraised by licensed appraisers. Neither of the
Sellers approves all appraisers but instead they sometimes rely on the mortgage
brokers to evaluate the appraiser's experience and ability; however, in the
event that the mortgage brokers use appraisers who have not been approved by
[SPTL] or [ICII], respectively, each appraisal is reviewed by an approved
appraiser of [SPTL] or [ICII], respectively, for conformance with their
guidelines. The Sellers require the appraiser to address neighborhood
conditions, site and zoning status and condition and valuation of improvements.
Following each appraisal, the appraiser prepares a report which includes a
reproduction cost analysis (when appropriate) based on the current cost of
constructing a similar home and a market value analysis based on recent sales of
comparable homes in the area. All appraisals are required to conform to the
Uniform Standards of Professional Appraisal Practice and FIRREA and must be on
forms acceptable to FNMA and FHLMC. Every appraisal is reviewed by a
non-affiliated appraisal review firm, or by another review appraiser acceptable
to [SPTL] or [ICII], respectively, before the mortgage loan is made.
The Mortgage Loans were underwritten pursuant to "Full Documentation,"
"Alternative Documentation," and "No-Income Qualifier" residential loan
programs. Under each of the programs, [SPTL or ICII] reviews the loan
applicant's source of income, calculates the amount of income from sources
indicated on the loan application or similar documentation, reviews the credit
history of the applicant, calculates the debt service-to-income ratio to
determine the applicant's ability to repay the loan, reviews the type and use of
the property being financed and reviews the property for compliance with their
standards. In determining the ability of the applicant to repay the Mortgage
Loan, the Sellers use a rate (the "Qualifying Rate") which generally is a rate
equal to the Mortgage Rate at origination plus the amount of the Periodic
<PAGE>
-28-
Cap. [SPTL's] and [ICII's] underwriting standards are applied in a standardized
procedure which complies with applicable federal and state laws and regulations.
[SPTL's] and [ICII's] criteria require them to verify the income of
each borrower and the source of funds (if any) required to be deposited by the
applicant into escrow under its various programs as follows under the Full
Documentation program. Borrowers are generally required to submit written
verification of income signed by the employer covering the most recent two-year
period, together with a current paystub and two years' W-2 forms. Under the
Alternative Documentation program, borrowers are generally required to submit
two years' W-2 Forms and the most recent paystub showing year-to-date earnings.
A telephone confirmation of employment is made regardless of the origination
program. Under the No-Income Qualifier program, borrowers may be qualified based
upon monthly income as stated on the mortgage loan application, without
verification; however, self-employed borrowers are required to submit a business
license, one year's bank statements and a current profit and loss statement. A
business credit report, if applicable, is obtained. Verification of the source
of funds (if any) required to be deposited by the applicant into escrow is
generally required under all documentation programs in the form of a standard
verification of deposit or two months' consecutive bank statements or other
acceptable documentation. Twelve months' mortgage payment or rental history must
be verified by lender or landlord if appropriate compensating factors exist. The
Sellers may waive certain documentation requirements for individual borrowers.
All documentation must be no more than 90 days old at underwriting and no more
than 120 days.
SPTL uses the following categories and characteristics as guidelines to
grade the potential likelihood that the mortgagor will satisfy the repayment
conditions of a mortgage loan:
"A-" RISK. Under the "A-" risk category, the prospective mortgagor must
have generally repaid installments or revolving debt according to its terms with
a maximum of two 30-day late payments and one 60-day late payment on such
obligations within the last 12 months. A maximum of two 30-day payments, and no
60-day late payments, within the last 12 months is acceptable on an existing
mortgage loan on the subject property. The existing mortgage obligation must be
current. Minor derogatory items are allowed as to non-mortgage credit. No
collection accounts or charge-offs over $200 within the last two years are
allowed. No bankruptcy or notice of default filings by the borrower may have
occurred during the preceding two years. A maximum Loan-to-Value Ratio of up to
80% (or 70% or 65% for mortgage loans originated under the No-Income Qualifier
program, depending whether the borrower is self-employed) is permitted for a
mortgage loan on a single family owner-occupied property. A maximum
Loan-to-Value Ratio of 70% (or 65% or 60% for mortgage loans originated under
the No-Income Qualifier program, depending on whether the borrower is
self-employed) is permitted for a mortgage loan on a non-owner occupied
property. A maximum Loan-to-Value Ratio of 75% (or 65% or 60% for mortgage loans
originated under the No-Income Qualifier program, depending on whether the
borrower is self-employed) is permitted for a mortgage loan on a
<PAGE>
-29-
second home. The debt service-to-income ratio generally is 45% or less based on
the Qualifying Rate. The maximum loan amount is $400,000 for single-family
owner-occupied properties, regardless of the documentation program. Exceptions
to the maximum loan amount for single-family, owner occupied properties are
considered by SPTL on a limited basis. The maximum loan amount is $300,000 (or
$250,000 for mortgage loans originated under the No-Income Qualifier program)
for mortgage loans on a single-family non-owner-occupied properties or second
homes.
"B" RISK. Under the "B" risk category, the prospective mortgagor must
have generally repaid installment or revolving debt according to its terms, with
a maximum of four 30-day late payments or two 60-day late payments or one 90-day
late payment on such obligations within the last twelve months. A maximum of
four 30-day late payments, and no 60-day late payments, within the last 12
months is acceptable on an existing mortgage loan on the subject property. The
existing mortgage obligation must be current. As to non-mortgage credit, some
prior defaults may have occurred. Isolated and insignificant collections and/or
charge-offs within the last 18 months, totalling less than $500 are acceptable.
All such items less than four years old must be repaid by the time of the
funding of the loan. No bankruptcy or notice of default filings by the borrower
may have occurred during the preceding two years. A maximum Loan-to-Value Ratio
of 75% (or 65% or 60% for mortgage loans originated under the No-Income
Qualifier program, depending on whether the borrower is selfemployed) is
permitted for a mortgage loan on a single family, owner-occupied property. A
maximum Loan-to-Value Ratio of 70% (or 60% or 55% for mortgage loans originated
under the No-Income Qualifier Program, depending on whether the borrower is
self-employed) is permitted for a mortgage loan on a non-owner occupied property
or a second home. The debt service-to-income ratio generally is 50% or less
based on the Qualifying Rate. The maximum loan amount is $400,000 for
single-family owner-occupied properties, regardless of the documentation
program. The maximum loan amount is $250,000 or $200,000 for mortgage loans
originated under the No-Income Qualifier program for mortgage loans on a
non-owner-occupied property or a second home.
"B-" RISK. Under the "B-" category, the prospective mortgagor must have
generally repaid installment or revolving debt according to its terms, with a
maximum of four 30-day late payments or two 60-day late payments or one 90-day
late payment on such obligations within the last twelve months. A maximum of
three 30-day late payments and one 60-day late payment within the last twelve
months is acceptable on an existing mortgage loan on the subject property. The
existing mortgage obligation must be current. As to non-mortgage credit, some
prior defaults may have occurred. Isolated and insignificant collections and/or
charge-offs totalling less than $500 are acceptable. All such items less than
four years old must be paid prior to the funding of the loan. No bankruptcy or
notice of default filings by the borrower must have occurred during the
preceding two years A maximum Loan-to-Value Ratio of 70% (or 65% or 60% for
mortgage loans originated under the No-Income Qualifier program, depending on
whether the borrower is self-employed) is permitted for a mortgage loan on a
single family,
<PAGE>
-30-
owner-occupied property. A maximum Loan-to-Value Ratio of 65% (or 60% or 55% for
mortgage loans originated under the No-Income Qualifier program, depending on
whether the borrower is self-employed) is permitted on a mortgage loan on a
non-owner-occupied property or a second home. The debt service-to-income ratio
is generally 55% or less based on the Qualifying Rate. The maximum loan amount
is $250,000 (or $200,000 for mortgage loans originated under the No-Income
Qualifier program) for mortgage loans on a non-owner-occupied property or a
second home.
"C" RISK. Under the "C" risk category, the prospective mortgagor may
have experienced significant credit problems in the past. A maximum of six
30-day late payments or three 60-day late payments, or two 90-day late payments,
on installment or revolving debt within the last twelve months is acceptable. A
maximum of five 30-day late payments or two 60-day late payments, or one 90-day
payment, within the last twelve months is acceptable on an existing mortgage
loan on the subject property The existing mortgage obligation must be current.
As to non-mortgage credit, significant prior defaults may have occurred. There
may be open collections or charge-offs not to exceed $1,500. All such items must
be paid in full prior to the funding of the loan. No bankruptcy or notice of
default filings by the borrower may have occurred during the preceding two
years. A maximum Loan-to-Value Ratio of 70% (or 60% or 55% for mortgage loans
originated under the No-Income Qualifier program, depending on whether the
borrower is self-employed) is permitted for a mortgage loan on a single-family
owner-occupied property. A maximum Loan-to-Value Ratio of 65% (or 55% or 50% for
mortgage loans originated under the No-Income Qualifier program, depending on
whether the borrower is self-employed) is permitted for a mortgage loan on a
non-owner-occupied property or a second home. The debt service-to-income ratio
is generally 55% or less based on the Qualifying Rate. The maximum loan amount
is $375,000 (or $350,000 or $300,000 for mortgage loans originated under the
No-Income Qualifier program, depending on whether the borrower is self-employed)
for mortgage loans on single-family owner-occupied properties. The maximum loan
amount is $200,000 (or $200,000 or $175,000 for mortgage loans originated under
the No-Income Qualifier program, depending on whether the borrower is
self-employed) for mortgage loans on non-owner-occupied properties or second
homes.
"CX" RISK. Under the "CX" risk category, the prospective mortgagor may
have experienced significant credit problems in the past. As to non-mortgage
credit, significant prior defaults may have occurred. The borrower is sporadic
in some or all areas with a disregard for timely payment or credit standing.
With respect to an existing mortgage loan on the subject property, no payment
can be more than 90 days past due. Such existing mortgage loan is not required
to be current at the time the application is submitted. The borrower may have
open collections, charge-offs and judgments, all of which must be paid prior to
the funding of the loan, but such items must be paid through the loan proceeds.
No bankruptcy or notice of default filings by the borrower may have occurred
during the preceding six months. A maximum Loan-to-Value Ratio of 65% or 60% or
55% for mortgage loans originated under the No-Income
<PAGE>
-31-
Qualifier program, depending on whether the borrower is self-employed) is
permitted for a mortgage loan on a single-family owner-occupied property. No
mortgage loans on non-owner-occupied property or second homes are made in the
"CX" risk category. The maximum loan amount is $200,000 under the Full
Documentation program or $175,000 (or $200,000 in the case of borrowers who are
self-employed) under the No-Income Qualifier program. The debt service-to-income
ratio generally is 60% or less based on the Qualifying Rate.
ICII uses the following categories and characteristics as guidelines to
grade the potential likelihood that the mortgagor will satisfy the repayment
conditions of a mortgage loan:
"A-" RISK. Under the "A-" risk category, the prospective mortgagor must
have generally repaid installment debt according to its terms with a maximum of
four 30 day late payments on such obligations within the last 24 months. The
prospective mortgagor must also have generally repaid revolving debt according
to its terms with a maximum of six 30 day late payments on such obligations
within the last 24 months. A maximum of three 30 day late payments, and no 60
day late payments, within the last 12 months is acceptable on an existing
mortgage loan on the subject property. The existing mortgage obligation must be
current. A maximum Loan to Value Ratio of up to 80% (or 75% or 70% for the
limited documentation and No Income Qualification programs respectively) for
mortgage loans originated under the full documentation program is permitted for
all owner-occupied properties. The maximum Loan-to-Value Ratio for second homes
and non-owner occupied residences is 75% under the full documentation program.
Generally loans are not made on second homes or non-owner occupied properties
under the limited documentation or No Income Qualification programs. The debt
service-to-income ratio generally is 50% or less for owner occupied properties
and 45% or less for non-owner occupied properties and second homes. The maximum
loan amount for single family owner occupied properties, regardless of the
documentation program is $450,000. The maximum loan amount is $300,000 for
mortgage loans on fully documented single family non-owner occupied properties
or second homes and $250,000 for non-owner occupied properties.
"B" RISK. Under the "B" risk category, the prospective mortgagor must
have generally repaid installment debt according to its terms with a maximum of
five 30 day or two 60 day late payments on such obligations within the last 24
months. The prospective mortgagor must also have generally repaid revolving debt
according to its terms with a maximum of six 30 day or two 60 day late payments
on such obligations within the last 24 months. A maximum of four 30 day late
payments, or one 60 day late payment, within the last 12 months is acceptable on
an existing mortgage loan on the subject property. The existing mortgage
obligation must be current. A maximum Loan-to-Value Ratio of up to 80% (or 70%
or 65% for the limited documentation and No Income Qualification programs
respectively) for mortgage loans originated under the full documentation program
is permitted for all owner-occupied properties. The maximum Loan-to-Value Ratio
for second homes and non-owner occupied residences is
<PAGE>
-32-
75% under the full documentation program. Generally loans are not made on second
homes or non owner occupied properties under the limited documentation or No
Income Qualification programs. The debt service-to-income ratio generally is 55%
or less for owner occupied properties and 45% or less for non-owner occupied
properties and second homes. The maximum loan amount for all owner occupied
properties, regardless of the documentation program is $450,000. The maximum
loan amount is $300,000 for fully documented mortgage loans on second homes and
$250,000 for non-owner occupied properties.
"C" RISK. Under the "C" risk category, the prospective mortgagor must
have generally repaid installment debt according to its terms with a maximum of
six 30 day or three 60 day late payments or one 90 day late payment on such
obligations within the last 24 months. The prospective mortgagor must also have
generally repaid debt according to its terms with a maximum of six 60 day late
payments or two 90 day late payments on such obligations within the last 24
months. A maximum of six 30 day late payments, or one 60 day late payment,
within the last 12 months is acceptable on an existing mortgage loan on the
subject property. The existing mortgage obligation must be current. A maximum
Loan-to-Value Ratio of up to 75% (or 65% or 60% for the limited documentation
and No Income Qualification programs respectively) for mortgage loans originated
under the full documentation program is permitted for single family
owner-occupied properties. The maximum Loan to Value Ratio for second homes and
non-owner occupied residences is 70% under the full documentation program.
Generally loans are not made on second homes or non-owner occupied properties
under the limited documentation or No Income Qualification programs. The debt
service-to-income ratio generally is 60% or less for owner occupied properties
and 45% or less for second homes. The maximum loan amount for single family
owner occupied properties, regardless of the documentation program is $450,000.
The maximum loan amount is $300,000 for fully documented mortgage loans on
single family non-owner occupied properties or second homes.
"CX" RISK. Under the "CX" risk category, the prospective mortgagor may
have experienced significant credit problems in the past. As to non-mortgage
credit, significant prior defaults may have occurred. The borrower is sporadic
in some or all areas with a disregard for timely payment or credit standing.
With respect to an existing mortgage loan on the subject property, a maximum of
one 90 day late payment in the last 24 months is acceptable. Such existing
mortgage loan is not required to be current at the time the application is
submitted. The borrower may have open collections, chargeoffs and judgments, all
of which must be paid prior to the funding of the loan, but such items must be
paid through the loan proceeds. A maximum Loan-to-Value Ratio of 65% for
mortgage loans originated under the full documentation is permitted for a
mortgage loan on a single-family owner occupied property. No mortgage loans on
non-owner occupied property or second homes are made in the "CX" risk category.
The maximum loan amount is $250,000 under the Full Documentation program. The
debt service-to-income ratio generally is 65% or less.
<PAGE>
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EXCEPTIONS. As described above, [SPTL] and [ICII] use the foregoing
categories and characteristics as underwriting guidelines only. On a
case-by-case basis, they may determine that the prospective mortgagor warrants a
risk category upgrade, a debt service-to-income ratio exception, a pricing
exception, a loan-to-value exception or an exception from certain requirements
of a particular risk category (collectively called an "upgrade" or an
"exception"). An upgrade or exception may generally be allowed if the
application reflects certain compensating factors, among others: low
loan-to-value ratio; pride of ownership; a maximum of one 30-day late payment on
all mortgage loans during the last 12 months; stable employment, and the length
of residence in the subject property. Accordingly, they may classify in a more
favorable risk category certain mortgage loans that, in the absence of such
compensating factors, would satisfy only the criteria of a less favorable risk
category.]
See "The Mortgage Pools--Underwriting Standards" in the Prospectus.
[The following table sets forth the number and dollar value of the
SPTL's mortgage loan production using the standards described herein for the
periods indicated.
MORTGAGE LOAN PRODUCTION
___ MONTHS ENDED ____ MONTHS ENDED
________ __. 19__ _________ __, 19__
----------------- ------------------
Total Loans
Number of Loans..........
Volume of Loans.......... $ $
Average Loan Balance $ $
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Delinquency and foreclosure experience as appropriate. The following disclosure
is presently applicable for Southern Pacific and ICII:
Southern Pacific and ICII commenced receiving applications for mortgage
loans under three of its four lending programs only in 1993. A majority of the
Mortgage Loans were underwritten pursuant to these three programs. Accordingly,
neither Southern Pacific nor ICII has sufficient historical delinquency,
bankruptcy, foreclosure or default experience that may be referred to for
purposes of estimating the future delinquency and loss experience of mortgage
loans similar to the Mortgage Loans included in the Trust Fund.
<PAGE>
-34-
The following disclosure is an example of such disclosure once such delinquency
and foreclosure experience is acquired:
LOAN DELINQUENCY, FORBEARANCE, FORECLOSURE, BANKRUPTCY AND REO PROPERTY STATUS
Based solely upon information provided by the Master Servicer,
the following tables summarize, for the respective dates indicated, the
delinquency, forbearance, foreclosure, bankruptcy and REO property status with
respect to all mortgage loans originated or acquired by the Seller that were
originated as of the date three months prior to the date indicated. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis. The monthly payments under all of such mortgage loans are due
on the first day of each calendar month.
<TABLE>
<CAPTION>
AT MARCH 31, 1995 AT MARCH 31, 1994
----------------- -----------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Loans Outstanding.......................... $ $
DELINQUENCY(1)
Period of Delinquency:
31-60 Days.............................. $ $
61-90 Days..............................
91-120 Days or More.....................
Total Delinquencies........................... $ $
=== = ===== == =
Delinquencies as a Percentage of
Total Loans Outstanding.......................... % % % %
</TABLE>
<PAGE>
-35-
<TABLE>
AT MARCH 31, 1995 AT MARCH 31, 1994
----------------- -----------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FORBEARANCE LOANS(2)................. $ $
Forbearance Loans as a
Percentage of Total Loans
Outstanding.......................... % %
FORECLOSURES PENDING(3).............. $ $
Foreclosures Pending as a
Percentage of Total Loans
Outstanding.......................... % % % %
BANKRUPTCIES PENDING(4).............. $ $
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding.......................... % % % %
Total Delinquencies plus
Forbearance Loans, Foreclosures
Pending and Bankruptcies
Pending.............................. $ $
Total Delinquencies plus
Forbearance Loans, Foreclosures
Pending and Bankruptcies Pending
as a Percentage of Total Loans
Outstanding.......................... % % % %
REO PROPERTIES(5).................... $ $
REO Properties as a
Percentage of Total Loans
Outstanding.......................... % % % %
</TABLE>
(1) The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were subject to
forbearance agreements with the related mortgagors at the respective
dates indicated ("Forbearance Loans"), (b) delinquent mortgage loans
that were in foreclosure at the respective dates indicated
("Foreclosure Loans"), (c) delinquent mortgage loans as to which the
related mortgagor was in bankruptcy proceedings at the respective dates
indicated ("Bankruptcy Loans") and (d) REO properties that have been
purchased upon foreclosure of the related mortgage loans. All
Forbearance Loans, Foreclosure Loans, Bankruptcy Loans and REO
properties have been segregated into the sections of the table entitled
"Forbearance Loans," "Foreclosures Pending," "Bankruptcies Pending" and
"REO Properties," respectively, and are not included in the "31-60
Days," "61-90 Days," "91-120 Days or More" and "Total Delinquencies"
sections of the table. See the section of the table entitled "Total
Delinquencies plus Forbearance Loans, Foreclosures Pending and
Bankruptcies Pending"
<PAGE>
-36-
for total delinquency balances, percentages and numbers which include
Forbearance Loans, Foreclosure Loans and Bankruptcy Loans, and see the
section of the table entitled "REO Properties" for delinquency
balances, percentages and numbers related to REO properties that have
been purchased upon foreclosure of the related mortgage loans.
(2) For each of the Forbearance Loans, the Master Servicer has entered into
a written forbearance agreement with the related mortgagor, based on
the Master Servicer's determination that the mortgagor is temporarily
unable to make the scheduled monthly payment on such mortgage loan.
Prior to entering into each forbearance agreement, the Master Servicer
confirmed the continued employment status of the mortgagor and found
the payment history of such mortgagor to be satisfactory. There can be
no assurance that the mortgagor will be able to make the payments as
required by the forbearance agreement, and any failure to make such
payments will constitute a delinquency. None of the Mortgage Loans
included in the Mortgage Pool are Forbearance Loans.
(3) Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It
is generally the Master Servicer's policy, with respect to mortgage
loans originated by the Seller, to commence foreclosure proceedings
when a mortgage loan is between 31 and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
(5) REO properties that have been purchased upon foreclosure of the related
mortgage loans, including mortgaged properties that were purchased by
the Seller after the respective dates indicated.
The above data on delinquency, forbearance, foreclosure, bankruptcy and
REO property status are calculated on the basis of the total mortgage loans
originated or acquired by the Seller's that were originated as of the date three
months prior to the date indicated. However, the total amount of mortgage loans
on which the above data are based includes many mortgage loans which were not,
as of the respective dates indicated, outstanding long enough to give rise to
some of the indicated periods of delinquency or to foreclosure or bankruptcy
proceedings or REO property status. In the absence of such mortgage loans, the
delinquency, forbearance, foreclosure, bankruptcy and REO property percentages
indicated above would be higher and could be substantially higher. Because the
Mortgage Pool will consist of a fixed group of Mortgage Loans, the actual
delinquency, forbearance, foreclosure, bankruptcy and REO property percentages
with respect to the Mortgage Pool may therefore be expected to be higher, and
may be substantially higher, than the percentages indicated above.
The information set forth in the preceding paragraphs concerning SPTL
and ICII has been provided by SPTL and ICII.
<PAGE>
-37-
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Senior
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be added
to the Mortgage Pool prior to the issuance of the Senior Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Senior Certificates are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the
Senior Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Senior Certificates. In the event Mortgage Loans are
removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans"
in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 19__-_ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-_
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates"). Only the Senior Certificates
(the "Offered Certificates") are offered hereby.
The Senior Certificates (together with the Subordinate Certificates and
Residual Certificates) will evidence the entire beneficial ownership interest in
the Trust Fund. The Trust
<PAGE>
-38-
Fund will consist of (i) the Mortgage Loans; (ii) such assets as from time to
time are identified as deposited in respect of the Mortgage Loans in the
Certificate Account (as described in the Prospectus) and belonging to the Trust
Fund; (iii) property acquired by foreclosure of such Mortgage Loans or deed in
lieu of foreclosure; and (iv) any applicable insurance policies and all proceeds
thereof.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates--Distributions" in
the Prospectus.
INTEREST DISTRIBUTIONS
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date, interest distributions in an amount equal to the aggregate of
all Accrued Certificate Interest with respect to such Certificates for such
Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates (the "Senior Interest Distribution Amount"). On each
Distribution Date, the Available Distribution Amount for such Distribution Date
will be applied to make interest distributions on the various classes of Senior
Certificates pro rata in accordance with the respective amounts of Accrued
Certificate Interest then payable with respect thereto, provided, however, that,
in the case of the Tiered Certificates, following the Credit Support Depletion
Date, such distributions shall be made in the priority set forth in the _____th
paragraph under the heading "Principal Distributions". With respect to any
Distribution Date, the Accrued Certificate Interest in respect of each class of
Senior Certificates will be equal to one month's interest accrued at the
applicable Pass-Through Rate on the Certificate Principal Balance (or, in the
case of the Fixed Strip Certificates and Variable Strip Certificates, the
Notional Amount) of the Certificates of such class immediately prior to such
Distribution Date; in each case less
<PAGE>
-39-
interest shortfalls, if any, for such Distribution Date not covered by the
Subordination provided by the Subordinate Certificates, including in each case
(i) any Prepayment Interest Shortfall (as defined below), (ii) the interest
portions (in each case, adjusted to the related Net Mortgage Rate) of Realized
Losses (including Special Hazard Losses, in excess of the Special Hazard Amount
("Excess Special Hazard Losses"), Fraud Losses in excess of the Fraud Loss
Amount ("Excess Fraud Losses"), Bankruptcy Losses in excess of the Bankruptcy
Amount ("Excess Bankruptcy Losses") and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks ("Extraordinary Losses")) not covered by the Subordination (which, with
respect to the pro rata portion thereof allocated to the Tiered Certificates, to
the extent such losses are Default Losses, will be allocated first to the Class
A-6 Certificates and second to the Class A-1 Certificates and Class A-5
Certificates), (iii) the interest portion of any Advances that were made with
respect to delinquencies that were ultimately determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses and (iv) any other interest shortfalls not covered by Subordination,
including interest shortfalls relating to the Relief Act (as defined in the
Prospectus) or similar legislating on or regulations, all allocated as described
below. Accrued Certificate Interest is calculated on the basis of a 360-day year
consisting of twelve 30-day months.
The Prepayment Interest Shortfall for any Distribution Date is equal to
the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage
Loans during the preceding calendar month, to the extent not offset by the
Master Servicer's application of servicing compensation as described below. Such
shortfalls will result because interest on prepayments in full is collected only
to the date of prepayment, and because no interest is collected on prepayments
in part, as such prepayments are applied to reduce the outstanding principal
balance of the related Mortgage Loan as of the Due Date in the month of
prepayment.
If the Available Distribution Amount for any Distribution Date is less
than the Accrued Certificate Interest payable on the Senior Certificates for
such Distribution Date, the shortfall will be allocated among the holders of all
classes of Senior Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such class, and
will be distributable to holders of the Certificates of such classes, on
subsequent Distribution Dates, to the extent of available funds, provided,
however, that following the Credit Support Depletion Date, distributions will be
made to the Tiered Certificates in the priority set forth in the _____ paragraph
under the heading "--Principal Distributions on the Senior Certificates" and
therefore the pro rata portion of such shortfall that is allocated to the Tiered
Certificates will be allocated first to the Class A-6 Certificates. Any such
amounts so carried forward will not bear interest.
<PAGE>
-40-
The Pass-Through Rates on each class of Senior Certificates, other than
the Variable Strip Certificates, are fixed and are set forth on the cover
hereof. The Pass-Through Rate on the Variable Strip Certificates for each
Distribution Date will equal the weighted average, as determined as of the Due
Date in the month preceding the month in which such Distribution Date occurs, of
the Pool Strip Rates on each of the Mortgage Loans in the Mortgage Pool. The
"Pool Strip Rate" on any Mortgage Loan is equal to the Net Mortgage Rate thereon
minus ___%. The "Net Mortgage Rate" on each Mortgage Loan is equal to the
Mortgage Rate thereon minus the Servicing Fee Rate. The initial Pass-Through
Rate on the Variable Strip Certificates is approximately _____% per annum.
As described herein, the Accrued Certificate Interest allocable to each
class of Senior Certificates is based on the Certificate Principal Balance
thereof or, in the case of the Variable Strip Certificates, on the Notional
Amount. The Certificate Principal Balance of any Senior Certificate as of any
date of determination is equal to the initial Certificate Principal Balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any reductions
in the Certificate Principal Balance thereof deemed to have occurred in
connection with allocations of Realized Losses (as defined herein) in the manner
described herein. The Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates as of any date of determination is equal to the
aggregate Certificate Principal Balance of the Certificates of all classes
(including the Subordinate Certificates) as of such date. Reference to the
Notional Amount of the Fixed Strip Certificates or Variable Strip Certificates
is solely for convenience in certain calculations and does not represent the
right to receive any distributions allocable to principal.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the Available Distribution
Amount remaining after the Senior Interest Distribution Amount is distributed to
such holders, a distribution allocable to principal in the following amount (the
"Senior Principal Distribution Amount"):
(i) the product of (A) the then applicable Senior Percentage and (B)
the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on
the Mortgage Loans due on the related Due Date, whether or not received
on or prior to the related Determination Date, less the principal
portion of Debt Service Reductions (as defined below) which together
with other Bankruptcy Losses are in excess of the Bankruptcy Amount;
<PAGE>
-41-
(2) the principal portion of all proceeds of the repurchase of
any Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) as required by the Pooling and
Servicing Agreement during the preceding calendar month;
(3) the principal portion of all other unscheduled collections
received during the preceding calendar month (other than full and
partial principal prepayments made by the respective mortgagors and any
amounts received in connection with a Final Disposition (as defined
below) of a Mortgage Loan described in clause (ii) below), to the
extent applied as recoveries of principal;
(ii) in connection with the Final Disposition of a Mortgage Loan (x) that
occurred in the preceding calendar month and (y) that did not result in any
Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, an amount equal to the lesser of (a) the then-applicable
Senior Percentage of the Stated Principal Balance of such Mortgage Loan
immediately prior to such Distribution Date and (b) the then-applicable Senior
Accelerated Distribution Percentage (as defined below) of the related
collections, including Insurance Proceeds and Liquidation Proceeds, to the
extent applied as recoveries of principal;
(iii) the then applicable Senior Accelerated Distribution Percentage of the
aggregate of all full and partial principal prepayments made by the respective
mortgagors during the preceding calendar month; and
(iv) any amounts allocable to principal for any previous Distribution Date
(calculated pursuant to clauses (i) through (iii) above) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses which were allocated to the Subordinate Certificates.
A "Final Disposition" of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries
which the Master Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to the extent that
the principal portion of any Realized Loss thereon has been allocated to one or
more classes of Certificates on or before the date of determination.
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The Senior Percentage, which initially will equal approximately _____%
and will in no event exceed 100%, will be adjusted for each Distribution Date to
be the percentage equal to the aggregate Certificate Principal Balance of the
Senior Certificates immediately prior to such Distribution Date divided by the
aggregate Stated Principal Balance of all of the Mortgage Loans immediately
prior to such Distribution Date. The Subordinate Percentage as of any date of
determination is equal to 100% minus the Senior Percentage as of such date.
The Senior Accelerated Distribution Percentage for any Distribution
Date occurring prior to the Distribution Date in _________, _________ will be
100%. The Senior Accelerated Distribution Percentage for any Distribution Date
occurring after _____, ____ will be as follows: for any Distribution Date during
in the sixth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 70% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date during the seventh year after the Delivery Date,
the Senior Percentage for such Distribution Date plus 60% of the Subordinate
Percentage for such Distribution Date; for any Distribution Date during the
eighth year after the Delivery Date, the Senior Percentage for such Distribution
Date plus 40% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date during the ninth year after the Delivery Date, the Senior
Percentage for such Distribution Date plus 20% of the Subordinate Percentage for
such Distribution Date; and for any Distribution Date thereafter, the Senior
Percentage for such Distribution Date (unless on any such Distribution Date the
Senior Percentage exceeds the initial Senior Percentage, in which case the
Senior Accelerated Distribution Percentage for such Distribution Date will once
again equal 100%). Any scheduled reduction to the Senior Prepayment Percentage
described above shall not be made as of any Distribution Date unless either
(a)(i) the outstanding principal balance of the Mortgage Loans delinquent __
days or more (including foreclosure and REO Property) averaged over the last ___
months, as a percentage of the aggregate outstanding principal balance of all
Mortgage Loans averaged over the last ___ months, does not exceed _% and (ii)
Realized Losses on the Mortgage Loans to date for such Distribution Date, if
occurring during the sixth, seventh, eighth, ninth or tenth year (or any year
thereafter) after __________ 19__, are less than __%, __%, __%, __% or __%,
respectively, of the initial Certificate Principal Balance of the Subordinate
Certificates or (b)(i) the aggregate outstanding principal balance of the
Mortgage Loans delinquent __ days or more (including foreclosure and REO
Property) averaged over the last ___ months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last ___
months, does not exceed __% and (ii) Realized Losses on the Mortgage Loans to
date are less than __% of the initial Certificate Principal Balance of the
Subordinate Certificates.]
Distributions of the Senior Principal Distribution Amount to the Senior
Certificates (other than the Fixed Strip Certificates and Variable Strip
Certificates) will be made (to the extent of the Available Distribution Amount
remaining after distributions of the Senior Interest Distribution Amount as
described under "--Interest Distributions"), as follows:
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(a) prior to the occurrence of the Credit Support Depletion Date (as
defined below):
(i) first, concurrently, to the Class A-1 and Class A-6
Certificates, with the amount to be distributed allocated as between
such classes on a pro rata basis in proportion to the respective
Certificate Principal Balances thereof, until the Certificate Principal
Balance of each such class is reduced to zero;
(ii) second, to the Class A-2 Certificates until the
Certificate Principal Balance thereof is reduced to zero;
(iii) third, to the Class A-3 Certificates until the
Certificate Principal Balance thereof is reduced to zero; and
(iv) fourth, to the Class A-4 Certificates until the
Certificate Principal Balance thereof is reduced to zero.
(b) On each Distribution Date occurring on or after the Credit Support
Depletion Date, all priorities relating to sequential distributions in respect
of principal among the various classes of Senior Certificates will be
disregarded, and the Senior Principal Distribution Amount will be distributed
to all classes of Senior Certificates pro rata in accordance with their
respective outstanding Certificate Principal Balances; provided, that the
aggregate amount distributable to the Class A-1, Class A-5 and Class A-6
Certificates (the "Tiered Certificates") in respect of Accrued Certificate
Interest thereon and in respect of their pro rata portion of the Senior
Principal Distribution Amount shall be distributed among the Tiered
Certificates in the amounts and priority as follows: first, to the Class A-1
Certificates and the Class A-5 Certificates, up to an amount equal to, and pro
rata based on, the Accrued Certificate Interest thereon; second to the Class
A-1 Certificates, up to an amount equal to the Optimal Principal Distribution
Amount thereof (as defined below), in reduction of the Certificate Principal
Balances thereof; third to the Class A-6 Certificates, up to an amount equal to
the Accrued Certificate Interest thereon; and fourth to the Class A-6
Certificates the remainder of the amount so distributable among the Tiered
Certificates.
(c) The "Optimal Principal Distribution Amount" is equal to the product
of (i) the then applicable Optimal Percentage and (ii) the Senior Principal
Distribution Amount. The "Optimal Percentage" is equal to a fraction, expressed
as a percentage, the numerator of which is the aggregate Certificate Principal
Balance of the Class A-1 Certificates immediately prior to the applicable
Distribution Date and the denominator of which is the aggregate Certificate
Principal Balance of all of the Senior Certificates immediately prior to such
Distribution Date.
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The "Credit Support Depletion Date" is the first Distribution Date on
which the Senior Percentage equals 100%.
The Master Servicer may elect to treat Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including prepayments by the
Mortgagors) received in any calendar month as included in the Available
Distribution Amount and the Senior Principal Distribution Amount for the
Distribution Date in the month of receipt, but is not obligated to do so. If the
Master Servicer so elects, such amounts will be deemed to have been received
(and any related Realized Loss shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the
Subordinate Certificates will cover Realized Losses on the Mortgage Loans that
are Defaulted Mortgage Losses, Fraud Losses, Bankruptcy Losses (each as defined
in the Prospectus) and Special Hazard Losses (as defined herein) to the extent
described herein. Any such Realized Losses which do not constitute Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses will be allocated first to the Subordinate Certificates
until the Certificate Principal Balance of the Subordinate Certificates has been
reduced to zero, and then except as provided below on a pro rata basis to the
Senior Certificates based on their then outstanding Certificate Principal
Balance or the Accrued Certificate Interest thereon, as applicable. Any
allocation of a Realized Loss (other than a Debt Service Reduction) to a Senior
Certificate will be made by reducing the Certificate Principal Balance thereof,
in the case of the principal portion of such Realized Loss, and the Accrued
Certificate Interest thereon, in the case of the interest portion of such
Realized Loss, by the amount so allocated as of the Distribution Date occurring
in the month following the calendar month in which such Realized Loss was
incurred. Allocations of Realized Losses which are Default Losses (as defined
below) to Senior Certificates will be made on a pro rata basis, based on their
then outstanding Certificate Principal Balances, or the Accrued Certificate
Interest thereon, as applicable, between the Tiered Certificates, on the one
hand, and the Class A-2, Class A-3, Class A-4 and Variable Strip Certificates,
on the other. Any such Realized Losses so allocated to the Tiered Certificates
will be allocated first to the Class A-6 Certificates until the Certificate
Principal Balance thereof or the Accrued Certificate Interest thereon, as
appropriate, is reduced to zero and then to the Class A-1 Certificates and Class
A-5 Certificates on a pro rata basis. "Default Losses" are Realized Losses that
are attributable to the mortgagor's failure to make any payment of principal or
interest as required under the Mortgage Note, and do not include Special Hazard
Losses (or any other loss resulting from damage to a Mortgaged Property),
Bankruptcy Losses, Fraud Losses, or other losses of a type not covered by the
Subordination. Allocations of Debt Service Reductions to the Subordinate
Certificates will result from the priority of distributions to the Senior
Certificateholders of the Available Distribution Amount as described under the
captions
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"--Interest Distributions" and "--Principal Distributions on the Senior
Certificates" herein. Any Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses will be allocated on a pro rata
basis between the Senior Certificates and the Subordinate Certificates (any such
Realized Losses so allocated to the Senior Certificates, as well as any Realized
Losses that are not Default Losses which are allocated to the Senior
Certificates, will be allocated without priority among the various classes of
Senior Certificates).
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will generally equal the portion
of the unpaid principal balance remaining, if any, plus interest thereon through
the last day of the month in which such Mortgage Loan was finally liquidated,
after application of all amounts recovered (net of amounts reimbursable to the
Master Servicer for Advances and certain expenses, including attorneys' fees)
towards interest and principal owing on the Mortgage Loan. Such amount of loss
realized and any Special Hazard Losses, Fraud Losses and Bankruptcy Losses are
referred to herein as "Realized Losses." As used herein, "Debt Service
Reductions" means reductions in the amount of monthly payments due to certain
bankruptcy proceedings, but does not include any forgiveness of principal.
In order to maximize the likelihood of distribution in full of the
Senior Interest Distribution Amount and the Senior Principal Distribution
Amount, holders of Senior Certificates will have a prior right, on each
Distribution Date, to the Available Distribution Amount, to the extent necessary
to satisfy the Senior Interest Distribution Amount and the Senior Principal
Distribution Amount. The Senior Principal Distribution Amount is subject to
adjustment on each Distribution Date to reflect the then applicable Senior
Percentage and the Senior Accelerated Distribution Percentage, as described
herein under "--Principal Distributions" on the Senior Certificates, each of
which may be increased (to not more than 100%) in the event of delinquencies or
Realized Losses on the Mortgage Loans. The application of the Senior Accelerated
Distribution Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the amortization of the
Senior Certificates relative to the actual amortization of the Mortgage Loans.
To the extent that the Senior Certificates are amortized faster than the
Mortgage Loans, the percentage interest evidenced by the Senior Certificates in
the Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, as a relative matter, the Subordination afforded by the Subordinate
Certificates. Similarly, holders of Class A-1 Certificates and Class A-5
Certificates will have a prior right, on each Distribution Date occurring on or
after the Credit Support Depletion Date, to that portion of the Available
Distribution Amount allocated to the Tiered Certificates, to the extent
necessary to satisfy the Accrued Certificate Interest on the Class A-1
Certificates and Class A-5 Certificates. Therefore, any shortfalls in the
amounts that would otherwise be distributable to Class A-1 Certificateholders
and Class A-5 Certificateholders, whether resulting from Mortgage Loan
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delinquencies or Realized Losses, will be borne by the holders of the Class A-6
Certificates for so long as the Class A-6 Certificates are outstanding.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
Subordination shall initially be equal to $_________. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$_________ less the sum of (i) any amounts allocated through Subordination in
respect of Special Hazard Losses and (ii) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Pooling and Servicing Agreement. As used in this Prospectus Supplement, "Special
Hazard Losses" has the same meaning set forth in the Prospectus, except that
Special Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated to the
Subordinate Certificates in connection with Fraud Losses (the "Fraud Loss
Amount") through Subordination shall initially be equal to $_________. As of any
date of determination after the Cut-off Date the Fraud Loss Amount shall equal
(i) up to and including the [first] anniversary of the Cut-off Date, an amount
equal to ____% of the aggregate principal balance of all of the Mortgage Loans
as of the Cut-off Date minus the aggregate amounts allocated solely to the
Subordinate Certificates through Subordination with respect to Fraud Losses up
to such date of determination, and (ii) from the [first] through [fifth]
anniversary of the Cut-off Date, an amount equal to (a) the lesser of (1) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (2)
____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (b) the aggregate amounts
allocated solely to the Subordinate Certificates through Subordination with
respect to Fraud Losses since the most recent anniversary of the Cut-off Date up
to such date of determination. On or after the fifth anniversary of the Cut-off
Date, the Fraud Loss Amount shall be zero and Fraud Losses shall not be
allocated through Subordination.
The aggregate amount of Realized Losses which may be allocated solely
to the Subordinate Certificates in connection with Bankruptcy Losses (the
"Bankruptcy Amount") Subordination will initially be equal to $_________. As of
any day of determination on or after the [first] anniversary of the Cut-off
Date, the Bankruptcy Amount will equal the excess, if any, of (i) the lesser of
(a) the Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the Cut-off Date (the "Relevant Anniversary") and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing Agreement, which
amount as calculated will provide for a reduction in the Bankruptcy Amount, over
(ii) the aggregate amount of Bankruptcy Losses allocated solely to the
Subordinate Certificates through Subordination since the Relevant Anniversary.
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Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (i) the related Mortgage Loan is not in default with regard to payments
due thereunder or (ii) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer, in either
case without giving effect to the particular Bankruptcy Loss.
The Special Hazard Amount, Fraud Amount and Bankruptcy Amount are
subject to further reduction with the consent of the Rating Agencies.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to
make advances (each an "Advance") for the benefit of Certificateholders (out of
its own funds or funds held in the Certificate Account (as described in the
Prospectus) for future distribution or withdrawal) with respect to any payments
of principal and interest (net of the related Servicing Fees) which were due on
the Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
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, Liquidation Proceeds or amounts otherwise payable to the
holders of the Subordinate Certificates as described below. The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
Debt Service Reductions or the application of the Relief Act or similar
legislation or regulations. Any failure by the Master Servicer to make an
Advance as required under the Pooling and Servicing Agreement will constitute an
Event of Default thereunder, in which case the Trustee, as successor Master
Servicer, will be obligated to make any such Advance, in accordance with the
terms of the Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on the Subordinate Certificates; provided,
however, that only the Subordinate Percentage of such Advances are reimbursable
from amounts otherwise
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distributable on the Subordinate Certificates in the event that such Advances
were made with respect to delinquencies which ultimately were determined to be
Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses and the Senior Percentage of such Advances which may not be
so reimbursed from amounts otherwise distributable on the Subordinate
Certificates may be reimbursed to the Master Servicer out of any funds in the
related Certificate Account prior to distributions on the Senior Certificates.
In the latter event, the aggregate amount otherwise distributable on the Senior
Certificates will be reduced by an amount equal to the Senior Percentage of such
Advances. In addition, if the Certificate Principal Balance of the Subordinate
Certificates has been reduced to zero, any Advances previously made which are
deemed by the Master Servicer to be nonrecoverable from related late
collections, Insurance Proceeds and Liquidation Proceeds may be reimbursed to
the Master Servicer out of any funds in the related Certificate Account prior to
distributions on the Senior Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The effective yield to the holders of the Offered Certificates will be
lower than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price because monthly distributions will not be made to such holders
until the 25th day (or if such day is not a business day, then on the next
succeeding business day) of the month following the month in which interest
accrues on the Mortgage Loans (without any additional distributions of interest
or earnings thereon in respect of such delay). See "Yield Considerations" in the
Prospectus.
The yields to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans in
the Trust Fund. The rate of principal payments on such Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
and timing of principal prepayments thereon by the mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations and warranties. The timing of changes in the rate of
prepayments, liquidations and purchases of the Mortgage Loans may, and the
timing of Realized Losses will, significantly affect the yield to an investor,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the timing of principal payments on the Offered
Certificates.
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The Mortgage Loans generally may be prepaid by the Mortgagors at any
time without payment of any prepayment fee or penalty. The Mortgage Loans
generally contain due-on-sale clauses. As described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" herein, during
certain periods all or a disproportionately large percentage of principal
prepayments on the Mortgage Loans will be allocated among the Senior
Certificates. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to holders of the Offered Certificates of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rose significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayments on the Mortgage
Loans would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Maturity and Prepayment
Considerations" in the Prospectus.
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through
Rates on the Senior Certificates (other than the Variable Strip Certificates)
are fixed, such rates will not change in response to changes in market interest
rates. The Pass-Through Rate on the Variable Strip Certificates is based on the
weighted average of the Pool Strip Rates on the Mortgage Loans, and such rates
will also not change in response to changes in market interest rates.
Accordingly, if market interest rates or market yields for securities similar to
the Senior Certificates were to rise, the market value of the Senior
Certificates may decline. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase. Conversely,
if prevailing mortgage rates rose significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease.
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The amount of interest otherwise payable to holders of the Senior
Certificates will be reduced by any interest shortfalls not covered by
Subordination, including Prepayment Interest Shortfalls. Such shortfalls will
not be offset by a reduction in the Servicing Fees payable to the Master
Servicer or otherwise. See "Yield Considerations" in the Prospectus and
"Description of the Certificates--Interest Distributions" herein for a
discussion of the effect that principal prepayments on the Mortgage Loans may
have on the yield to maturity of the Senior Certificates and certain possible
shortfalls in the collection of interest.
The timing of changes in the rate of prepayments, liquidations and
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. Because all or a
disproportionate percentage of principal prepayments will be allocated to the
Senior Certificates during not less than the first nine years after the Delivery
Date, the rate of prepayments on the Mortgage Loans during this period may
significantly affect the yield to maturity of the Senior Certificates.
In addition, the yield to maturity of the Senior Certificates will
depend on the price paid by the holders of the Senior Certificates and the
related Pass-Through Rate. The extent to which the yield to maturity of a Senior
Certificate may vary from the anticipated yield thereon will depend upon the
degree to which it is purchased at a discount or premium and the degree to which
the timing of payments thereon is sensitive to prepayments.
Because principal distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes of Senior Certificates
having a later priority of payment bear a greater risk of losses than holders of
classes of Senior Certificates having earlier priorities for distribution of
principal. In addition, the Class A-6 Certificates bear a greater risk of losses
than the other Tiered Certificates because Default Losses on the Mortgage Loans
not covered by the Subordination which are allocated to the Tiered Certificates
are allocated first to the Class A-6 Certificates prior to allocation to the
Class A-1 and Class A-5 Certificates to the extent described herein. For
additional considerations relating to the yield on the Certificates, see "Yield
Considerations" and "Maturity and Prepayment Considerations" in the Prospectus.
The assumed final Distribution Date with respect to each class of
Senior Certificates is _____ __, 20__. The assumed final Distribution Date is
the Distribution Date immediately following the latest scheduled maturity date
of any Mortgage Loan in the Mortgage Pool.
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security until a dollar amount in payment
of principal equal to the original principal balance of such security (less
losses) is distributed to the investor. The weighted average life of the Senior
Certificates will be influenced by among other things, the rate at which
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principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "___% SPA" assumes prepayment
rates equal to ___% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The table assumes, among other things, that: (i) as of the date of
issuance of the Senior Certificates, the aggregate principal balance of the
Mortgage Loans is approximately $____________ and each Mortgage Loan has a
Mortgage Rate of _____% per annum, an original term of ___ months, a remaining
term to maturity of ___ months and a related Servicing Fee calculated at ___%
per annum, (ii) the scheduled monthly payment for each Mortgage Loan has been
based on its outstanding balance, Mortgage Rate and remaining term to maturity,
such that the Mortgage Loan will amortize in amounts sufficient for repayment
thereof over its remaining term to maturity, (iii) none of the Sellers, the
Master Servicer or the Company will repurchase any Mortgage Loan, as described
under "The Mortgage Loan Pools--Representations by Sellers" and "Description of
the Certificates--Assignment of the Trust Fund Assets" in the Prospectus, and
the Master Servicer will not exercise its option to purchase the Mortgage Loans
and thereby cause a termination of the Trust Fund, (iv) there are no
delinquencies or Realized Losses on the Mortgage Loans, and scheduled monthly
payments on the Mortgage Loans will be timely received together with
prepayments, if any, at the respective constant percentages of SPA set forth in
the table, (v) there is no Prepayment Interest Shortfall or any other interest
shortfall in any month, (vi) payments on the Mortgage Loans earn no reinvestment
return; (vii) there are no additional ongoing Trust Fund expenses payable out of
the Trust Fund; and (viii) the Certificates will be purchased on _____________
__, 199_.
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The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the classes of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of each class of Offered Certificates
(other than the Fixed Strip Certificates and Variable Strip Certificates), and
sets forth the percentages of the initial Certificate Principal Balance of each
such class of Offered Certificates that would be outstanding after each of the
dates shown at various percentages of SPA.
<PAGE>
-53-
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
Class A-1 Class A-2 Class A-3
------------------------------------------------------------------------------------------
DISTRIBUTION DATE % % % % % % % % % % % % % % %
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life in Years (**)....
</TABLE>
- ----------
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
<PAGE>
-54-
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
Class A-4 Class A-6
------------------------------------ ------------------------------
DISTRIBUTION DATE % % % % % % % % % %
------------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Avg. Life in Years (**)
</TABLE>
- ----------
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(TABLE CONTINUED FROM PREVIOUS PAGE.)
<PAGE>
-55-
FIXED STRIP CERTIFICATES AND VARIABLE STRIP CERTIFICATES YIELD CONSIDERATIONS
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Fixed Strip Certificates and Variable Strip Certificates to
various rates of prepayment on the Mortgage Loans by projecting the monthly
aggregate payments of interest on the Fixed Strip Certificates and Variable
Strip Certificates and the corresponding pre-tax yields on a corporate bond
equivalent basis, based on distributions being made with respect to the Mortgage
Loans that are assumed to be included in the Trust Fund, as described in the
assumptions stated in clauses (i) through (viii) of the third paragraph
preceding the table entitled "Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA" under the heading "Certain
Yield and Prepayment Considerations--General" herein, including the assumptions
regarding the characteristics and performance of the Mortgage Loans which differ
from the actual characteristics and performance thereof and assuming the
aggregate purchase prices set forth below and assuming further that the
Pass-Through Rate and Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates are as set forth herein. Any differences between
such assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Certificates may result in yields being different from those
shown in such tables. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
PRE-TAX YIELD TO MATURITY ON THE FIXED
STRIP CERTIFICATES AND THE VARIABLE STRIP CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF SPA
Assumed FIXED STRIP CERTIFICATES
Purchase ------------------------------
Price* % % % % %
- ------ ---- ---- ---- ----------
*Expressed as a percentage of the Initial Notional Amount
<PAGE>
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Assumed VARIABLE STRIP CERTIFICATES
Purchase ----------------------------------
Price* % % % % %
- ------ ---- ---- ---- ---- ----
*Expressed as a percentage of the Initial Notional Amount
The pre-tax yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Fixed Strip Certificates and Variable
Strip Certificates, would cause the discounted present value of such assumed
streams of cash flows to equal the assumed purchase prices listed as percentages
of the initial Notional Amounts in the table for the Fixed Strip Certificates
and Variable Strip Certificates, respectively. Yields shown are corporate bond
equivalent and are based on the assumed prices given in the tables. The prices
shown do not include accrued interest but an amount of accrued interest
consistent with the assumptions was computed and was used to arrive at these
yields. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that cash flows are
reinvested at the discount rate or internal rate of return. Thus these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Fixed Strip Certificates or Variable Strip Certificates. Consequently these
yields do not purport to reflect the return on any investment in the Fixed Strip
Certificates or Variable Strip Certificates when such reinvestment rates are
considered.
The preceding tables are based on a set of assumptions that vary from
other information provided herein. The differences between such assumptions and
the actual characteristics of the Mortgage Loans and of the Certificates may
result in actual yields being different from those shown in such tables. For
example, the Pass-Through Rate on the Variable Strip Certificates, which is
assumed to be fixed throughout the life of the Certificates, will actually be
likely to change from one period to the next, and the rate assumed may be
different from the actual initial Pass-Through Rate on the Variable Strip
Certificates. Such discrepancies between assumed and actual characteristics
underscore the hypothetical nature of the tables, which are provided to give a
general sense of the sensitivity of yields in varying prepayment scenarios.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will prepay at a constant
rate until maturity or that all of the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yields on the Fixed Strip
Certificates and Variable Strip Certificates are likely to differ from those
shown in such
<PAGE>
-57-
table, even if all of the Mortgage Loans prepay at the indicated percentages of
SPA over any given time period or over the entire life of the Certificates. No
representation is made as to the actual rate of principal payment on the
Mortgage Loans for any period or over the life of the Senior Certificates or as
to the yield on the Senior Certificates. In addition, the various remaining
terms to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is ___ months. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued, and the Mortgage Loans serviced and
administered, pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _____________________, as trustee (the "Trustee").
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Senior Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Senior Certificates will be transferable and exchangeable at the corporate
trust office of the Trustee, which will serve as Certificate Registrar and will
be responsible for making distributions on the Senior Certificates and
forwarding monthly reports with respect thereto to the holders of such
Certificates. In addition to the circumstances described in the Prospectus, the
Company may terminate the Trustee for cause under certain circumstances. The
fees payable to the Trustee will be payable directly from the Certificate
Account. The Company will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to the President, Southern
Pacific Secured Assets Corp., One Center Pointe Drive, Suite 500, Lake Oswego,
Oregon 97035. See "Description of the Certificates," "Servicing of Mortgage
Loans" and "The Pooling Agreement" in the Prospectus.
THE MASTER SERVICER
[Name of Master Servicer] [Imperial Credit Industries, Inc. ("ICII"),
an affiliate of the Company], will act as master servicer (in such capacity, the
"Master Servicer") for the Certificates pursuant to the Pooling and Servicing
Agreement.
<PAGE>
-58-
[Further disclosure as appropriate. The following disclosure is for
Imperial Credit Industries only, but will be similar to the disclosure if the
Master Servicer is a different entity.]
The Master Servicer, a [California corporation], is a publicly traded
mortgage banking company that originates or acquires conventional one- to
four-family residential mortgage loans nationwide. The Master Servicer primarily
originates or acquires mortgage loans from approved mortgage brokers through
either its wholesale, correspondent or conduit divisions. The Master Servicer is
a HUD approved lender, as well as an approved seller/servicer for FNMA and
FHLMC. The Master Servicer maintains loan origination offices in [list of
states].
The Master Servicer also engages in mortgage loan servicing which
includes the processing and administration of mortgage loan payments in return
for a servicing fee. At ______ __, 199__ the Master Servicer serviced
approximately ______ one- to four-family residential mortgage loans with an
outstanding principal balance of approximately $____ billion.
[SPTL is a wholly-owned subsidiary of ICII.]
At ________ __, 199__, the Master Servicer had approximately ___
employees and ___ wholesale and retail branches, [a correspondent and conduit
division called ICII Funding Corporation and the Portfolio Lending Division.
ICII's executive offices are located at 20371 Irvine Avenue, Suite 200, Santa
Ana Heights, California 92707, and its telephone number is (714) 556-0122.]
The following table sets forth certain information regarding the
principal balance of oneto four-family residential mortgage loans included in
the Master Servicer's servicing portfolio. The Master Servicer's servicing
portfolio includes mortgage loans held for sale and mortgage loans held for
investment (including mortgage loans held for SPTL) which were originated or
acquired by the Master Servicer's mortgage banking operations.
<PAGE>
-59-
<TABLE>
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- --------
<CAPTION>
1990 1991 1992 1993 1994
------ ------ ------ ------ -----
(DOLLARS IN MILLIONS, EXCEPT AVERAGE LOAN SIZE)
<S> <C> <C> <C> <C> <C>
Beginning servicing portfolio(1)......... $ $ $ $ $
Add:
Loans originated or acquired....
Bulk purchase of servicing......
Deduct:
Sale of servicing rights........
Loans sold, servicing released..
Run-off(2)......................
Ending servicing portfolio(1)............ $ $ $ $ $
========== ========== ========== ========== =
Number of loans serviced.................
Average loan size........................ $ $ $ $ $
</TABLE>
- ----------
(1) Includes mortgage loans held for investment originated or acquired as
part of the Servicer's mortgage banking operations which totalled $____
million, $____ million, $____ million, $____ million and $_____ million
at ________ __, 1990, 1991, 1992, 1993, and June 30, 1994,
respectively.
(2) Includes amortization, prepayments and foreclosures.
The information set forth in this section concerning the Master
Servicer has been provided by the Master Servicer.
[There can be no assurance that the delinquency and foreclosure
experience set forth above will be representative of the results that may be
experienced with respect to the Mortgage Loans.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Servicing Fees in respect of each
Mortgage Loan will accrue at _____% per annum (the "Servicing Fee Rate") on the
outstanding principal balance of each Mortgage Loan. The Master Servicer is
obligated to pay certain ongoing expenses associated
<PAGE>
-60-
with the Trust Fund and incurred by the Master Servicer in connection with its
responsibilities under the Pooling and Servicing Agreement. See "Servicing of
Mortgage Loans--Servicing and Other Compensation and Payment of Expenses;
Spread" in the Prospectus for information regarding other possible compensation
to the Master Servicer and for information regarding expenses payable by the
Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of Certificates evidencing a specified percentage of all undivided
interests in the Trust Fund may be taken by holders of Certificates entitled in
the aggregate to such percentage of the Voting Rights. __% of all Voting Rights
will be allocated among all holders of the Certificates (other than the Fixed
Strip Certificates, Variable Strip Certificates and Residual Certificates) in
proportion to their then outstanding Certificate Principal Balances, and _%, _%
and _% of all Voting Rights will be allocated among holders of the Fixed Strip
Certificates, Variable Strip Certificates and Class R Certificates,
respectively, in proportion to the percentage interests evidenced by their
respective Certificates. The Pooling and Servicing Agreement will be subject to
amendment without the consent of the holders of the Residual Certificates in
certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling
and Servicing Agreement will terminate in respect of the Senior Certificates are
described in "The Pooling Agreement--Termination; Retirement of Certificates" in
the Prospectus. The Master Servicer or the Company will have the option on any
Distribution Date on which the aggregate principal balance of the Mortgage Loans
is less than ___% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date either (i) to purchase all remaining Mortgage Loans and other
assets in the Trust Fund, thereby effecting early retirement of the Senior
Certificates or (ii) purchase in whole, but not in part, the Certificates other
than the Residual Certificates. Any such purchase of Mortgage Loans and other
assets of the Trust Fund shall be made at a price equal to the sum of (a) 100%
of the unpaid principal balance of each Mortgage Loan (or, the fair market value
of the related underlying Mortgaged Properties with respect to defaulted
Mortgage Loans as to which title to such underlying Mortgaged Properties has
been acquired if such fair market value is less than such unpaid principal
balance) (net of any unreimbursed Advance attributable to principal) as of the
Distribution Date on which the purchase proceeds are to be distributed plus (b)
accrued interest thereon at the Net Mortgage Rate to, but not including, the
first day of the month of repurchase.
Upon presentation and surrender of the Senior Certificates in
connection with the termination of the Trust Fund or a purchase of Certificates
under the circumstances described above, the holders of the Senior Certificates
will receive an amount equal to the Certificate
<PAGE>
-61-
Principal Balance of such class plus one month's interest thereon (or with
respect to the Variable Strip Certificates, one month's interest on the Notional
Amount) at the applicable Pass-Through Rate plus any previously unpaid Accrued
Certificate Interest subject to the priority in "Description of the
Certificates--Interest Distributions" and "--Principal Distributions on the
Senior Certificates".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, delivered its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the Trust Fund will qualify as a REMIC under
Sections 860A through 860G (the "REMIC Provisions") of the Internal Revenue Code
of 1986 (the "Code"). For federal income tax purposes, (i) the Residual
Certificates are the sole Class of "residual interests" in the Trust Fund; and
(ii) the Certificates constitute the "regular interests" in the Trust Fund. See
"Certain Federal Income Tax Consequences--REMICs" in the Prospectus.
For federal income tax reporting purposes, the _________ Certificates
will not and the __________ Certificates will be treated as having been issued
with original issue discount. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount, market discount and
premium, if any, for federal income tax purposes will be based on the assumption
that subsequent to the date of any determination the Mortgage Loans will prepay
at a rate equal to % SPA. No representation is made that the Mortgage Loans will
prepay at that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount," "--Market Discount" and "--Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Offered Certificates should be aware that the OID Regulations
and Section 1272(a)(6) of the Code do not adequately address certain issues
relevant to, or are not applicable to, securities such as the Offered
Certificates. In addition, there is considerable uncertainty concerning the
application of the OID Regulations to REMIC Regular Certificates that provide
for payments based on an adjustable rate such as the Offered Certificates.
Because of the uncertainties concerning the application of Section 1272(a)(6) of
the Code to such Certificates and because the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are limited
in their application in ways that could preclude their application to such
Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Certificates should be treated as having been issued with
original issue discount or that one or more of such Class of Certificates should
be governed by the rules applicable to debt instruments having contingent
payments or by some
<PAGE>
-62-
other method not yet set forth in regulations. Prospective purchasers of the
Offered Certificates are advised to consult their tax advisors concerning the
tax treatment of such Certificates.
It appears that a reasonable method of reporting original issue
discount with respect to the Offered Certificates generally would be to report
all income with respect to such Certificates as original issue discount for each
period, computing such original issue discount (i) by assuming that the value of
the Index will remain constant for purposes of determining the original yield to
maturity of, and projecting future distributions on, each class of such
Certificates, thereby treating such Certificates as fixed rate instruments to
which the original issue discount computation rules described herein can be
applied, and (ii) by accounting for any positive or negative variation in the
actual value of the Index in any period from its assumed value as a current
adjustment to original issue discount with respect to such period.
If the rules of the OID Regulations were applied literally to the
Offered Certificates, it appears that such rules would (i) require that the
weighted average interest rate paid on such Certificates be modified and treated
as if it were an adjustable rate based on the Index (plus or minus a fixed
number of basis points) rather than a fixed rate prior to the first adjustment
date of each Mortgage Loan, with the adjustable rate being such that the fair
market value of such Certificates would not be affected by the substitution of
the adjustable rate for the fixed rate, (ii) accrue original discount, if any,
on the Certificates as so modified by assuming that the Index will remain
constant for purposes of determining the constant yield to maturity of, and the
cash flow projections on, the Certificates as so modified and (iii) make a
positive (or negative) adjustment to interest income in any period in which the
actual interest paid on such Certificates (including interest paid at a fixed
rate prior to the first adjustment date of each Mortgage Loan) were greater or
less than the interest assumed to be paid thereon (including the interest
assumed to be paid thereon at an adjustable rate prior to the first adjustment
date).
The OID Regulations appear to permit in some circumstances the holder
of a debt instrument to recognize original issue discount under a method that
differs from that of the issuer. Accordingly, it is possible that holders of the
Offered Certificates may be able to select a method for recognizing original
issue discount that differs from that used in preparing reports to holders of
Offered Certificates and the IRS. Prospective purchasers of Offered Certificates
issued with original issue discount are advised to consult their tax advisors
concerning the tax treatment of such Certificates in this regard.
Under Section 166 of the Code, both corporate holders of the Offered
Certificates and noncorporate holders of the Offered Certificates that acquire
such Certificates in connection with a trade or business should be allowed to
deduct, as ordinary losses, any losses sustained during a taxable year in which
their Certificates become wholly or partially worthless as the result of one or
more realized losses or distribution shortfalls on the Mortgage Loans that are
allocable to such Offered Certificates. However, it appears that a noncorporate
holder that does not
<PAGE>
-63-
acquire an Offered Certificate in connection with its trade or business will not
be entitled to deduct a loss under Section 166 of the Code until such holder's
Certificate becomes demonstrably wholly worthless and that the loss will be
characterized as a short-term capital loss.
Each holder of an Offered Certificate will be required to accrue
original issue discount with respect to such Certificate without giving effect
to any reductions in distributions attributable to a default or delinquency on
the Mortgage Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of income required
to be reported for tax purposes in any period by the holder of such a
Certificate could exceed the amount of economic income actually realized by the
holder in such period. Although the holder of such a Certificate eventually will
recognize a loss or a reduction in income attributable to previously accrued and
included income that as the result of a realized loss ultimately will not be
realized, the law is unclear with respect to the timing and character of such
loss or reduction in income.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. See "Certain Federal Income Tax
Consequences-REMICs-Characterization of Investments in REMIC Certificates" in
the Prospectus.
To the extent permitted by then applicable law, any "prohibited
transactions tax," "contributions tax," tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on the
Trust Fund will be borne by the Master Servicer or Trustee in either case out of
its own funds, provided that the Master Servicer or the Trustee, as the case may
be, has sufficient assets to do so, and provided further that such tax arises
out of a breach of the Master Servicer's or the Trustee's obligations, as the
case may be, under the Pooling and Servicing Agreement and in respect of
compliance with then applicable law. Any such tax not borne by the Master
Servicer or the Trustee will be payable out of the Trust Fund which may reduce
the amounts otherwise payable to holders of the Offered Certificates. See
"Certain Federal Income Tax Considerations-REMICs-Prohibited Transactions Tax
and Other Taxes" in the Prospectus.
<PAGE>
-64-
For further information regarding the federal income tax consequences
of investing in the Subordinate Certificates, see "Certain Federal Income Tax
Consequences--REMICs" in the
Prospectus.
[SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The Residual Certificates will be subject to tax rules that differ
significantly from those that would apply if the Residual Certificates were
treated for federal income tax purposes as direct ownership interest in the
Mortgage Loans or as debt instruments issued by the Trust Fund. For further
information regarding the federal income tax consequences of investing in the
Residual Certificates, see "Certain Federal Income Tax
Consequences--REMICS--Taxation of
Owners of REMIC Residual Certificates" in the Prospectus.
The IRS has issued regulations under the provisions of the Code related
to REMICs (the "REMIC Regulations") that significantly affect holders of the
Residual Certificates. The REMIC Regulations impose restrictions on the transfer
or acquisition of certain residual interests, including the Residual
Certificates. The REMIC Regulations include restrictions that apply to: (i)
thrift institutions holding residual interests lacking "significant value" and
(ii) the transfer of "noneconomic" residual interests to United States persons.
Pursuant to the Pooling and Servicing Agreement, the Residual Certificates may
not be transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Residual Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an amount equal to
all or virtually all of the taxable income includible by holders of the Residual
Certificates. See "Certain Federal Income Tax Consequences--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
taxable income on such residual interests, if "a significant purpose of the
transfer was to enable the transferor to impede the assessment or collection of
tax." Based on the REMIC Regulations, the Residual Certificates will constitute
"noneconomic" residual interests during some or all of their term for purposes
of the REMIC Regulations and, accordingly, unless no significant purpose of a
transfer is to enable the transferor to impede the assessment or collection of
tax, transfers of the Residual Certificates may be disregarded and
<PAGE>
-65-
purported transferors may remain liable for any taxes due with respect to the
income on the Residual Certificates. All transfers of the Residual Certificates
will be subject to certain restrictions under the terms of the Pooling and
Servicing Agreement that are intended to reduce the possibility of any such
transfer being disregarded to the extent that the Residual Certificates
constitute noneconomic residual interests. Such transfers are prohibited under
the Pooling and Servicing Agreement. See "Certain Federal Income Tax
Consequences--Taxation of Owners of REMIC Residual Certificates--Noneconomic
REMIC Residual Certificates" in the Prospectus.
As discussed above and in the Prospectus, the rules for accrual of
original issue discount with respect to the Senior and Subordinate Certificates
are subject to significant complexity and uncertainty. See "Certain Federal
Income Tax Consequences" in the Prospectus. Because original issue discount on
such classes of Certificates will be deducted by the Trust Fund in determining
its taxable income, any changes required by the IRS in the application of those
rules to such Certificates may significantly affect the timing of original issue
discount deductions to the Trust Fund and therefore the amount of the Trust
Fund's taxable income allocable to holders of the Residual Certificates.
The Residual Certificateholders will be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
REMIC that significantly exceeds the amount of cash distributions received by
such Residual Certificateholders from the REMIC with respect to such periods.
Furthermore, the tax on such income will exceed the cash distributions with
respect to such periods. Consequently, Residual Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due as a
result of their ownership of Residual Certificates. In addition, the required
inclusion of this amount of income during the REMIC's earlier accrual periods
and the deferral of corresponding tax losses or deductions until later accrual
periods or until the ultimate sale or disposition of a Residual Certificate (or
possibly later under the "wash sale" rules of Section 1091 of the Code) may
cause the Residual Certificateholders' after-tax rate of return to be zero or
negative even if the Residual Certificateholder's pre-tax rate of return is
positive. That is, on a present value basis, the Residual Certificateholders'
resulting tax liabilities could substantially exceed the sum of any tax benefits
and the amount of any cash distributions on such Residual Certificates over
their life.
An individual, trust or estate that holds (whether directly or
indirectly through certain pass-through entities) a Residual Certificate,
particularly a Residual Certificate, may have significant additional gross
income with respect to, but may be subject to limitations on the deductibility
of, servicing and trustee's fees and other administrative expenses properly
allocable to the REMIC in computing such Certificateholder's regular tax
liability and will not be able to deduct such fees or expenses to any extent in
computing such Certificateholder's alternative minimum tax liability. Such
expenses will be allocated for federal income tax information reporting purposes
entirely to the Residual Certificates. However, it is possible that the IRS
<PAGE>
-66-
may require all or some portion of such fees and expense to be allocable to the
Residual Certificates. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual
Certificates--Possible Pass-Through of Miscellaneous Itemized Deductions" in the
Prospectus.
The Trustee will be designated as the "tax matters person" as defined
in Treasury Regulation Section 301.6231(a)(7)-1T with respect to the Trust Fund,
and in connection therewith will be required to hold not less than a 0.01%
Percentage Interest of the Residual Certificates.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
such Residual Certificates.
For further information regarding the federal income tax consequences
of investing in the Residual Certificates, see "Yield Considerations--Additional
Yield Considerations Applicable Solely to the Residual Certificates" herein and
"Certain Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Residual Certificates" in the
Prospectus.]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated __________, 19__, the Underwriter has agreed to purchase and the
Company has agreed to sell to the Underwriter each class of Senior Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Senior Certificates is subject
to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
Company's Registration Statement shall be in effect, and that no proceedings for
such purpose shall be pending before or threatened by the Securities and
Exchange Commission.
The distribution of the Senior Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Senior Certificates, before deducting expenses payable by
the Company, will be _________% of the aggregate Certificate Principal Balance
of the Senior Certificates plus accrued interest thereon from the Cut-off Date.
The Underwriter may effect such transactions by selling the Senior Certificates
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent. In connection with the sale of the Senior Certificates, the
Underwriter may be deemed to have received
<PAGE>
-67-
compensation from the Company in the form of underwriting compensation. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Senior Certificates may be deemed to be underwriters and any
profit on the resale of the Senior Certificates positioned by them may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Company, against certain civil liabilities under the Securities Act of 1933,
or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Senior
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates - Reports to Certificateholders," which will
include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Senior Certificates will be generally available on an ongoing basis. The limited
nature of such information regarding the Senior Certificates may adversely
affect the liquidity of the Senior Certificates, even if a secondary market for
the Senior Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company by _________________________________, ________ and for the
Underwriter by _______________________________.
RATINGS
It is a condition to the issuance of the Senior Certificates that they
be rated not lower than "___" by _________________ ___________
("_________________") and "___" by
________________________ ("_______").
The ratings of _______ on mortgage pass-through certificates address
the likelihood of the receipt by Certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. _______ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which
<PAGE>
-68-
such prepayments might differ from that originally anticipated. The rating does
not address the possibility that Certificateholders might suffer a lower than
anticipated yield.
_________________ ratings on mortgage pass-through certificates also
address the likelihood of the receipt by Certificateholders of payments required
under the Pooling and Servicing Agreement. _________________ ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under the
Certificates. _________________ rating on the Certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
"Certain Yield and Prepayment Considerations" herein.
The Company has not requested a rating on the Senior Certificates by
any rating agency other than _______ and ________. However, there can be no
assurance as to whether any other rating agency will rate the Senior
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Senior
Certificates by _______ and
- ---------.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. The rating of the Fixed Strip
Certificates or Variable Strip Certificates does not address the possibility
that the holders of such Certificates may fail to fully recover their initial
investment. In the event that the rating initially assigned to the Senior
Certificates is subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to the Senior Certificates.
LEGAL INVESTMENT
The Senior Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in at least the second highest rating category by one
of the Rating Agencies, and, as such, are legal investments for certain entities
to the extent provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Company makes no representations as to the proper characterization
of any class of the Offered Certificates for legal investment or other purposes,
or as to the ability of particular
<PAGE>
-69-
investors to purchase any class of the Offered Certificates under applicable
legal investment restrictions. These uncertainties may adversely affect the
liquidity of any class of Offered Certificates. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their legal advisors in determining whether and to what
extent any class of the Offered Certificates constitutes a legal investment or
is subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
------------------
TABLE OF CONTENTS
PAGE
Prospectus Supplement
Summary.............................................. S-
Description of the Mortgage Pool..................... S-
Description of the Certificates...................... S-
Certain Yield and Prepayment
Considerations.................................. S-
Pooling and Servicing Agreement...................... S-
Certain Federal Income Tax
Consequences.................................... S-
Method of Distribution............................... S-
Legal Opinions....................................... S-
Ratings S-
Legal Investment..................................... S-
Prospectus
Summary of Prospectus................................
Risk Factors.........................................
The Mortgage Pools...................................
Servicing of Mortgage Loans..........................
Description of the Certificates......................
Subordination........................................
Description of Credit Enhancement....................
Purchase Obligations.................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder....................
The Company..........................................
Imperial Credit Industries, Inc......................
The Pooling Agreement................................
Yield Considerations.................................
Maturity and Prepayment
Considerations..................................
Certain Legal Aspects of Mortgage
Loans...........................................
Certain Federal Income Tax
Consequences....................................
State and Other Tax Consequences.....................
ERISA Considerations.................................
Legal Investment Matters.............................
Use of Proceeds......................................
Methods of Distribution..............................
Legal Matters........................................
Financial Information................................
Rating
Index of Principal Definitions.......................
SOUTHERN PACIFIC SECURED
ASSETS CORP.
$________________
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199_-__
$ ___% Class A-1 Certificates
$ ___% Class A-2 Certificates
$ ___% Class A-3 Certificates
$ ___% Class A-4 Certificates
$ ___% Class A-5 Certificates
$ ___% Class A-6 Certificates
$ Variable Rate Class A-7 Certificates
-------------------
PROSPECTUS SUPPLEMENT
-------------------
----------------------------------
_____, 19__
<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 preliminary prospectus supplement 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.
VERSION 2
=========
SUBJECT TO COMPLETION SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED APRIL 30, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ______________, 19__)
$_______________
SOUTHERN PACIFIC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER] [IMPERIAL CREDIT INDUSTRIES, INC.]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
WEIGHTED AVERAGE ADJUSTABLE PASS-THROUGH RATE
The Series 19__-__ Mortgage Pass-Through Certificates (the
"Certificates") will evidence the entire beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of a pool of conventional
adjustable-rate one- to four-family first lien mortgage loans (the "Mortgage
Loans"), exclusive of the Spread (as defined herein), to be deposited by
Southern Pacific Secured Assets Corp. (the "Company") into the Trust Fund for
the benefit of the Certificateholders. Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool."
A limited amount of losses on the Mortgage Loans will initially be
covered by an irrevocable letter of credit (the "Letter of Credit") to be issued
by ________________ (the "Letter of Credit Bank"). The maximum amount available
to be drawn under the Letter of Credit will initially be equal to approximately
_____% of the aggregate principal balance of the Mortgage Loans as of
_______________, 19__ (the "Cut-off Date").
The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein, subject to certain periodic and lifetime
limitations as described more fully herein.
Distributions on the Certificates will be made on the 25th day of each
month or, if such day is not a business day, then on the next succeeding
business day commencing on ____________, 19__ (each, a "Distribution Date"). As
more fully described herein, interest distributions on the Certificates will be
based on the principal balance of the Mortgage Loans and the then applicable
Weighted Average Adjustable Pass-Through Rate, which will equal the weighted
average of the Net Mortgage Rates on the Mortgage Loans for the month preceding
such Distribution Date, as described more fully herein. The "Net Mortgage Rate"
for each Mortgage Loan is generally equal the Mortgage Rate thereon from time to
time, net of the per annum rates applicable to the calculation of the related
servicing fee and Spread. The initial
<PAGE>
Weighted Average Adjustable Pass-Through Rate for the Certificates will be
_______% per annum. The Weighted Average Adjustable Pass-Through Rate on the
Certificates may increase or decrease from month to month. Distributions in
respect of principal of the Certificates will be made as described herein under
"Description of the Certificates--Distributions."
Certain Mortgage Loans provide that, at the option of the related
Mortgagors, the adjustable rate on such Mortgage Loans may be converted to a
fixed rate (the "Convertible Mortgage Loans"), provided that certain conditions
have been satisfied. Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable rate to a fixed rate and prior to the
conversion of any such Mortgage Loan (a "Converting Mortgage Loan"), the Master
Servicer [or the related Subservicer] will be obligated to purchase the
Converting Mortgage Loan at a net price of par plus accrued interest thereon
(the "Conversion Price"). [In the event of a failure by a Subservicer to
purchase a Converting Mortgage Loan, the Master Servicer shall use its best
efforts to purchase any Converted Mortgage Loan (as defined herein) from the
Mortgage Pool at the Conversion Price during the one month period following the
date of conversion to a Converted Mortgage Loan.] In the event that neither the
Master Servicer [nor the related Subservicer] purchases a Converting or
Converted Mortgage Loan, the Mortgage Pool will thereafter include both fixed
rate and adjustable rate Mortgage Loans. See "Certain Yield and Prepayment
Considerations" herein. Except as set forth herein, the Master Servicer's only
obligations with respect to the Certificates are its contractual obligations as
Master Servicer under the terms of the Pooling and Servicing Agreement (as
defined herein).
As described herein, the Trust Fund will be treated as a grantor trust
for federal income tax purposes.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF
THE CLASS A CERTIFICATES.
THE YIELD TO MATURITY ON THE CERTIFICATES WILL DEPEND ON THE RATE OF
PAYMENT OF PRINCIPAL (INCLUDING AS A RESULT OF PREPAYMENTS, DEFAULTS,
LIQUIDATIONS AND PURCHASES OF CONVERTING MORTGAGE LOANS AND CONVERTED MORTGAGE
LOANS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS MAY BE PREPAID IN FULL OR IN
PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO INVESTORS ON THE CERTIFICATES
WILL BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST COLLECTED ON THE
MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR OTHERWISE. SEE "CERTAIN YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN
OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE
MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.
-2-
<PAGE>
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 ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Certificates will be purchased from the Company by the Underwriter
and will be offered by the Underwriter from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the Certificates will
be equal to _________% of the initial aggregate principal balance of the
Certificates, plus accrued interest thereon from ___________ 1, 19__ (the
"Cut-off Date"), net of any expenses payable by the Company.
The Certificates are offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to withdraw, cancel
or modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Certificates will be made on or about ____________, 19__ at
the office of __________________________________, _______________,
_____________________ against payment therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
-3-
<PAGE>
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED _____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL _____________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-4-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities................. Mortgage Pass-Through Certificates,
Weighted Average Adjustable Pass-Through
Rate, Series 19__-__.
Company............................. Southern Pacific Secured Assets Corp. (the
"Company"), an affiliate of Southern
Pacific Funding Corporation, and an
indirect wholly-owned subsidiary of
Imperial Credit Industries, Inc. ("ICII").
See "The Company" in the Prospectus.
Master Servicer..................... [Name of Master Servicer] [Imperial Credit
Industries, Inc. (the "Master Servicer" or
"ICII"), an affiliate of the Company]. See
"Pooling and Servicing Agreement--The
Master Servicer" herein.
Trustee............................. ________________, ______________ (the
"Trustee").
Cut-off Date........................ ___________, 19__ (the "Cut-off Date").
Delivery Date....................... On or about __________, 19__ (the
"Delivery Date").
Denominations....................... The Certificates will be issued in
registered, certificated form, in minimum
denominations of $______ and integral
multiples of $_____ in excess thereof.
The Mortgage Pool................... The Mortgage Pool will consist of a pool
of adjustable rate, fully-amortizing
mortgage loans (the "Mortgage Loans"),
exclusive of the Spread (as defined
herein). The aggregate principal balance
of the Mortgage Loans as of the Cut-off
Date will be approximately
$______________.
The Mortgage Loans are secured by first
liens on one- to four-family residential
real properties (each, a "Mortgaged
Property"). The Mortgage Loans have
individual principal balances at
origination of at least $______ but not
more than $_________ with an average
principal balance at origination of
approximately $_________. The Mortgage
Loans have terms to maturity of __ years
from the date of origination and a
weighted average remaining term to stated
maturity of approximately ____ years and
__ months as of the Cut-off Date. The
Mortgage Rate on each Mortgage
-5-
<PAGE>
Loan will adjust semi-annually on its
Adjustment Date (as defined herein), with
corresponding adjustments in the amount of
monthly payments, to equal the sum
(rounded as described herein) of the Index
described below and a fixed percentage set
forth in the related Mortgage Note (the
"Note Margin"). However, (i) on any
Adjustment Date such Mortgage Rate may not
increase or decrease by more than 1% (the
"Periodic Rate Cap"), (ii) over the life
of such Mortgage Loan, such Mortgage Rate
may not exceed the related maximum
Mortgage Rate (such maximum Mortgage Rate
is equal to the Mortgage Rate at
origination plus a lifetime rate cap (the
"Lifetime Rate Cap")), which maximum
Mortgage Rates will range from ______% to
______% and (iii) with respect to
approximately ____% of the Mortgage Loans,
by aggregate principal balance as of the
Cut-off Date, over the life of such
Mortgage Loan, such Mortgage Rate may not
be lower than the minimum Mortgage Rate.
The difference between the Mortgage Rate
on each Mortgage Loan at origination and
the minimum Mortgage Rate on such Mortgage
Loan will equal the lifetime rate floor
(the "Lifetime Rate Floor"). The minimum
Mortgage Rates will range from _____% to
______% per annum.
Accordingly, changes in the Weighted
Average Adjustable Pass-Through Rate will
not necessarily correspond to changes in
the Index or other prevailing interest
rates. Additionally, the initial Mortgage
Rates in effect on the Mortgage Loans will
likely be lower than the sum of the Index
and related Note Margin that would have
been applicable at origination. Because
the maximum Mortgage Rate on any Mortgage
Loan is determined by adding the Lifetime
Rate Cap to the Mortgage Rate at
origination, the maximum rate on a
Mortgage Loan will likely be less than the
sum of the Index and the Note Margin that
would have been applicable at origination
plus the Lifetime Rate Cap. No Mortgage
Loan provides for payment caps on any
Adjustment Date which would result in
deferred interest or negative
amortization. The Mortgage Loans will bear
interest at Mortgage Rates of at least
_____% per annum but not more than ______%
per annum, as of the Cut-off Date. For a
further description of the Mortgage Loans,
see "Description of the Mortgage Pool"
herein.
The Index........................... As of any Adjustment Date with respect to
any Mortgage Loan, the Index applicable to
the determination of the
-6-
<PAGE>
related Mortgage Rate will be a rate equal
to the monthly weighted average cost of
funds for members of the Federal Home Loan
Bank of San Francisco as most recently
available 45 days prior to the Adjustment
Date (the "Cost of Funds Index" or
"Index").
Conversion of Mortgage Loans........ Approximately _____% of the Mortgage
Loans, by aggregate principal balance as
of the Cut-off Date, are Convertible
Mortgage Loans. Upon notification from a
Mortgagor of such Mortgagor's intent to
convert from an adjustable rate to a fixed
rate and prior to the conversion thereof,
the Master Servicer [or the related
Subservicer] will be obligated to purchase
the Converting Mortgage Loan at a net
price of par plus accrued interest thereon
(the "Conversion Price"). [In the event of
a failure by a Subservicer to purchase a
Converting Mortgage Loan, the Master
Servicer shall use its best efforts to
purchase any Converted Mortgage Loan (as
defined herein) from the Mortgage Pool at
the Conversion Price during the one-month
period following the date of conversion to
a Converted Mortgage Loan.] In the event
that neither the Master Servicer [nor the
related Subservicer] purchases a
Converting or Converted Mortgage Loan, the
Mortgage Pool will thereafter include both
fixed-rate and adjustable-rate Mortgage
Loans. See "Certain Yield and Prepayment
Considerations" herein.
The Certificates.................... The Certificates evidence the entire
beneficial ownership interest in a trust
fund (the "Trust Fund") consisting
primarily of the Mortgage Pool, exclusive
of the Spread. The Certificates will be
issued pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off
Date, among the Company, the Master
Servicer, and the Trustee (the "Pooling
and Servicing Agreement").
Interest Distributions.............. The Weighted Average Adjustable
Pass-Through Rate applicable to the
Certificates in respect of each
Distribution Date will equal the weighted
average of the Net Mortgage Rates on the
Mortgage Loans for the month preceding
such Distribution Date. The initial
Weighted Average Adjustable Pass-Through
Rate will be ______% per annum. The Net
Mortgage Rate on each Mortgage Loan is
generally equal to the Mortgage Rate
thereon minus the rate per annum at which
the related servicing fee accrues (the
"Servicing Fee Rate") and the per annum
rate at which the Spread referred to below
under "Pooling and Servicing
-7-
<PAGE>
Agreement--Servicing and Other
Compensation and Payment of Expenses;
Spread" accrues.
Holders of the Certificates will be
entitled to receive distributions
allocable to interest in proportion to
their respective Percentage Interests (as
defined herein) on each Distribution Date,
to the extent of available funds, in an
aggregate amount equal to one month's
interest, at the then applicable Weighted
Average Adjustable Pass-Through Rate, on
the principal balance of the Certificates
outstanding as of the close of business on
the immediately preceding Distribution
Date, subject to reduction in the event of
any full and partial prepayments or any
interest shortfalls not covered by the
Letter of Credit (as defined herein) as
well as certain losses and delinquencies
on the Mortgage Loans as described herein.
See "Description of the
Certificates--Distributions" herein and in
the Prospectus.
Principal Distributions............. Principal payments (including prepayments)
received on the Mortgage Loans will be
passed through on each Distribution Date
to holders of the Certificates in
proportion to their respective Percentage
Interests. See "Description of the
Certificates--Distributions" herein and in
the Prospectus.
Advances............................ The Master Servicer is required to make
advances ("Advances") to holders of the
Certificates in respect of delinquent
payments of principal and interest on the
Mortgage Loans, subject to the limitations
described herein. See "Description of the
Certificates--Advances" herein and in the
Prospectus.
Credit Enhancement.................. Neither the Certificates nor the Mortgage
Loans are insured or guaranteed by any
governmental agency or instrumentality or
by the Company, the Master Servicer or any
affiliate thereof. However, a limited
amount of losses on the Mortgage Loans
will be covered initially by an
irrevocable letter of credit (the "Letter
of Credit") to be issued by
________________ (the "Letter of Credit
Bank") in favor of the Trustee for the
benefit of the holders of the
Certificates. The maximum amount available
under the Letter of Credit to cover losses
with respect to the Mortgage Loans will
initially equal $_________ (the initial
"Available Amount") which is equal to
approximately _____% of the aggregate
principal balance of the Mortgage
-8-
<PAGE>
Loans as of the Cut-off Date. The
Available Amount is subject to periodic
reduction as described herein.
The Letter of Credit will cover losses on
the Mortgage Loans that constitute
Defaulted Mortgage Losses, Special Hazard
Losses, Fraud Losses and Bankruptcy Losses
(each as defined in the Prospectus), to
the extent described herein. Amounts that
may be drawn under the Letter of Credit to
cover Special Hazard Losses, Fraud Losses
and Bankruptcy Losses are initially
limited to $___________, $___________ and
$______________, respectively. All of the
foregoing amounts are subject to periodic
reduction as described herein. Any draws
under the Letter of Credit, including
draws for Special Hazard Losses, Fraud
Losses and Bankruptcy Losses, will reduce
the Available Amount. The Letter of Credit
will expire on ______________, 19__,
unless earlier terminated or extended in
accordance with its terms or replaced in a
manner as herein described.
In the event losses on Mortgage Loans
occur which are not covered by the Letter
of Credit or any replacement credit
enhancement, such losses will be borne by
the Certificateholders. See "Description
of Credit Enhancement" herein.
Optional Termination................ At its option, on any Distribution Date
when the principal balance of the Mortgage
Loans is less than [___]% of the aggregate
principal balance of the Mortgage Loans as
of the Cut-off Date, the Master Servicer
or the Company may (i) purchase from the
Trust Fund all remaining Mortgage Loans
and other assets thereof and thereby
effect early retirement of the
Certificates or (ii) purchase in whole,
but not in part, the Certificates. See
"Pooling and Servicing
Agreement--Termination" herein and "The
Pooling Agreement--Termination; Retirement
of Certificates" in the Prospectus.
Special Prepayment
Considerations.................... The rate of principal payments on the
Certificates collectively will depend on
the rate and timing of principal payments
(including by reason of prepayments,
defaults and liquidations) on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Certificates are
subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans
may be prepaid at any time. Generally,
when prevailing interest rates are
increasing,
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<PAGE>
prepayment rates on mortgage loans tend to
decrease, resulting in a reduced return of
principal to investors at a time when
reinvestment at such higher prevailing
rates would be desirable. Conversely, when
prevailing interest rates are declining,
prepayment rates on mortgage loans tend to
increase, resulting in a greater return of
principal to investors at a time when
reinvestment at comparable yields may not
be possible.
See "Description of the
Certificates--Distributions" and "Certain
Yield and Prepayment Considerations"
herein, and "Maturity and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations.................... The yield to maturity on the Certificates
will depend on the rate and timing of
principal payments (including by reason of
prepayments, defaults, liquidations [and
purchases of Mortgage Loans converting to
a fixed rate]) on the Mortgage Loans, as
well as other factors such as changes in
the Index, provisions of the Mortgage
Loans limiting changes in the Mortgage
Rates and the purchase price for such
Certificates, as described herein. The
Weighted Average Adjustable Pass-Through
Rate will be reduced to the extent that
prepayments, liquidations and purchases
occur at a faster rate for Mortgage Loans
having higher Net Mortgage Rates than for
Mortgage Loans having lower Net Mortgage
Rates. The yield to investors on the
Certificates will be adversely affected by
any allocation thereto of prepayment
interest shortfalls on the Mortgage Loans,
which are expected to result from the
distribution of interest only to the date
of prepayment (rather than a full month's
interest) in connection with prepayments
in full, and the lack of any distribution
of interest on the amount of any partial
prepayments.
See "Certain Yield and Prepayment
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences...................... No election will be made to treat the
Trust Fund as a real estate mortgage
investment conduit for federal income tax
purposes. _______________________, counsel
to the Depositor, will deliver its opinion
generally to the effect that, assuming
compliance with all provisions of the
Pooling and Servicing Agreement, for
federal income tax
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<PAGE>
purposes the Trust Fund will be classified
as a grantor trust under the Internal
Revenue Code of 1986 (the "Code"), and not
as a partnership or an association taxable
as a corporation.
For further information regarding the
federal income tax consequences of
investing in the Certificates see "Certain
Federal Income Tax Consequences" herein.
Rating.............................. It is a condition of the issuance of the
Certificates that they be rated at least
"___" by __________________. _________
RATING OF THE CERTIFICATES WILL NOT
REPRESENT ANY ASSESSMENT OF THE MASTER
SERVICER'S [NOR THE RELATED SUBSERVICER'S]
ABILITY TO PURCHASE CONVERTING MORTGAGE
LOANS, OR THE REMARKETING AGENT'S ABILITY
TO ARRANGE FOR THE PURCHASE OF CONVERTED
MORTGAGE LOANS. In the event that neither
the Master Servicer [nor the related
Subservicer] purchases a Converting or
Converted Mortgage Loan, investors in the
Certificates might suffer a lower than
anticipated yield. A security rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. A security rating
does not address the frequency of
prepayments of Mortgage Loans, or the
corresponding effect on yield to
investors. See "Certain Yield and
Prepayment Considerations" and "Rating"
herein and "Yield Considerations" in the
Prospectus.
Legal Investment.................... The Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") for so long as they are
rated in at least the second highest
rating category by one or more nationally
recognized statistical rating agencies.
Institutions whose investment activities
are subject to legal investment laws and
regulations, regulatory capital
requirements or review by regulatory
authorities may be subject to restrictions
on investment in the Certificates and
should consult with their legal advisors.
See "Legal Investment" herein and "Legal
Investment Matters" in the Prospectus.
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<PAGE>
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary.]
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of approximately
$___________. The Mortgage Pool will consist of conventional, adjustable-rate,
fully-amortizing Mortgage Loans with terms to maturity of not more than 30 years
from the due date of the first monthly payment. On or before the Delivery Date,
the Company will acquire the Mortgage Loans to be included in Mortgage Pool from
Southern Pacific Funding Corporation ("SPFC"), an affiliate of the Company [,
which in turn acquired them pursuant to various mortgage loan purchase
agreements from [ICII] [Southern Pacific] [_________] (the "Sellers")]. The
Seller[s] will make certain representations and warranties with respect to the
Mortgage Loans and, as more particularly described in the Prospectus, will have
certain repurchase or substitution obligations in connection with a breach of
any such representation and warranty, as well as in connection with an omission
or defect in respect of certain constituent documents required to be delivered
with respect to the Mortgage Loans, in any event if such breach, omission or
defect cannot be cured and it materially and adversely affects the interests of
Certificateholders. Neither the Company nor any other entity or person will have
any responsibility to purchase or replace any Mortgage Loan if a Seller is
obligated but fails to do so. See "Description of the Mortgage
Pool--Representations by Sellers" and "Description of the
Certificates--Assignment of Trust Fund Assets" in the Prospectus and "--The
Seller" below. The Mortgage Loans will have been originated or acquired by the
[Sellers] in accordance with the underwriting criteria described herein. See
"--Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a
date specified in the related Mortgage Note (the "Adjustment Date"). For
approximately ____% of the Mortgage Loans, by aggregate principal balance as of
the Cut-off Date, the first Adjustment Date occurred prior to the Cut-off Date.
On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco") as published by the FHLB of San Francisco (the
"Cost of Funds Index" or "Index") and as most recently available as of
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<PAGE>
the day 45 days prior to such Adjustment Date or, in the event that such Index
is no longer available, an index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable information, and (b) the
related Note Margin, subject to the following limitations. The Mortgage Rate on
the Mortgage Loan on any Adjustment Date may not increase or decrease by more
than the Periodic Rate Cap applicable to such Mortgage Loan and, over the life
of such Mortgage Loan, generally may not exceed the Mortgage Rate at origination
plus the Lifetime Rate Cap, or be less than the Mortgage Rate at origination
minus any Lifetime Rate Floor, applicable to such Mortgage Loan. No Mortgage
Loan provides for payment caps on any Adjustment Date which would result in
deferred interest or negative amortization. Effective with the first payment due
date on a Mortgage Loan after an Adjustment Date therefor, the monthly principal
and interest payment will be adjusted to an amount that will fully amortize the
then outstanding principal balance of such Mortgage Loan at its stated maturity
and pay interest at the adjusted Mortgage Rate. Because the amortization
schedule of each Mortgage Loan will be recalculated semi-annually, any partial
prepayments thereof will not reduce the term to maturity of such Mortgage Loan.
An increase in the Mortgage Rate on a Mortgage Loan will result in a larger
monthly payment and in a larger percentage of such monthly payment being
allocated to interest and a smaller percentage being allocated to principal, and
conversely, a decrease in the Mortgage Rate on the Mortgage Loan will result in
a lower monthly payment and in a larger percentage of each monthly payment being
allocated to principal and a smaller percentage being allocated to interest.
The Cost of Funds Index reflects the monthly weighted average cost of
funds of savings and loan associations and savings banks, the home offices of
which are located in Arizona, California and Nevada, that are member
institutions of the FHLB of San Francisco, as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on or near the last working day of the month
following the month in which the cost of funds was incurred. The Index is
available through a variety of sources, including, without limitation, Telerate,
The Wall Street Journal and USA Today.
Listed below are the historical values of the Cost of Funds Index since
1988. Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of future values of the Index. No assurance can be
given as to the Index value to be applied on any future Adjustment Date.
COST OF FUNDS INDEX
Month 1990 1991 1992 1993 1994 1995
===== ===== ===== ====== ====== ====== =====
January........
February.......
March..........
April..........
May............
June...........
July...........
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<PAGE>
August.........
September......
October........
November.......
December.......
The initial Mortgage Rate in effect on a Mortgage Loan generally will
be lower than the sum of the Index that would have been applicable at
origination and the Note Margin. Absent a decline in the Index subsequent to
origination of a Mortgage Loan, the related Mortgage Rate will generally
increase on the first Adjustment Date following origination of such Mortgage
Loan. The repayment of such Mortgage Loans will be dependent on the ability of
the Mortgagor to make larger Monthly Payments following adjustments of the
Mortgage Rate. Moreover, because the maximum Mortgage Rate on any Mortgage Loan
is determined by adding the Lifetime Rate Cap to the Mortgage Rate at
origination, irrespective of the Index that would have been applicable at
origination, the maximum Mortgage Rate on a Mortgage Loan will generally be less
than the sum of the Index and the Note Margin that would have been applicable at
origination plus the Lifetime Rate Cap. Mortgage Loans that have the same
initial Mortgage Rate may not always bear interest at the same Mortgage Rate
because the Mortgage Loans may have different Adjustment Dates (and the Mortgage
Rate therefore may reflect different Index values), different Note Margins,
different Lifetime Rate Caps and different Lifetime Rate Floors, if any.
Approximately ____% of the Mortgage Loans, by aggregate principal
balance as of the Cut-off Date, are Convertible Mortgage Loans. The first month
in which any of the Mortgage Loans could convert is _______, 19__ and the last
month in which any of the Mortgage Loans may convert is ________ 1, 19__. Upon
conversion, the monthly payments of principal and interest will be adjusted to
provide for full amortization at scheduled maturity. Upon notification from a
Mortgagor of such Mortgagor's intent to convert from an adjustable rate to a
fixed rate and prior to the conversion thereof, the Master Servicer [or the
related Subservicer] will be obligated to purchase the Converting Mortgage Loan
at the Conversion Price. [In the event of a failure by a Subservicer to purchase
a Converting Mortgage Loan, the Master Servicer shall use its best efforts to
purchase such Mortgage Loan following its conversion (a "Converted Mortgage
Loan") at the Conversion Price during the one-month period following the date of
conversion to a Converted Mortgage Loan.]
In the event that the Master Servicer [nor the related Subservicer]
fails to purchase a Converting Mortgage Loan and the Master Servicer does not
purchase a Converted Mortgage Loan, neither the Company nor any of its
affiliates nor any other entity is obligated to purchase or arrange for the
purchase of any Converted Mortgage Loan. Any such Converted Mortgage Loan will
remain in the Mortgage Pool as a fixed-rate Mortgage Loan and will result in the
Mortgage Pool having both fixed rate and adjustable rate Mortgage Loans. See
"Certain Yield and Prepayment Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the Trustee
of such Mortgage Loan and
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<PAGE>
the purchaser will thereafter own such Mortgage Loan free of any further
obligation to the Trustee or the Certificateholders with respect thereto.
The Principal Balance of any Mortgage Loan as of any time of
determination is the principal balance of such Mortgage Loan remaining to be
paid by the Mortgagor at the close of business on the Cut-off Date, after
deduction of all payments due on or before the Cut-off Date whether or not paid,
reduced by all amounts distributed to Certificateholders with respect to such
Mortgage Loan and reported to them as allocable to principal, including the
principal components of any Advances (as described below under "Description of
the Certificates--Advances").
The Mortgage Loans will have approximately the following
characteristics as of the Cut-off Date:
Number of Mortgage Loans.........................
Weighted Average Adjustable Pass-Through Rate(1).
Mortgage Rates:
Weighted Average.............................
Range........................................
Range of Net Mortgage Rates.......................
Note Margins:
Weighted Average.............................
Range........................................
Net Note Margin(2)................................
Maximum Mortgage Rates:
Weighted Average.............................
Range........................................
Maximum Net Mortgage Rates (3):
Weighted Average.............................
Range........................................
Weighted Average Months to Next
Adjustment Date after ____________, 19__ (4)......
(1) The Weighted Average Adjustable Pass-Through Rate is equal to the
weighted average of the Net Mortgage Rates on the Mortgage Loans.
(2) The Net Note Margin is the Note Margin on each Mortgage Loan minus the
Servicing Fee Rate and the rate at which the Spread accrues.
(3) The difference between the maximum Net Mortgage Rate and the Net
Mortgage Rate as of the Cut-off Date may be less than the Lifetime Rate
Cap.
(4) The Weighted Average Months to the next Adjustment Date is equal to the
weighted average of the number of months until the Adjustment Date next
following _____________, 19__.
The Mortgage Loans in the Mortgage Pool will have the following
characteristics as of the Cut-off Date (expressed as a percentage of the
aggregate principal balance of the Mortgage
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<PAGE>
Loans having such characteristics relative to the aggregate principal balance of
all Mortgage Loans in the Mortgage Pool):
The Mortgage Loans will have had individual principal balances
at origination of at least $__________ but not more than $__________.
None of the Mortgage Loans in the Mortgage Pool will have been
originated prior to _____________, 19__ or will have a scheduled
maturity later than ____________, ____. No Mortgage Loan in the
Mortgage Pool will have an unexpired term to stated maturity as of the
Cut-off Date of less than __ years and __ months. The weighted average
remaining term to stated maturity of the Mortgage Loans in the Mortgage
Pool as of the Cut-off Date will be approximately ____ years and __
months. The weighted average Adjustment Date of the Mortgage Loans in
the Mortgage Pool next following the Cut-off Date is ____________,
19__.
Approximately _____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80% but less than or
equal to 90%, and approximately ____% of the Mortgage Loans will have
Loan-to-Value Ratios exceeding 90%. The weighted average Loan-to-Value
Ratio at origination, as of the Cut-off Date, is approximately
_____%.
At least _____% of such Mortgage Loans will be secured by fee
simple interests in detached one- to four-family dwelling units with
the remaining units being secured by fee simple interests in attached
planned unit developments, condominiums or townhouses.
Approximately _____% of the Mortgage Loans in the Mortgage
Pool will be secured by Mortgaged Properties located in California.
No more than _____% of the Mortgage Loans in the Mortgage Pool
will be secured by Mortgaged Properties located in any one zip code
area in California, and no more than ____% will be secured by Mortgaged
Properties located in any one zip code area outside California.
No more than _____% of the Mortgage Loans were equity
refinance mortgage loans made to mortgagors who used less than the
entire amount of the proceeds to refinance an existing mortgage loan.
The weighted average Loan-to-Value Ratio at origination of such
Mortgage Loans, as of the Cut-off Date, is approximately ______%.
Approximately ____% of the Mortgage Loans were made to Mortgagors who
used the entire proceeds to refinance an existing Mortgage Loan.
No Mortgage Loan provides for deferred interest or negative
amortization.
Approximately ____% of the Mortgage Loans in the Mortgage Pool
will have been underwritten under a reduced loan documentation program.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans in the Mortgage Pool which were underwritten under such reduced
loan documentation program will be approximately
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<PAGE>
____% and no more than approximately ____% of such Mortgage Loans will
be secured by Mortgaged Properties located in California. See "Pooling
and Servicing Agreement--The Master Servicer" herein.
No more than ____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ____% of the Mortgage Loans will
be secured by one- to four-story condominium units. No Mortgage Loans
will be secured by condominium units in buildings of five or more
stories.
None of the Mortgage Loans in the Mortgage Pool will be
Buydown Mortgage Loans.
The following table sets forth the number and aggregate principal
balance as of the Cut-off Date of Mortgage Loans having their next Adjustment
Dates in the month described therein. The table also indicates the approximate
percentage of Mortgage Loans in the Mortgage Pool with an Adjustment Date in
each such month.
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<PAGE>
MONTH OF NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
--------------- -------------- ----------------- -------------
Total.................
The following table sets forth the number and aggregate principal
balance of Mortgage Loans having unpaid principal balances in the ranges
described therein as of the Cut-off Date. The table also indicates the
approximate weighted average Mortgage Rate and the approximate weighted average
Loan-to-Value Ratio at origination of the Mortgage Loans in each given range, as
of the Cut-off Date.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER WEIGHTED ORIGINAL
OF AGGREGATE AVERAGE LOAN-TO-
MORTGAGE PRINCIPAL MORTGAGE VALUE
PRINCIPAL BALANCE LOANS BALANCE RATE RATIO
- ----------------- ----- ------- ---- -----
<S> <C> <C> <C> <C>
Total, Average or Weighted Average................. _______ $____________ ________% _______%
</TABLE>
Underwriting Standards
[Additional disclosure as necessary. See Version 1 for
underwriting disclosure for ICI and Southern Pacific Thrift & Loan.]
Delinquency and Foreclosure Experience
[Additional disclosure as necessary. See Version 1 for sample
disclosure for this section.]
The information set forth in the preceding paragraphs concerning
SPTL and ICII has been provided by SPTL and ICII.
-18-
<PAGE>
Additional Information
The description in this Prospectus Supplement of the Mortgage Pool
and the Mortgaged Properties is based upon the Mortgage Pool as constituted at
the close of business on the Cut-off Date, as adjusted for the scheduled
principal payments due before such date. Prior to the issuance of the
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as they will be
constituted at the time the Certificates are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K containing a detailed description of
the Mortgage Loans will be available to purchasers of the Certificates and will
be filed, together with the Pooling and Servicing Agreement, with the Securities
and Exchange Commission within fifteen days after initial issuance. The Current
Report on Form 8-K will specify the aggregate principal balance of the Mortgage
Loans in the Mortgage Pool outstanding as of the Cut-off Date and will set forth
the other approximate information presented in this Prospectus Supplement.
See also "The Mortgage Pools" and "Certain Legal Aspects of
Mortgage Loans" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates evidence in the aggregate the entire beneficial
ownership of the Trust Fund. The Trust Fund will consist of (i) the Mortgage
Loans, exclusive of the Company's rights in and to the Spread with respect to
each Mortgage Loan; (ii) such assets as from time to time are identified as
deposited in respect of the Mortgage Loans in the Certificate Account (as
described in the Prospectus) and belonging to the Trust Fund; (iii) property
acquired by foreclosure of such Mortgage Loans or deed in lieu of foreclosure;
(iv) any applicable insurance policies and all proceeds thereof; and (v) the
Letter of Credit (or any alternate form of credit support substituted therefor)
and all proceeds thereof, other than any amount drawn thereunder and deposited
in a reserve fund.
Distributions
Distributions to holders of Certificates will be made on each
Distribution Date based on their respective Percentage Interests. The undivided
Percentage Interest of a Certificate will be equal to the percentage obtained by
dividing the initial principal balance of such Certificate by the aggregate
initial principal balance of all Certificates, which will equal the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
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<PAGE>
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates--Distributions" in
the Prospectus.
Holders of Certificates will be entitled to receive distributions
of interest on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date, in an aggregate amount equal to
one month's interest, at the then applicable Weighted Average Adjustable
Pass-Through Rate on the principal balance of the Mortgage Loans outstanding as
of the close of business on the immediately preceding Distribution Date (or, in
the case of the first Distribution Date, outstanding as of the Delivery Date),
subject to reduction in the event of any interest shortfalls not covered by the
Letter of Credit, including any Prepayment Interest Shortfalls (as defined
below) resulting from full and partial prepayments, as well as certain losses
and delinquencies on the Mortgage Loans as described below. The Weighted Average
Adjustable Pass-Through Rate for any Distribution Date will equal the average of
the Net Mortgage Rates on the Mortgage Loans (weighted by the principal balances
of such Mortgage Loans as of the Due Date occurring in the preceding month).
Subject to the following limitations, for each period beginning on the related
Adjustment Date therefor, the Net Mortgage Rate on a Mortgage Loan will equal
the sum of the Cost of Funds Index (rounded to the nearest multiple of ______%)
and the Net Note Margin. The Net Note Margin for each Mortgage Loan will be
______%. The Net Mortgage Rate on any Mortgage Loan on any Adjustment Date may
not increase or decrease by more than the Periodic Rate Cap, and the Net
Mortgage Rate on any Mortgage Loan will not exceed the maximum Net Mortgage Rate
(the "Maximum Net Mortgage Rate") applicable to such Mortgage Loan as specified
in the Pooling and Servicing Agreement. The difference between the Net Mortgage
Rate as of the Cut-off Date and the Maximum Net Mortgage Rate will not exceed,
and may be less than, the Lifetime Rate Cap. With respect to each Mortgage Loan,
the Net Mortgage Rate is the rate per annum equal to the Mortgage Rate for such
Mortgage Loan, net of the Servicing Fee Rate and the per annum rate at which the
Spread accrues. See "Description of the Mortgage Pool" and "Pooling and
Servicing Agreement--Servicing and Other Compensation and Payment of Expenses;
Spread" herein.
Holders of the Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date after distributions of interest as set forth above, an amount
equal to the "Principal Distribution Amount" for such
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<PAGE>
Distribution Date, which will equal the sum of: (a) the principal portion of any
Advances for such Distribution Date; (b) any amount required to be paid by the
Master Servicer due to the operation of a deductible clause in any blanket
policy maintained by it to cover hazard losses on the Mortgage Loans as
described in the Prospectus under "Primary Mortgage Insurance, Hazard Insurance;
Claims Thereunder"; (c) all payments in respect of the Mortgage Loans on account
of principal (including, without limitation, principal prepayments, the
principal portion of any Liquidation Proceeds and Insurance Proceeds, the
principal portion of proceeds from repurchased Mortgage Loans and the principal
portion of proceeds from the purchase of Converting Mortgage Loans and the sale
of Converted Mortgage Loans) on deposit in the Certificate Account on the
Determination Date immediately preceding such Distribution Date, exclusive or
net of (i) Liquidation Proceeds, Insurance Proceeds and principal prepayments
received during the month in which such Distribution Date occurs (unless such
amounts are deemed to have been received in the prior month pursuant to the
Pooling and Servicing Agreement as described below), (ii) scheduled payments of
principal due on a date or dates subsequent to the first day of the month in
which such Distribution Date occurs, (iii) late payments of principal which have
been the subject of a previous Advance or Advances that have not been reimbursed
to the Master Servicer and (iv) an amount equal to liquidation expenses incurred
by the Master Servicer to the extent not reimbursed from related Liquidation
Proceeds; and (d) all amounts required to be deposited in the Certificate
Account on the Business Day immediately preceding such Distribution Date, with
respect to draws or payments under the Letter of Credit which are allocable to
payments on account of principal of the Mortgage Loans, except for payments of
principal which have been the subject of a previous Advance or Advances and
which are eligible for withdrawal in reimbursement to the Master Servicer.
The Prepayment Interest Shortfall for any Distribution Date is
equal to the aggregate shortfall, if any, in collections of interest (adjusted
to the related Net Mortgage Rates) resulting from mortgagor prepayments on the
Mortgage Loans during the preceding calendar month. Such shortfalls will result
because interest on prepayments in full is collected only to the date of
prepayment, and no interest is collected on prepayments in part, as such
prepayments are applied to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month of prepayment. The
Prepayment Interest Shortfall and other interest shortfalls (such as those
resulting from the application of the Relief Act (as defined herein)) not
covered by the Letter of Credit on any Distribution Date will be allocated to
the holders of the Certificates pro rata based on distributions of interest to
be made on such Distribution Date, before taking into account any such
reduction. Prepayment Interest Shortfalls and other interest shortfalls will not
be offset by a reduction of the servicing compensation of the Master Servicer or
otherwise.
Distributions for any Distribution Date will also be reduced if
net Liquidation Proceeds or net Insurance Proceeds (together with any net
amounts payable as described below under "Description of Credit Enhancement")
received on a defaulted Mortgage Loan liquidated during the month preceding the
month in which such Distribution Date occurs are less than the outstanding
principal balance of such Mortgage Loan, plus interest thereon at the related
Net Mortgage Rate. If an Advance by the Master Servicer was previously made in
respect thereof, late payments of principal and interest, if any, remitted to
the Master Servicer for deposit into the Certificate Account will not be passed
through to Certificateholders but rather will be subject
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<PAGE>
to withdrawal by the Master Servicer from the Certificate Account in
reimbursement to itself for such Advance. To the extent that an Advance is not
made, the distributions for such Distribution Date will be reduced accordingly.
Reimbursement of the Master Servicer or the Company for any other advances or
expenses reimbursable to either as described in the Prospectus, out of amounts
otherwise distributable to the Certificateholders, will also reduce the
distributions for the related Distribution Date. Distributions for any
Distribution Date will be reduced to the extent that losses on any Mortgage
Loans in the Mortgage Pool are not covered by the Letter of Credit or any
substitute form of credit enhancement.
With respect to Insurance Proceeds, Liquidation Proceeds and other
unscheduled collections (not including prepayments by the mortgagors) received
in any calendar month, the Master Servicer may elect to treat such amounts as
part of the distribution to be made on the Distribution Date in the month of
receipt, but is not obligated to do so. If the Master Servicer so elects, such
amounts will be deemed to have been received (and any related loss which
requires a draw on the Letter of Credit shall be deemed to have occurred) on the
last day of the month prior to the receipt thereof.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required
to make Advances for the benefit of the Certificateholders (out of its own funds
or funds held in the Custodial Account (as described in the Prospectus) for
future distribution or withdrawal) with respect to any payments of principal and
interest (net of the related Servicing Fees and the Spread) which were due on
the Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
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, Liquidation Proceeds or draws on the Letter of Credit. The
purpose of making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Relief Act or similar
legislation or regulations.
All Advances will be reimbursable to the Master Servicer on a
first priority basis from late collections, Insurance Proceeds, Liquidation
Proceeds and draws on the Letter of Credit on or in respect of the Mortgage Loan
as to which such unreimbursed Advance was made. In addition, any Advances
previously made which are deemed by the Master Servicer to be nonrecoverable
from related late collections, Insurance Proceeds, Liquidation Proceeds or draws
on the Letter of Credit may be reimbursed to the Master Servicer out of any
funds in the Custodial Account or Certificate Account prior to distributions on
the Certificates.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The effective yield to the holders of Certificates will be lower
than the yield otherwise produced by the applicable Weighted Average Adjustable
Pass-Through Rate and purchase price because monthly distributions will not be
made to such holders until the 25th day (or if such day is not a business day,
then on the next succeeding business day) of the month following the month in
which interest accrues on the Mortgage Loans (without any additional
distributions of interest or earnings thereon in respect of such delay). See
"Yield Considerations" in the Prospectus.
The yield to maturity and the aggregate amount of distributions on
the Certificates will be directly related to the rate of payment of principal on
the Mortgage Loans. Such yield may be adversely affected by a higher or lower
than anticipated rate of payment of principal on the Mortgage Loans in the Trust
Fund. The rate of payment of principal on such Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans (which will change
periodically as described above), the rate of principal prepayments thereon by
the Mortgagors, liquidations of defaulted Mortgage Loans and purchases of
Mortgage Loans due to certain breaches of representations or the conversion of
Convertible Mortgage Loans. The principal component of the monthly payments on
the Mortgage Loans may change on each related Adjustment Date. In addition, the
amortization schedule of a Mortgage Loan may be changed in connection with the
receipt of a partial prepayment thereon, provided however that such changes will
not include a change in the maturity date of the related Mortgage Loan. See
"Description of the Mortgage Pool--General" herein.
Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, mortgage market interest
rates, unemployment, mortgagors' net equity in the mortgaged properties, changes
in the value of the mortgaged properties and servicing decisions. If prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would
be expected to decrease. There can be no certainty as to the rate of prepayments
on, or conversions of, the Mortgage Loans during any period or over the life of
the Certificates. However, in the event that substantial numbers of Mortgagors
exercise their conversion rights, and [the related Subservicers and] the Master
Servicer purchase the Converting and Converted Mortgage Loans, the Mortgage Pool
will experience substantial prepayment of principal.
The Mortgage Loans may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. In addition, certain of the
Mortgage Loans provide that the Mortgagors may, during a specified period of
time, convert the adjustable rate of such Mortgage Loans to a fixed rate. The
Company is not aware of any publicly available statistics that set forth
principal prepayment or conversion experience or prepayment or conversion
forecasts of comparable adjustable rate mortgage loans over an extended period
of time, and its experience with respect to comparable adjustable rate mortgages
is insufficient to draw any conclusions with respect to the expected prepayment
or conversion rates on the Mortgage Loans included in the Mortgage Pool. The
rate of payments (including prepayments) on pools of mortgage loans is
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influenced by a variety of economic, geographic, social and other factors. As is
the case with conventional fixed rate mortgage loans, adjustable rate mortgage
loans may be subject to a greater rate of principal prepayments or purchases due
to their conversion to fixed interest rate loans in a low interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate mortgage loans could be subject to higher prepayment and
conversion rates than if prevailing interest rates remain constant because the
availability of fixed rate or other adjustable rate mortgage loans at
competitive interest rates may encourage Mortgagors to refinance their
adjustable rate mortgages to "lock in" a lower fixed interest rate or take
advantage of the availability of such other adjustable rate mortgage loans, or,
in the case of convertible adjustable rate mortgage loans, to exercise their
option to convert the adjustable interest rates to fixed interest rates. The
conversion feature may also be exercised in a rising interest rate environment
as Mortgagors attempt to limit their risk of higher rates. Such a rising
interest rate environment may also result in an increase in the rate of defaults
on the Mortgage Loans. In the event that [the Subservicers or] the Master
Servicer purchases Converting or Converted Mortgage Loans, a Mortgagor's
exercise of the conversion option will result in a pro rata distribution of the
principal portion thereof to the Certificateholders, as described herein.
Alternatively, to the extent Subservicers fail in their obligation to purchase
Converting Mortgage Loans and the Master Servicer does not purchase Converted
Mortgage Loans, as described herein, the Mortgage Pool will include fixed rate
Mortgage Loans, which will have the effect of limiting the extent to which the
Weighted Average Adjustable Pass-Through Rate can increase or decrease in
accordance with changes in the Index and accordingly may affect the yield to
Certificateholders.
The existence of Periodic Rate Caps, Lifetime Rate Caps and any
Lifetime Rate Floors also will affect the likelihood of prepayments resulting
from refinancing and the exercise of the conversion option. Although the
Mortgage Rates on the Mortgage Loans will adjust periodically, such increases
and decreases will be limited by the Periodic Rate Caps, Lifetime Rate Caps and
any Lifetime Rate Floors on each Mortgage Loan and will be based on the Index
(which may not rise and fall consistently with mortgage interest rates) plus the
related Note Margins (which may be different from the prevailing margins on
other mortgage loans). As a result, the Mortgage Rates on the Mortgage Loans at
any time may not equal the prevailing rates for other adjustable rate loans and
accordingly, the rate of prepayment may be lower or higher than would otherwise
be anticipated.
With respect to those Mortgage Loans having Lifetime Rate Floors,
if prevailing mortgage rates were to fall below the minimum Mortgage Rates, the
rate of prepayment on such Mortgage Loans may be expected to increase and such
Mortgage Loans may prepay at a rate higher than would otherwise be anticipated
for adjustable rate mortgage loans.
All of the Mortgage Loans are assumable under certain
circumstances if, in the sole judgment of the Master Servicer, the prospective
purchaser of a Mortgaged Property is creditworthy and the security for such
Mortgage Loan is not impaired by the assumption. The extent to which the
Mortgage Loans are assumed by purchasers of the Mortgaged Properties rather than
prepaid by the related mortgagors in connection with the sales of the Mortgaged
Properties will affect the weighted average life of the Certificates and may
result in a
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prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans.
The yield to maturity of the Certificates will depend on the rate
of payment of principal (including by reason of principal prepayments, purchases
of Mortgage Loans in the Mortgage Pool which are Converting Mortgage Loans or
Converted Mortgage Loans or in respect of which a breach of a representation or
warranty has occurred, and liquidation of defaulted Mortgage Loans) on the
Mortgage Loans, the price paid by the holders of Certificates and the Weighted
Average Adjustable Pass-Through Rate in effect from time to time. Such yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
on the Mortgage Loans. Because the Weighted Average Adjustable Pass-Through Rate
at any time is the weighted average of the Net Mortgage Rates on the Mortgage
Loans, the Weighted Average Adjustable Pass Through Rate (and the yield on the
Certificates) will be reduced as a result of prepayments, liquidations and
purchases at a faster rate for Mortgage Loans having higher Net Mortgage Rates
as opposed to Mortgage Loans having lower Net Mortgage Rates. Because Mortgage
Loans having higher Net Mortgage Rates generally have higher Mortgage Rates,
such Mortgage Loans are generally more likely to be prepaid at a faster rate
under most circumstances than are Mortgage Loans having lower Net Mortgage
Rates.
The rate of default on the Mortgage Loans will also affect the
rate of payment of principal on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years, although little data is available with respect to the rate of default on
adjustable rate mortgage loans. Increases in the monthly payments to an amount
in excess of the preceding monthly payment required at the time of origination
may result in a default rate higher than that on level payment mortgage loans.
Furthermore, the Mortgagor under each Mortgage Loan was qualified on the basis
of the Mortgage Rate in effect at origination. The repayment of such Mortgage
Loans will be dependent on the ability of the Mortgagor to make larger monthly
payments following adjustments of the Mortgage Rate. The rate of default on
Mortgage Loans which are equity refinance or limited documentation mortgage
loans may be higher than for other types of Mortgage Loans.
Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to Certificateholders of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans.
Furthermore, the rate of prepayments, defaults and liquidations on, or
conversions of, the Mortgage Loans will be affected by the general economic
condition of the region of the country where the related Mortgaged Properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by increasing unemployment or falling property values. See "Maturity
and Prepayment Considerations" in the Prospectus. Since the rates of payment of
principal on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the rate of principal prepayments on the
Certificates.
The amount of interest passed through to holders of the
Certificates will be reduced by shortfalls in collections of interest resulting
from full or partial principal prepayments or
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otherwise, which will not be offset by a reduction in the Servicing Fees payable
to the Master Servicer or otherwise. See "Yield Considerations" in the
Prospectus and "Description of the Certificates--Distributions" herein for a
discussion of the effect of principal prepayments on the Mortgage Loans on the
yield to maturity of the Certificates.
The timing of changes in the rate of prepayments, liquidations and
purchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation.
In addition, the yield to maturity of the Certificates will depend
on the price paid by holders of the Certificates. If any Certificate is
purchased at initial issuance at a discount and the rate of prepayments on the
Mortgage Loans is lower than that originally anticipated, the purchaser's yield
to maturity will be lower than that assumed at the time of purchase. Conversely,
if any Certificate is purchased at initial issuance at a premium and the rate of
prepayments on the Mortgage Loans is higher than that originally anticipated,
the purchaser's yield to maturity will be lower than that assumed at the time of
purchase.
The first distribution on the Certificates reflecting an
adjustment to the scheduled monthly payments on a related Mortgage Loan will be
passed through to holders of Certificates on the second Distribution Date
following the date on which the adjustment to such Mortgage Rate was made.
Furthermore, adjustments in the Net Mortgage Rates are based on the Index as
reported 45 days prior to the Adjustment Date. Accordingly, the yield to
Certificateholders will be adjusted on a delayed basis relative to movements in
the Index. Although the Net Mortgage Rate of each Mortgage Loan will be adjusted
pursuant to the Index, such rate is subject to the Periodic Rate Cap and is also
limited by the Lifetime Rate Cap and any Lifetime Rate Floor applicable to such
Mortgage Loan. With respect to certain Mortgage Loans the difference between the
Net Mortgage Rate as of the Cut-off Date and the maximum Net Mortgage Rate will
be less than the Lifetime Rate Cap. Therefore, if the Index changes
substantially between Adjustment Dates, the Net Mortgage Rate may be lower than
if the Net Mortgage Rate could be adjusted based on the Index without such caps.
A number of factors affect the performance of the Index and may
cause the Index to move in a manner different from other indices. To the extent
that the Index may reflect changes in the general level of interest rates less
quickly than other indices, in a period of rising interest rates, increases in
the yield to Certificateholders due to such rising interest rates may occur
later than that which would be produced by other indices, and in a period of
declining rates, the Index may remain higher than other market interest rates
which may result in a higher level of prepayments of Mortgage Loans which adjust
in accordance with the Index than mortgage loans which adjust in accordance with
other indices.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
POOLING AND SERVICING AGREEMENT
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GENERAL
The Certificates will be issued, and the Mortgage Loans serviced
and administered, pursuant to a Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _____________________, as trustee (the "Trustee").
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Certificates will be transferable and exchangeable at the corporate trust
office of the Trustee, which will serve as Certificate Registrar and will be
responsible for making distributions on the Certificates and forwarding monthly
reports with respect thereto to the holders thereof. In addition to the
circumstances described in the Prospectus, the Company may terminate the Trustee
for cause under certain circumstances. The Company will provide a prospective or
actual Certificateholder without charge, on written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to the President, Southern Pacific Secured Assets Corp., One Center Pointe
Drive, Suite 500, Lake Oswego, Oregon 97035. See "Description of the
Certificates," "Servicing of Mortgage Loans" and "The Pooling Agreement" in the
Prospectus.
THE MASTER SERVICER
[Name of Master Servicer] [Imperial Credit Industries, Inc.
("ICII"), an affiliate of the Company,] will act as master servicer (in such
capacity, the "Master Servicer") for the Certificates pursuant to the Pooling
and Servicing Agreement.
[Further disclosure as appropriate. See Version 1 for disclosure
for Imperial Credit Industries, Inc.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Servicing Fees in respect of each
Mortgage Loan will accrue at ____% per annum (the "Servicing Fee Rate") on the
outstanding principal balance of each Mortgage Loan. The Master Servicer is
obligated to pay certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its responsibilities under
the Pooling and Servicing Agreement, including the expenses of the Letter of
Credit and any substitute credit support and the fees of the Trustee. See
"Servicing of Mortgage Loans -Servicing and Other Compensation and Payment of
Expenses; Spread" in the Prospectus for information regarding other possible
compensation to the Master Servicer and for information regarding expenses
payable by the Master Servicer.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Master Servicer will be obligated to remit to the Company or its designee, a
portion of the interest collected on each Mortgage Loan (the "Spread"). The rate
at which the Spread on each Mortgage Loan accrues will be equal to ____% per
annum.
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TERMINATION
The circumstances under which the obligations created by the
Pooling and Servicing Agreement will terminate in respect of the Certificates
are described in "Description of the Certificates--Termination; Retirement of
Certificates" in the Prospectus. The Master Servicer or the Company will have
the option (i) to purchase all remaining Mortgage Loans and other assets in the
Trust Fund, thereby effecting early retirement of the Certificates or (ii) to
purchase in whole, but not in part, the Certificates, but either such option
will not be exercisable until such time as the aggregate principal balance of
the Mortgage Loans as of the Distribution Date on which the purchase proceeds
are to be distributed to the Certificateholders is less than __% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. Any
such purchase of Mortgage Loans and other assets of the Trust Fund shall be made
at a price equal to the aggregate principal balance of all the Mortgage Loans
(or the fair market value of the related underlying Mortgaged Properties with
respect to defaulted Mortgage Loans as to which title to such Mortgaged
Properties has been acquired if such fair market value is less than such unpaid
principal balance) (net of any unreimbursed Advance attributable to principal),
together with one month's interest on such aggregate amount at the then
applicable Weighted Average Adjustable Pass-Through Rate.
Upon presentation and surrender of the Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Certificates will receive, in
proportion to their respective Percentage Interests, an amount equal to the sum
of the principal balances of the Mortgage Loans plus one month's accrued
interest thereon at the then applicable Weighted Average Adjustable Pass-Through
Rate.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
All of the Mortgage Loans are the subject of credit support
coverage provided by the Letter of Credit. In addition, each Mortgage Loan is
covered by a Primary Hazard Insurance Policy as described under "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder" in the Prospectus. See
also "Description of the Mortgage Pool--Primary Mortgage Insurance" herein.
LETTER OF CREDIT
The Letter of Credit Bank will issue the Letter of Credit to the
Trustee for the benefit of the holders of the Certificates. Subject to the
limitations described below, the Letter of Credit will be available to cover
Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses and Bankruptcy
Losses. The maximum amount available to be drawn under the Letter of Credit with
respect to all losses will initially be equal to $_________ (the initial
"Available Amount") which is equal to approximately ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date. The Available
Amount at any time will be reduced by any amounts previously drawn under the
Letter of Credit (net of any amounts received or collected by the
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Master Servicer following each respective draw as subsequent recoveries on the
Mortgage Loans with respect to which such draws were made and, if appropriate,
such draws were reimbursed to the Letter of Credit Bank). The Available Amount
will be reinstated with respect to the subsequent recoveries described in the
preceding sentence, however in no event will the Available Amount be reinstated
to an amount in excess of the initial Available Amount. The Available Amount
under the Letter of Credit (if the Letter of Credit is extended in accordance
with its terms) is also subject to reduction pursuant to the terms of the
Pooling and Servicing Agreement annually beginning on the tenth anniversary of
the Cut-off Date and each anniversary thereafter, such that, beginning with the
fourteenth anniversary of the Cut-off Date and on each anniversary thereafter,
the Available Amount will not exceed ____% of the aggregate outstanding
principal balance of the Mortgage Loans, provided that such scheduled reductions
will not reduce the Available Amount below three times the principal balance of
the largest single Mortgage Loan outstanding on such anniversary, and further
provided that the Available Amount will not be reduced in accordance with the
preceding sentence if delinquency rates and losses on the Mortgage Loans exceed
certain levels as specified by the Rating Agency as set forth in the Pooling and
Servicing Agreement. The Amount Available may be further reduced from time to
time by such amounts as the Master Servicer may determine and direct the
Trustee, provided the then current rating of the Certificates is not adversely
affected.
Notwithstanding the foregoing, the maximum amount available under
the Letter of Credit in connection with Fraud Losses (the "Fraud Loss Amount")
shall initially be equal to $___________. As of any date of determination after
the Cut-off Date the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amount of draws made under the Letter of Credit with respect to Fraud
Losses up to such date of determination, and (Y) from the first through fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b)
____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (2) the aggregate amount of
draws made under the Letter of Credit with respect to Fraud Losses since the
most recent anniversary of the Cut-off Date up to such date of determination.
After the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall be
zero and no draws shall be made under the Letter of Credit with respect to Fraud
Losses.
The maximum amount available under the Letter of Credit in respect
of Special Hazard Losses (the "Special Hazard Amount") will equal $__________
less the sum of (A) any amounts drawn under the Letter of Credit in respect of
Special Hazard Losses (to the extent that such amounts do not exceed the lesser
of the cost of repair or replacement of the related Mortgaged Properties) and
(B) the Adjustment Amount. The Adjustment Amount on each anniversary of the
Cut-off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1% (or, if greater than 1%, the highest
percentage of Mortgage Loans by principal balance in any California zip code
area) times the aggregate principal balance of all of the Mortgage Loans in the
Mortgage Pool on such anniversary and (ii) twice the principal balance of the
single Mortgage Loan in the Mortgage Pool having the largest principal balance.
As used in this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth
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in the Prospectus except that Special Hazard Losses will not include and the
Letter of Credit will not cover losses occasioned by war, civil insurrection,
certain governmental actions, nuclear reaction and certain other risks.
As of any date of determination prior to the first anniversary of
the Cut-off Date, the maximum amount available under the Letter of Credit in
respect of Bankruptcy Losses (the "Bankruptcy Amount") will equal $__________
less the sum of any amounts drawn under the Letter of Credit for such losses up
to such date of determination. As of any day of determination on or after the
first anniversary of the Cut-off Date, the Bankruptcy Amount will equal the
excess, if any, of (1) the lesser of (a) the Bankruptcy Amount as of the
business day next preceding the most recent anniversary of the Cut-off Date (the
"Relevant Anniversary") and (b) an amount calculated pursuant to the terms of
the Pooling and Servicing Agreement, which amount as calculated will provide for
a reduction in the Bankruptcy Amount, provided that delinquency rates and losses
on all of the Mortgage Loans do not exceed certain levels as set forth in the
Pooling and Servicing Agreement, over (2) the aggregate amount of draws made
under the Letter of Credit since the Relevant Anniversary in connection with
Bankruptcy Losses. The Bankruptcy Amount and the related automatic reductions
described above may be reduced or modified upon written confirmation from the
Rating Agency that such reduction or modification will not adversely affect the
then current rating assigned to the Certificates by such Rating Agency. Such a
reduction or modification may adversely affect the coverage provided by the
Letter of Credit with respect to Bankruptcy Losses.
[Described manner in which payments will be made under the Letter
of Credit.] See "Description of Credit Enhancement--Letter of Credit" in the
Prospectus. However, the Trustee shall not make such draws under the Letter of
Credit in connection with a Bankruptcy Loss so long as the Master Servicer has
notified the Trustee in writing that the Master Servicer is diligently pursuing
any remedies that may exist in connection with the representations and
warranties made regarding the related Mortgage Loan and either (A) the related
Mortgage Loan is not in default with regard to payments due thereunder or (B)
delinquent payments of principal and interest under the related Mortgage Loan
and any premiums on any applicable Primary Hazard Insurance Policy and any
related escrow payments in respect of such Mortgage Loan are being advanced on a
current basis by the Master Servicer [or a Subservicer].
Any Mortgage Loan the unpaid principal balance of which is paid
pursuant to a draw under the Letter of Credit will be assigned to the Company
and will no longer be subject to the Pooling and Servicing Agreement. Any
subsequent recoveries with respect to such Mortgage Loans will be paid to the
Company and, following notice and, if appropriate, reimbursement of such draw to
the Letter of Credit Bank, the Available Amount under the Letter of Credit (and
the Special Hazard Amount, Fraud Loss Amount or Bankruptcy Amount, if
applicable) will be reinstated to the extent of such recovery.
The Master Servicer, in lieu of maintaining the Letter of Credit,
may reduce the coverage thereunder (including accelerating the manner in which
such coverage is reduced pursuant to the related automatic reductions),
terminate such coverage or obtain and maintain alternate forms of credit support
(including, but not limited to, other letters of credit, insurance policies,
surety bonds, reserve funds, and secured or unsecured corporate guaranties),
with
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respect to Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, provided that prior to any such reduction, termination or
substitution the Master Servicer shall have obtained written confirmation from
the Rating Agency that such reduction, termination or substitution will not
adversely affect the then current rating assigned to the Certificates by such
Rating Agency and shall provide a copy of each confirmation to the Trustee. In
the event that the long-term debt obligations of the Letter of Credit Bank are
at any time downgraded by the Rating Agency, the Company may request the Master
Servicer to obtain alternate forms of credit support, in accordance with the
preceding sentence, but the Master Servicer is under no obligation to do so. In
lieu of making a draw under the Letter of Credit for Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses or Bankruptcy Losses as provided above, the
Master Servicer, at its sole option, may pay the amount otherwise required to be
drawn, in which case the amount so paid will reduce the related coverage under
the Letter of Credit.
As to any Mortgage Loan which is delinquent in payment by 90 days
or more, the Master Servicer may, at its sole option, purchase such Mortgage
Loan at a price equal to 100% of the unpaid principal balance thereof plus all
accrued and unpaid interest thereon through the last day of the month in which
such purchase occurs. To the extent that the Master Servicer subsequently
experiences losses with respect to such purchased Mortgage Loans which would
have been covered by the Letter of Credit had such Mortgage Loans remained in
the Trust Fund, the Available Amount (and the Special Hazard Amount, Fraud Loss
Amount or Bankruptcy Amount, to the extent that such losses constitute Special
Hazard Losses, Fraud Losses or Bankruptcy Losses) will be reduced by an amount
equal to the entire amount of such losses.
The Letter of Credit will expire on ___________, 19__ unless
earlier terminated or extended in accordance with its terms. The Letter of
Credit contains provisions to the effect that on or before the first day of the
sixth month immediately preceding the expiration date a request may be made to
extend the expiration date. It is within the Letter of Credit Bank's sole
discretion whether to agree to such an extension. If, as of the date 30 days
prior to the expiration date, or the expiration date thereof as so extended, a
replacement Letter of Credit or alternate form of credit support has not been
delivered to the Trustee, then, pursuant to the terms of the Pooling and
Servicing Agreement, the entire remaining amount of the Letter of Credit will be
drawn by the Trustee prior to such expiration date. In that event, the amount so
paid will be held by the Trustee in the form of a reserve fund held outside of
the Trust Fund (but pledged to the Trustee and held by it in trust for the
benefit of the Certificateholders), pending the substitution of any other form
of credit support therefor, and will be applied in the same manner as described
herein regarding draws under the Letter of Credit.
LETTER OF CREDIT BANK
The Letter of Credit will be issued by the Letter of Credit Bank,
which will be the ________________________________, a
____________________________________. _______________ principal executive
offices are located at ________________________________.
____________________ is engaged in a broad range of banking and
financial services activities, including deposit-taking, lending and leasing,
securities brokerage services, investment
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management, investment banking, capital markets activities and foreign exchange
transactions.
[Additional disclosure as appropriate.]
The information set forth in the preceding paragraphs concerning
the Letter of Credit Bank has been provided by the Letter of Credit Bank as of
the date hereof.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain
anticipated material federal income tax consequences of the purchase, ownership
and disposition of Certificates. This discussion is directed solely to a holder
of a Certificate as a capital asset within the meaning of Section 1221 of the
Internal Revenue Code of 1986 (the "Code") and does not purport to discuss all
federal income tax consequences that may be applicable to particular categories
of investors, some of which (such as banks, insurance companies and foreign
investors) may be subject to special rules. Further, the authorities on which
this discussion, and the opinion referred to below, are based are subject to
change or differing interpretations, which could apply retroactively. Taxpayers
and preparers of tax returns should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice (i) is given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. A holder of a Certificate
is advised to consult its own tax advisors concerning the federal, state, local
or other tax consequences to it of the purchase, ownership and disposition of a
Certificate.
GRANTOR TRUST
CLASSIFICATION OF THE TRUST FUND
Upon issuance of the Certificates, Thacher Proffitt &
Wood, counsel to the Depositor, will deliver its opinion to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
the Trust Fund will be classified as a grantor trust under subpart E, part I of
subchapter J of the Code and not as an association taxable as a corporation or
as a partnership. Accordingly, a holder of a Certificate generally will be
treated as the owner of an undivided interest in the Mortgage Loans and other
assets held as part of the trust fund in which the Certificates evidence an
undivided interest.
CHARACTERIZATION OF THE INVESTMENT IN THE CERTIFICATES
The Certificates will represent interests in (i)
"qualifying real property loans" within the meaning of Section 593(d) of the
Code; (ii) "loans secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C) of the Code; (iii) "obligations (including
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any participation or certificate of beneficial ownership therein) which . . .
are principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code; and (iv) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code generally in the same proportion
that the assets of the Trust Fund would be so treated. In addition, interest on
the Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
TAXATION OF OWNERS OF THE CERTIFICATES
A holder of a Certificate generally will be required to
report on its federal income tax returns its share of the entire income from the
Mortgage Loans (including amounts used to pay reasonable servicing fees and
other expenses) in accordance with the holder's normal method of accounting and
will be entitled to deduct its share of any such reasonable servicing fees and
other expenses. Because of market discount or premium, the amount includible in
income on account of the Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Certificate directly or
through certain pass-through entities will be allowed a deduction for such
reasonable servicing fees and expenses only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of such
holder's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by a
holder of a Certificate that is subject to the limitations of either Section 67
or Section 68 of the Code may be substantial. Further, a holder of a Certificate
(other than corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's alternative
minimum taxable income.
MARKET DISCOUNT. A holder of a Certificate may be subject
to the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in the Mortgage Loans is considered to have been purchased at
a "market discount", that is, at a purchase price less than its adjusted issue
price. If market discount is in excess of a DE MINIMIS amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued through such month that has not
previously been included in income, but limited, in the case of the portion of
such discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on the Mortgage Loans that is received by (or, in the case of
an accrual basis holder of a Certificate, due to) the Trust Fund in that month.
A holder of a Certificate may elect to include market discount in income
currently as it accrues (under a constant yield method based on the yield of the
Certificate to such holder) rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such holder during or after the first taxable year to
which such election applies. In the absence of such an election, it may be
necessary to accrue such discount under a proportionate method. In addition,
Sections 1271 to 1275 of the Code addressing the treatment of debt instruments
issued with
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original issue discount (the "OID Regulations") would permit a holder of a
Certificate to elect to accrue all interest, discount (including DE MINIMIS
market or original issue discount) and premium in income as interest, based on a
constant yield method. If such an election were made with respect to the
Mortgage Loans with market discount, such holder would be deemed to have made an
election to include currently market discount in income with respect to all
other debt instruments having market discount that such holder acquires during
the taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a holder that made this election for a Certificate
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such holder owns or acquires. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until such time as regulations are issued by the Treasury
Department, certain rules described in the Conference Committee Report (the
"Committee Report") accompanying the Tax Reform Act of 1986 will apply. Under
those rules, in each accrual period market discount on the Mortgage Loans should
accrue, at the holder's option: (i) on the basis of a constant yield method, or
(ii) in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of the Mortgage Loans purchased at a discount in the secondary
market.
Market discount with respect to the Mortgage Loans
generally will be considered to exceed a DE MINIMIS amount if it is greater than
0.25% of the stated redemption price of the Mortgage Loans multiplied by the
number of complete years to maturity remaining after the date of their purchase.
In interpreting a similar rule with respect to original issue discount on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into account the
prepayment assumption used, if any. If market discount is treated as DE MINIMIS
under the foregoing rule, it appears that such market discount will be included
in income as each payment of stated principal is made, based on the product of
the total amount of such DE MINIMIS market discount and a fraction, the
numerator of which is the amount of such principal payment and the denominator
of which is the outstanding stated principal amount of the Mortgage Loans.
Further, any discount that is not original issue discount
and exceeds a DE MINIMIS amount may require the deferral of interest expense
deductions attributable to accrued market discount not yet includible in income,
unless an election has been made to report market discount currently as it
accrues.
PREMIUM. If a holder of a Certificate is treated as
acquiring the Mortgage Loans at a premium, that is, at a price in excess of
their principal amount, such holder may elect
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under Section 171 of the Code to amortize using a constant yield method the
portion of such premium allocable to the Mortgage Loans that were originated
after September 27, 1985. Amortizable premium is treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. However, premium allocable to Mortgage Loans originated
before September 28, 1985 or to the Mortgage Loans if an amortization election
is not made should be allowed as a deduction when a principal payment is made
(or, for a holder using the accrual method of accounting, when such payments of
stated redemption price are due). A significant portion of the Mortgage Loans
were originated prior to September 28, 1985. Accordingly, such an election shall
not be available for premium attributable to such Mortgage Loans.
SALES OF CERTIFICATES
Except as described below, any gain or loss, recognized
on the sale or exchange of a Certificate, generally will be capital gain or
loss, and will be equal to the difference between the amount realized on the
sale of a Certificate and its adjusted basis. The adjusted basis of a
Certificate generally will equal its cost, increased by any income (including
original issue discount and market discount income) recognized by the seller and
reduced (but not below zero) by any previously reported losses, amortized
premium and distributions with respect to the Certificate. The Code as of the
date of this Private Placement Memorandum provides for a top marginal tax rate
applicable to ordinary income of individuals of 39.6% while maintaining a
maximum marginal rate for the long-term gains of individuals of 28%. There is no
such rate differential for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss may be relevant for other
purposes.
Gain or loss from the sale of a Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that any Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in any
Certificate or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time value of
the taxpayer's net investment in such transaction. The amount of gain so
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate,"
which rate is computed and published monthly by the Internal Revenue Service
(the "IRS"), at the time the taxpayer enters into the conversion transaction,
subject to appropriate reduction for prior inclusion of interest and other
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the limitation on the deduction of interest on indebtedness incurred
to purchase or carry property held for investment to a taxpayer's net investment
income.
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GRANTOR TRUST REPORTING
The Trustee will furnish to the holders of the
Certificates with each distribution a statement setting forth the amount of such
distribution allocable to principal on the Mortgage Loans and to interest
thereon at the Pass-Through Rate. In addition, the Trustee will furnish, within
a reasonable time after the end of each calendar year, to each person who was a
holder of a Certificate at any time during such year, information regarding the
amount of servicing compensation received by the Master Servicer and Trustee and
such other customary factual information as it deems necessary or desirable to
enable each such person to prepare its tax returns and will furnish comparable
information to the IRS as and when required by law to do so. There is no
assurance the IRS will agree with the Trustee's information reports of such
items of income and expense. Neither the Depositor nor its affiliates will have
any responsibility with respect to the foregoing.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments
of proceeds from the sale of a Certificate, may be subject to the "backup
withholding tax" under Section 3406 of the Code at a rate of 31% if recipients
of such payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against such recipient's federal
income tax. Furthermore, certain penalties may be imposed by the IRS on a
recipient of payments that is required to supply information but that does not
do so in the proper manner.
FOREIGN INVESTORS
A holder of a Certificate 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 Certificate will not be subject to United States federal income
or withholding tax in respect of a distribution on the Certificate attributable
to Mortgage Loans originated after July 18, 1984, provided that such holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by such holder under penalties of
perjury, certifying that such holder is not a United States person and providing
the name and address of such holder). However, such a holder of a Certificate
will be subject to United States federal income or withholding tax in respect of
distributions of interest on the Certificate attributable to Mortgage Loans were
originated prior to July 18, 1984. A significant portion of the Mortgage Loans
were originated prior to that date and will be subject generally to United
States withholding tax in the absence of an applicable tax treaty exemption.
Accordingly, an investment in Certificates may not be suitable for certain
foreign investors.
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 from sources
without the United States is includible in gross income for United States
federal
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income tax purposes regardless of its connection with the conduct of a trade or
business within the United States. To the extent such holder does not qualify
for exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a tax rate of
30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt
a United States shareholder of a controlled foreign corporation from taxation on
such United States shareholder's allocable portion of the interest income
received by such controlled foreign corporation.
To the extent that interest on the Certificates would be
exempt under Section 871(h)(1) of the Code from U.S. withholding tax, and a
Certificate is not held in connection with a holder's trade or business in the
United States, a Certificate will not be subject to U.S. estate taxes in the
estate of non-resident alien individual.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated ______________, 19__ the Underwriter has agreed to purchase and
the Company has agreed to sell to the Underwriter the Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Certificates is subject to,
among other things, the receipt of certain legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Certificates, before deducting expenses payable by the
Company, will be _____% of the aggregate principal balance of the Certificates
plus accrued interest thereon from the Cut-off Date. The Underwriter may effect
such transactions by selling the Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Certificates, the Underwriter may be deemed to
have received compensation from the Company in the form of underwriting
compensation. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Certificates may be deemed to be
underwriters and any profit on the resale of the Certificates positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
The Underwriting Agreement provides that the Company will
indemnify the Underwriter, and under limited circumstances the Underwriter will
indemnify the Company, against certain civil liabilities under the Securities
Act of 1933, or contribute to payments required to be made in respect thereof.
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There can be no assurance that a secondary market for the
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Certificates
will be the monthly statements discussed in the Prospectus under "Description of
the Certificates--Reports to Certificateholders," which will include information
as to the outstanding principal balance of the Certificates and the status of
the applicable form of credit enhancement. There can be no assurance that any
additional information regarding the Certificates will be available through any
other source. In addition, the Company is not aware of any source through which
price information about the Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the Certificates
may adversely affect the liquidity of the Certificates, even if a secondary
market for the Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed
upon for the Company by _____________________ and for the Underwriter by
_________________________.
RATING
It is a condition to the issuance of the Certificates that they be
rated not lower than "___" by _________________________ ___________.
The ratings of _______ on mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
on the underlying mortgage loans to which they are entitled. _______ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments might differ from that originally anticipated. _______ ratings on
pass-through certificates do not represent any assessment of the Master
Servicer's [or the related Subservicer's] ability to purchase Converting
Mortgage Loans, or the Master Servicer's ability to purchase Converted Mortgage
Loans. In the event that neither the related Subservicer nor the Master Servicer
purchases a Converting or Converted Mortgage Loan, investors might suffer a
lower than anticipated yield. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.
The Company has not requested a rating on the Certificates by any
rating agency other than _______. However, there can be no assurance as to
whether any other rating agency will rate the Certificates, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
rating assigned to the Certificates by _______.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the rating
initially assigned to the Certificates is subsequently lowered for any reason,
no person or entity
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is obligated to provide any additional support or credit enhancement with
respect to the Certificates.
LEGAL INVESTMENT
The Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated in at least the second highest rating
category by one of the Rating Agencies, and, as such, are legal investments for
certain entities to the extent provided in SMMEA. SMMEA provides, however, that
states could override its provisions on legal investment and restrict or
condition investment in mortgage related securities by taking statutory action
on or prior to October 3, 1991. Certain states have enacted legislation which
overrides the preemption provisions of SMMEA.
The Company makes no representations as to the proper
characterization of the Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase the Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Certificates. Accordingly, all institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their legal advisors in determining whether and to what extent the
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment Matters" in the Prospectus.
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No dealer, salesman or other person has been authorized to give
any information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
TABLE OF CONTENTS
PAGE
Prospectus Supplement
Summary.............................................. S-
Description of the Mortgage Pool..................... S-
Description of the Certificates...................... S-
Certain Yield and Prepayment
Considerations.................................. S-
Pooling and Servicing Agreement...................... S-
Certain Federal Income Tax
Consequences.................................... S-
Method of Distribution............................... S-
Legal Opinions....................................... S-
Rating............................................... S-
Legal Investment..................................... S-
Prospectus
Summary of Prospectus................................
Risk Factors.........................................
The Mortgage Pools...................................
Servicing of Mortgage Loans..........................
Description of the Certificates......................
Subordination........................................
Description of Credit Enhancement....................
Purchase Obligations.................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder....................
The Company..........................................
Imperial Credit Industries, Inc......................
The Pooling Agreement................................
Yield Considerations.................................
Maturity and Prepayment
Considerations..................................
Certain Legal Aspects of Mortgage
Loans ..........................................
Certain Federal Income Tax
Consequences....................................
State and Other Tax Consequences.....................
ERISA Considerations.................................
Legal Investment Matters.............................
Use of Proceeds......................................
Methods of Distribution..............................
Legal Matters........................................
Financial Information................................
Rating...............................................
Index of Principal Definitions.......................
SOUTHERN PACIFIC SECURED
ASSETS CORP.
$________________
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199_-__
-------------------
PROSPECTUS SUPPLEMENT
-------------------
----------------------------------
_____, 19__
<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 PRELIMINARY 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
PRELIMINARY PROSPECTUS DATED APRIL 30, 1997
PROSPECTUS
Mortgage Pass-Through Certificates
Mortgage-Backed Notes
Southern Pacific Secured Assets Corp.
The mortgage pass-through certificates ("Certificates") or mortgage-backed notes
("Notes") offered hereby (the "Offered Securities") and by the supplements
hereto (each, a "Prospectus Supplement") will be offered from time to time in
series. The Offered Securities of each series, together with any other mortgage
pass-through certificates or mortgage-backed notes of such series, are
collectively referred to herein as the "Securities."
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in, and each series of Notes will represent
indebtedness of, a trust fund (with respect to any series, the "Trust Fund") to
be established by Southern Pacific Secured Assets Corp. (the "Company"). Each
Trust Fund will consist primarily of a segregated pool (a "Mortgage Pool") of
one- to four-family and/or multifamily residential first and/or junior mortgage
loans or manufactured housing conditional sales contracts and installment loan
agreements (collectively, the "Mortgage Loans") or interests therein (which may
include Mortgage Securities as defined herein), acquired by the Company from one
or more affiliated or unaffiliated institutions (the "Sellers"). See "The
Company" and "The Mortgage Pools." The Mortgage Loans and other assets in each
Trust Fund will be held in trust for the benefit of the holders of the related
series of Securities (the "Securityholders") pursuant to (i) with respect to
each series of Certificates, a pooling and servicing agreement or other
agreement (in either case, a "Pooling Agreement") or (ii) with respect to each
series of Notes, an indenture (an "Indenture"), in each case as more fully
described herein and in the related Prospectus Supplement. Information regarding
the Offered Securities of a series, and the general characteristics of the
Mortgage Loans and other assets in the related Trust Fund, will be set forth in
the related Prospectus Supplement.
Each series of Securities will include one or more classes. Each class of
Securities of any series will represent the right, which right may be senior or
subordinate to the rights of one or more of the other classes of the Securities,
to receive a specified portion of payments of principal or interest (or both) on
the Mortgage Loans and other assets in the related Trust Fund in the manner
described herein and in the related Prospectus Supplement. A series may include
one or more classes of Securities entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. A
series may include two or more classes of Securities which differ as to the
timing, sequential order, priority of payment, pass-through rate or amount of
distributions of principal or interest or both.
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF SECURITIES WILL BE
PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY, EXCEPT
AS PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER SERVICER (THE
"MASTER SERVICER") FOR ANY SERIES OF SECURITIES WILL BE NAMED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE ITS LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS ON
THE RELATED MORTGAGE LOANS). SEE "DESCRIPTION OF THE SECURITIES."
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Securities may include any one or any combination of a mortgage pool
insurance policy, letter of credit, bankruptcy bond, special hazard insurance
policy, reserve fund or other form of credit support. In addition to or in lieu
of the foregoing, credit enhancement may be provided by means of subordination
of one or more classes of Securities. See "Description of Credit Enhancement."
The rate of payment of principal of each class of Securities entitled to a
portion of principal payments on the Mortgage Loans and other assets in the
related Mortgage Pool will depend on the priority of payment of such class and
the rate and timing of principal payments (including by reason of prepayments,
defaults, liquidations and repurchases of Mortgage Loans) on such Mortgage Loans
and other assets. A rate of principal payment slower or faster than that
anticipated may affect the yield on a class of Securities in the manner
described herein and in the related Prospectus Supplement. See "Yield
Considerations."
With respect to each series of Certificates, one or more separate elections may
be made to treat the related Trust Fund or a designated portion thereof as a
real estate mortgage investment conduit ("REMIC") for federal income tax
purposes. If applicable, the Prospectus Supplement for a series of Certificates
will specify which class or classes of the related series of Certificates will
be considered to be regular interests in the related REMIC and which class of
Certificates or other interests will be designated as the residual interest in
the related REMIC. See "Certain Federal Income Tax Consequences" herein.
Prospective investors should review the information appearing under the caption
"Risk Factors" herein and such information as may be set forth under the caption
"Risk Factors" in the related Prospectus Supplement before purchasing any
Offered Security.
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS
ON THE SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE SECURITIES OF ANY SERIES NOR THE UNDERLYING MORTGAGE LOANS OR
MORTGAGE SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES, UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT.
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 Offered Securities may be offered through one or more different methods,
including offerings through underwriters, as more fully described under "Methods
of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Securities of any series prior
to the offering thereof. There can be no assurance that a secondary market for
any of the Offered Securities will develop or, if it does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is April __, 1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS 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 SECURITIES OFFERED
HEREBY AND THEREBY OR AN OFFER OF SUCH SECURITIES 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; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
TABLE OF CONTENTS
Caption Page
SUMMARY OF PROSPECTUS .................................................... 4
RISK FACTORS ............................................................. 12
THE MORTGAGE POOLS ....................................................... 15
General ......................................................... 15
The Mortgage Loans .............................................. 16
Underwriting Standards .......................................... 20
Qualifications of Originators and Sellers ....................... 22
Representations by Sellers ...................................... 22
SERVICING OF MORTGAGE LOANS .............................................. 24
General ......................................................... 24
The Master Servicer ............................................. 25
Collection and Other Servicing Procedures;
Mortgage Loan Modifications ..................................... 25
Subservicers .................................................... 27
Special Servicers ............................................... 27
Servicing and Other Compensation and
Payment of Expenses; Spread ..................................... 30
Evidence as to Compliance ....................................... 30
DESCRIPTION OF THE SECURITIES ............................................ 31
General ......................................................... 31
Form of Securities .............................................. 32
Assignment of Trust Fund Assets ................................. 33
Certificate Account ............................................. 35
Distributions ................................................... 39
Distributions of Interest and Principal on the
Securities ...................................................... 39
Distributions on the Securities in Respect of
Prepayment Premiums or in Respect
of Equity Participations ........................................ 41
Allocation of Losses and Shortfalls ............................. 41
Advances ........................................................ 41
Reports to Securityholders ...................................... 42
DESCRIPTION OF CREDIT ENHANCEMENT ........................................ 43
General ......................................................... 43
Subordinate Securities .......................................... 44
Letter of Credit ................................................ 44
Mortgage Pool Insurance Policies ................................ 45
Special Hazard Insurance Policies ............................... 46
Bankruptcy Bonds ................................................ 47
Reserve Funds ................................................... 47
Maintenance of Credit Enhancement ............................... 48
Reduction or Substitution of Credit
Enhancement ..................................................... 50
PURCHASE OBLIGATIONS ..................................................... 50
PRIMARY MORTGAGE INSURANCE, HAZARD
INSURANCE;
CLAIMS THEREUNDER ........................................................ 51
General ................................................ 51
Primary Mortgage Insurance Policies .................... 51
Hazard Insurance Policies .............................. 52
FHA Insurance .......................................... 53
THE COMPANY .............................................................. 54
THE AGREEMENTS ........................................................... 54
General ......................................................... 54
Certain Matters Regarding the Master Servicer
and the Company ................................................. 55
Events of Default and Rights Upon Event
Default ......................................................... 55
Amendment ....................................................... 58
Termination; Retirement of Securities ........................... 59
The Trustee ..................................................... 60
Duties of the Trustee ........................................... 60
Certain Matters Regarding the Trustee ........................... 60
Resignation and Removal of the Trustee .......................... 61
YIELD CONSIDERATIONS ..................................................... 61
MATURITY AND PREPAYMENT
CONSIDERATIONS ........................................................... 63
CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS .................................................................... 64
Single Family Loans and Multifamily Loans ....................... 64
Contracts ....................................................... 65
Foreclosure on Mortgages ........................................ 66
Repossession with respect to Contracts .......................... 68
Rights of Redemption ............................................ 69
Anti-Deficiency Legislation and Other
Limitations on Lenders .......................................... 69
Junior Mortgages ................................................ 71
Consumer Protection Laws with respect to
Contracts ....................................................... 71
Environmental Legislation ....................................... 72
Enforceability of Certain Provisions ............................ 72
Subordinate Financing ........................................... 73
Applicability of Usury Laws ..................................... 73
Alternative Mortgage Instruments ................................ 74
Formaldehyde Litigation with respect to
Contracts ....................................................... 74
Soldiers' and Sailors' Civil Relief Act of
1940 ............................................................ 74
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES ............................................................. 75
General ......................................................... 75
REMICS .......................................................... 76
Notes ........................................................... 89
Grantor Trust Funds ............................................. 90
STATE AND OTHER TAX CONSEQUENCES ......................................... 99
ERISA CONSIDERATIONS ..................................................... 99
Tax Exempt Investors ............................................ 103
Consultation with Counsel ....................................... 103
USE OF PROCEEDS .......................................................... 104
METHODS OF DISTRIBUTION .................................................. 104
LEGAL MATTERS ............................................................ 105
FINANCIAL INFORMATION .................................................... 106
RATING ................................................................... 106
INDEX OF PRINCIPAL DEFINITIONS ........................................... 107
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UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED OFFERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information filed by the Company 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 its Regional Offices located as follows: Chicago Regional
Office, 500 West Madison, 14th Floor, Chicago, Illinois 60661; New York Regional
Office, Seven World Trade Center, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates
and electronically through the Commission's Electronic Data Gathering, Analysis
and Retrieval system at the Commission's Web site (http://www.sec.gov). The
Company does not intend to send any financial reports to Securityholders.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities Act
of 1933 (the "Securities Act") and to which reference is hereby made.
REPORTS TO SECURITYHOLDERS
The Master Servicer or other designated person will be required to
provide periodic unaudited reports concerning each Trust Fund to all registered
holders of Offered Securities of the related series. See "Description of the
Securities--Reports to Securityholders."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein and in the related Prospectus Supplement
by reference all documents and reports filed or caused to be filed by the
Company with respect to a Trust Fund pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the termination of the offering of the
Offered Securities of the related series. The Company 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 Offered Securities,
upon written or oral request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such reports relate
to one or more of such classes of such Offered Securities, other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents. Requests should be directed in writing to
Southern Pacific Secured Assets Corp., One Centerpointe Drive, Suite 500, Lake
Oswego, Oregon 97035, or by telephone at (503) 684-4700. The Company has
determined that its financial statements will not be material to the offering of
any Offered Securities.
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SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Offered Securities of such series. Capitalized terms used in this
summary that are not otherwise defined shall have the meanings ascribed thereto
elsewhere in this Prospectus. An index indicating where certain capitalized
terms used herein are defined appears at the end of this Prospectus.
Securities Offered.................. Mortgage pass-through certificates or
mortgage-backed notes. The mortgage
pass-through certificates (the "Offered
Certificates") or mortgage-backed notes
(the "Offered Notes"; the Offered Notes or
the Offered Certificates, the "Offered
Securities") offered hereby and by the
various Prospectus Supplements with
respect hereto will be offered from time
to time in series. The Offered Securities
of each series, together with any other
mortgage pass-through certificates or
mortgage- backed notes of such series, are
collectively referred to herein as the
"Securities."
Company............................. Southern Pacific Secured Assets Corp. (the
"Company"), a wholly-owned subsidiary of
Southern Pacific Funding Corporation
("SPFC"). See "The Company."
Master Servicer..................... The master servicer (the "Master
Servicer"), if any, for a series of
Securities will be specified in the
related Prospectus Supplement and may be
SPFC or another affiliate of the Company.
See "Servicing of Mortgage Loans--The
Master Servicer."
Special Servicer.................... The special servicer (the "Special
Servicer"), if any, for a series of
Securities will be specified, or the
circumstances under which a Special
Servicer will be appointed will be
described, in the related Prospectus
Supplement. Any Special Servicer may be an
affiliate of the Company. See "Servicing
of Mortgage Loans--Special Servicers."
Issuer.............................. With respect to each series of Notes, the
issuer (the "Issuer") will be the Company
or an owner trust established by it for
the purpose of issuing such series of
Notes. Each such owner trust will be
created pursuant to a trust agreement (the
"Owner Trust Agreement") between the
Company, acting as depositor, and the
Owner Trustee. Each series of Notes will
represent indebtedness of the Issuer and
will be issued pursuant to an indenture
between the Issuer and the Trustee (the
"Indenture") whereby the Issuer
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will pledge the Trust Fund to secure the
Notes under the lien of the Indenture. As
to each series of Notes where the Issuer
is an owner trust, the ownership of the
Trust Fund will be evidenced by
certificates (the "Equity Certificates")
issued under the Owner Trust Agreement,
which are not offered hereby. The Notes
will represent nonrecourse obligations
solely of the Issuer, and the proceeds of
the Trust Fund will be the sole source of
payments on the Notes, except as described
herein under "Description of Credit
Enhancement" and in the related Prospectus
Supplement.
Trustees............................ The trustee or indenture trustee (each,
the "Trustee") for each series of
Certificates and Notes, respectively, will
be named in the related Prospectus
Supplement. The Owner Trustee (the "Owner
Trustee") for each series of Notes will be
named in the related Prospectus
Supplement. See "The Agreements--The
Trustee."
The Securities...................... Each series of Securities will include one
or more classes of Securities which will
represent either (i) with respect to each
series of Certificates, in the aggregate
the entire beneficial ownership interest
in, or (ii) with respect to each series of
Notes, indebtedness of, a segregated pool
of Mortgage Loans (exclusive of any
portion of interest payments (the
"Spread") relating to each Mortgage Loan
retained by the Company or any of its
affiliates) or interests therein (which
may include Mortgage Securities as defined
herein), and certain other assets as
described below (collectively, a "Trust
Fund"), and will be issued pursuant to
either (i) with respect to each series of
Certificates, a pooling and servicing
agreement or other agreement specified in
the related Prospectus Supplement (in
either case, a "Pooling Agreement") or
(ii) with respect to each series of Notes,
an indenture specified in the related
Prospectus Supplement (the "Indenture").
Except for certain Strip Securities and
REMIC Residual Certificates (each as
hereinafter described), each series of
Securities, or class of Securities in the
case of a series consisting of two or more
classes, will have a stated principal
balance and will be entitled to
distributions of interest based on a
specified interest rate or rates (each, a
"Security Interest Rate"). The Security
Interest Rate of each Security offered
hereby will be stated in the related
Prospectus Supplement as the "Pass-Through
Rate" with respect to a Certificate and
the "Note Interest Rate" with respect to a
Note. Each series or class of Securities
may have a different
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<PAGE>
Security Interest Rate, which may be a
fixed, variable or adjustable Security
Interest Rate, or any combination of two
or more such Security Interest Rates. The
related Prospectus Supplement will specify
the Security Interest Rate or Rates for
each series or class of Securities, or the
initial Security Interest Rate or Rates
and the method for determining subsequent
changes to the Security Interest Rate or
Rates.
A series may include one or more classes
of Securities ("Strip Securities")
entitled (i) to principal distributions,
with disproportionate, nominal or no
interest distribu- tions, or (ii) to
interest distributions, with dispropor-
tionate, nominal or no principal
distributions. In addition, a series may
include two or more classes of Securities
which differ as to timing, sequential
order, priority of payment, pass-through
rate or amount of distributions of
principal or interest or both, or as to
which distributions of principal or
interest or both on any class may be made
upon the occurrence of specified events,
in accordance with a schedule or formula,
or on the basis of collections from
designated portions of the Mortgage Pool,
which series may include one or more
classes of Securities ("Accrual
Securities"), as to which certain accrued
interest will not be distributed but
rather will be added to the principal
balance thereof on each Distribution Date,
as hereinafter defined, in the manner
described in the related Prospectus
Supplement.
If so provided in the related Prospectus
Supplement, a series of Securities may
include one or more classes of Securities
(collectively, the "Senior Securities")
which are senior to one or more classes of
Securities (collectively, the "Subordinate
Securities") in respect of certain
distributions of principal and interest
and allocations of losses on Mortgage
Loans. In addition, certain classes of
Senior (or Subordinate) Securities may be
senior to other classes of Senior (or
Subordinate) Securities in respect of such
distributions or losses. As to each series
of Certificates, one or more elections may
be made to treat the related Trust Fund or
a designated portion thereof as a "real
estate mortgage investment conduit" or
"REMIC" as defined in the Internal Revenue
Code of 1986 (the "Code"). See
"Description of the Securities."
The Securities will not be guaranteed or
insured by any governmental agency or
instrumentality, by the Company, the
Master Servicer or any of their
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respective affiliates or by any other
person, unless otherwise specified in the
related Prospectus Supplement.
The Mortgage Pools.................. Unless otherwise specified in the related
Prospectus Supplement, each Trust Fund
will consist primarily of a segregated
pool (a "Mortgage Pool") of mortgage loans
and/or manufactured housing conditional
sales and installment loan agreements
(collectively, the "Mortgage Loans").
Unless otherwise specified in the related
Prospectus Supplement, each Mortgage Loan
will be secured by a first or junior lien
on or security interest in (i) a one- to
four-family residential property, (ii) a
residential property consisting of five or
more rental or cooperatively-owned
dwelling units or (iii) a new or used
manufactured home (each, a "Mortgaged
Property"). The Mortgaged Properties may
be located in any one of the 50 states,
the District of Columbia or the
Commonwealth of Puerto Rico. For a
description of the types of Mortgage Loans
that may be included in the Mortgage
Pools, see "The Mortgage Pools--The
Mortgage Loans." The Mortgage Loans will
not be guaranteed or insured by the
Company, any of its affiliates or, unless
otherwise specified in the related
Prospectus Supplement, by any governmental
agency or instrumentality or any other
person.
If specified in the related Prospectus
Supplement, Mortgage Loans which are
converting or converted from an
adjustable-rate to a fixed-rate or certain
Mortgage Loans for which the Mortgage Rate
has been reset may be repurchased by the
Company or purchased by the related Master
Servicer, the applicable Seller or another
party, or a designated remarketing agent
will use its best efforts to arrange the
sale thereof as further described herein.
If so specified in the related Prospectus
Supplement, some Mortgage Loans may be
delinquent or non- performing as of the
date of their deposit in the related Trust
Fund.
If specified in the related Prospectus
Supplement, a Trust Fund may include or
consist solely of mortgage participations
or pass-through certificates evidencing
interests in Mortgage Loans ("Mortgage
Securities"), as described herein. See
"The Mortgage Pools-General" herein.
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<PAGE>
Unless otherwise specified in the related
Prospectus Supplement, each Mortgage Loan
and Mortgage Security included in a Trust
Fund will have been selected by the
Company from among those purchased, either
directly or indirectly, from a prior
holder thereof (a "Seller"), which prior
holder may or may not be the originator of
such Mortgage Loan or the issuer of such
Mortgage Security and may be an affiliate
of the Company. A Mortgage Security
included in a Trust Fund, however, may
also have been issued previously by the
Company or an affiliate thereof.
A Current Report on Form 8-K will be
available upon request to purchasers of
the Offered Securities of the related
series and will be filed, together with
the related Pooling Agreement, with
respect to each series of Certificates,
and the related Servicing Agreement, Owner
Trust Agreement and Indenture, with
respect to each series of Notes, with the
Securities and Exchange Commission within
fifteen days after such initial issuance.
Interest Distributions.............. Except as otherwise specified herein or in
the related Prospectus Supplement,
interest on each class of Offered
Securities of each series, other than
Strip Securities or Accrual Securities
(prior to the time when accrued interest
becomes payable thereon), will accrue at
the applicable Security Interest Rate
(which may be a fixed, variable or
adjustable rate or any combination
thereof) on such class's principal balance
outstanding from time to time and will be
remitted on the 25th day (or, if such day
is not a business day, on the next
succeeding business day) of each month,
commencing with the month following the
month in which the Cut-off Date (as
defined in the applicable Prospectus
Supplement) occurs (each, a "Distribution
Date"). Distributions, if any, with
respect to interest on Strip Securities
will be calculated and made on each
Distribution Date as described herein and
in the related Prospectus Supplement.
Interest that has accrued but is not yet
payable on any Accrual Securities will be
added to the principal balance of such
class on each Distribution Date, and will
thereafter bear interest. Distributions of
interest with respect to one or more
classes of Offered Securities (or, in the
case of a class of Accrual Securities,
accrued interest to be added to the
principal balance thereof) may be reduced
as a result of the occurrence of certain
delinquencies not covered by advances,
losses, prepayments and other
contingencies described herein and in the
related
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<PAGE>
Prospectus Supplement. See "Yield
Considerations" and "Description of the
Securities."
Principal Distributions............. Except as otherwise specified in the
related Prospectus Supplement, principal
distributions on the Securities of each
series will be payable on each
Distribution Date, commencing with the
Distribution Date in the month following
the month in which the Cut-off Date
occurs, to the holders of the Securities
of such series, or of the class or classes
of Securities then entitled thereto, on a
pro rata basis among all such Securities
or among the Securities of any such class,
in proportion to their respective
outstanding principal balances, or in the
priority and manner otherwise specified in
the related Prospectus Supplement. Strip
Securities with no principal balance will
not receive distributions in respect of
principal. Distributions of principal with
respect to any series of Securities, or
with respect to one or more classes
included therein, may be reduced to the
extent of certain delinquencies not
covered by advances or losses not covered
by the applicable form of credit
enhancement. See "The Mortgage Pools,"
"Maturity and Prepayment Considerations"
and "Desc- ription of the Securities."
Credit Enhancement.................. If so specified in the Prospectus
Supplement, the Trust Fund with respect to
any series of Securities may include any
one or any combination of a letter of
credit, mortgage pool insurance policy,
special hazard insurance policy,
bankruptcy bond, reserve fund or other
type of credit support to provide partial
coverage for certain defaults and losses
relating to the Mortgage Loans. Credit
support also may be provided in the form
of subordination of one or more classes of
Securities in a series under which losses
are first allocated to any Subordinate
Securities up to a specified limit. With
respect to any series of Notes, the
related Equity Certificates, insofar as
they represent the beneficial ownership
interest in the Issuer, will be
subordinate to the related Notes. Unless
otherwise specified in the related
Prospectus Supplement, any form of credit
enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement. Losses not covered
by any form of credit enhancement will be
borne by the holders of the related
Securities (or certain classes thereof).
To the extent not set forth herein, the
amount and types of coverage, the
identification of any entity providing the
coverage, the terms of any subordination
and related information will be set forth
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in the Prospectus Supplement relating to a
series of Securities. See "Description of
Credit Enhancement" and "Subordination."
Advances............................ If and to the extent described in the
related Prospectus Supplement, and subject
to any limitations specified therein, the
Master Servicer for any Trust Fund will be
obligated to make, or have the option of
making, certain advances with respect to
delinquent scheduled payments on the
Mortgage Loans in such Trust Fund. Any
such advance made by the Master Servicer
with respect to a Mortgage Loan is
recoverable by it as described herein
under "Description of the
Securities--Advances" either from
recoveries on or in respect of the
specific Mortgage Loan or, with respect to
any advance subsequently determined to be
nonrecoverable from recoveries on or in
respect of the specific Mortgage Loan, out
of funds otherwise distributable to the
holders of the related series of
Securities, which may include the holders
of any Senior Securities of such series.
If and to the extent provided in the
Prospectus Supplement for a series of
Securities, the Master Servicer will be
entitled to receive interest on its
advances for the period that they are
outstanding payable from amounts in the
related Trust Fund. As specified in the
Prospectus Supplement with respect to any
series of Securities as to which the Trust
Fund includes Mortgage Securities, the
advancing obligations in respect of the
underlying Mortgage Loans will be pursuant
to the terms of such Mortgage Securities,
as may be supplemented by the terms of the
applicable Pooling Agreement, and may
differ from the provisions described
herein.
Optional Termination................ The Master Servicer, the Company or, if
specified in the related Prospectus
Supplement, the holder of the residual
interest in a REMIC with respect to a
series of Certificates or the holder of
the Equity Certificates with respect to a
series of Notes, may at its option either
(i) effect early retirement of a series of
Securities through the purchase of the
assets in the related Trust Fund or (ii)
purchase, in whole but not in part, the
Securities specified in the related
Prospectus Supplement; in each case under
the circumstances and in the manner set
forth herein under "The
Agreements--Termination; Retirement of
Securities" and in the related Prospectus
Supplement.
Legal Investment.................... At the date of issuance, as to each
series, each class of Offered Securities
will be rated at the request of the
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Company in one of the four highest rating
categories by one or more nationally
recognized statistical rating agencies
(each, a "Rating Agency"). Unless
otherwise specified in the related
Prospectus Supplement, each class of
Offered Securities that is rated in one of
the two highest rating categories by at
least one Rating Agency will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Offered Securities of any series
constitute legal investments for them. See
"Legal Investment Matters."
ERISA Considerations................ A fiduciary of an employee benefit plan
and certain other retirement plans and
arrangements, including individual
retirement accounts and annuities, Keogh
plans, and collective investment funds and
separate accounts in which such plans,
accounts, annuities or arrangements are
invested, that is subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code (each, a "Plan") should carefully
review with its legal advisors whether the
purchase or holding of Offered Securities
could give rise to a transaction that is
prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the
Code. Investors are advised to consult
their counsel and to review "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Certain Federal Income
Tax Consequences.................. Offered Certificates of each series of
Certificates will constitute either (i)
interests ("Grantor Trust Certificates")
in a Trust Fund treated as a grantor trust
under applicable provisions of the Code or
(ii) "regular interests" ("REMIC Regular
Certificates") or "residual interests"
("REMIC Residual Certificates") in a Trust
Fund, or a portion thereof, treated as a
REMIC under Sections 860A through 860G of
the Code. Offered Notes of each series of
Notes will represent indebtedness of the
related Trust Fund.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement. See
"Certain Federal Income Tax Consequences."
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Securities:
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Offered Securities of any series will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of the Offered Securities of any series. The
Prospectus Supplement for any series of Offered Securities may indicate that an
underwriter specified therein intends to establish a secondary market in such
Securities, however no underwriter will be obligated to do so. The Offered
Securities will not be listed on any securities exchange.
LIMITED OBLIGATIONS. The Offered Securities will not represent an
interest in or obligation of the Company, the Master Servicer or any of their
respective affiliates. The only obligations of the foregoing entities with
respect to the Securities, the Mortgage Loans or any Mortgage Securities will be
the obligations (if any) of the Company pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans or
Mortgage Securities, the Master Servicer's servicing obligations under the
related Pooling Agreement (including, if and to the extent described in the
related Prospectus Supplement, its limited obligation to make certain advances
in the event of delinquencies on the Mortgage Loans) and pursuant to the terms
of any Mortgage Securities, and, if and to the extent expressly described in the
related Prospectus Supplement, certain limited obligations of the Master
Servicer in connection with a Purchase Obligation or an agreement to purchase or
act as remarketing agent with respect to a Convertible Mortgage Loan upon
conversion to a fixed rate. Unless otherwise specified in the related Prospectus
Supplement, neither the Securities nor the underlying Mortgage Loans or Mortgage
Securities will be guaranteed or insured by any governmental agency or
instrumentality, by the Company, the Master Servicer or any of their respective
affiliates or by any other person. Proceeds of the assets included in the
related Trust Fund for each series of Securities (including the Mortgage Loans
or Mortgage Securities and any form of credit enhancement) will be the sole
source of payments on the Securities, and there will be no recourse to the
Company, the Master Servicer or any other entity in the event that such proceeds
are insufficient or otherwise unavailable to make all payments provided for
under the Securities.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. With
respect to each series of Securities, credit enhancement will be provided in
limited amounts to cover certain types of losses on the underlying Mortgage
Loans. Credit enhancement will be provided in one or more of the forms referred
to herein, including, but not limited to: subordination of other classes of
Securities of the same series; a Letter of Credit; a Purchase Obligation; a
Mortgage Pool Insurance Policy; a Special Hazard Insurance Policy; a Bankruptcy
Bond; a Reserve Fund; or any combination thereof. See "Subordination" and
"Description of Credit Enhancement" herein. Regardless of the form of credit
enhancement provided, the amount of coverage will be limited in amount and in
most cases will be subject to periodic reduction in accordance with a schedule
or formula. Furthermore, such credit enhancements may provide only very limited
coverage as to certain types of losses or risks, and may provide no coverage as
to certain other types of losses or risks. In the event losses exceed the amount
of coverage provided by any credit enhancement or losses of a type not covered
by any credit enhancement occur, such losses will be borne by the holders of the
related Securities (or certain classes thereof). The Company, the Master
Servicer or other specified person will generally be permitted to reduce,
terminate or substitute all or a portion of the credit enhancement for any
series of Securities, if each applicable Rating Agency indicates that the
then-current rating(s) thereof will not be adversely affected. The rating(s) of
any series of Securities by any applicable Rating Agency may be lowered
following the initial issuance thereof as a result of the downgrading of the
obligations of any applicable credit support provider, or as a result of losses
on the related Mortgage Loans in excess of the levels contemplated by such
Rating Agency at the time of its initial rating analysis. Neither the Company,
the Master Servicer nor any of their respective affiliates will have any
obligation to replace or supplement any credit enhancement, or to take any other
action to maintain any rating(s) of any series of Securities. See "Description
of Credit Enhancement--Reduction of Credit Enhancement."
INVESTMENT IN THE MORTGAGE LOANS. An investment in securities such as
the Securities which generally represent interests in mortgage loans and/or
manufactured housing conditional sales contracts and installment loan agreements
may be affected by, among other things, a decline in real estate values and
changes in the borrowers' financial condition. No assurance can be given that
values of the Mortgaged Properties have remained or will
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remain at their levels on the dates of origination of the related Mortgage
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans, and any secondary financing on the Mortgaged Properties, in a particular
Mortgage Pool become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, in the case of Mortgage Loans that are subject to negative
amortization, due to the addition to principal balance of Deferred Interest, the
principal balances of such Mortgage Loans could be increased to an amount equal
to or in excess of the value of the underlying Mortgaged Properties, thereby
increasing the likelihood of default. To the extent that such losses are not
covered by any reserve fund or instrument of credit enhancement in the related
Trust Fund, holders of Securities of the series evidencing interests in the
related Mortgage Pool will bear all risk of loss resulting from default by
Mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest on the
defaulted Mortgage Loans. Certain of the types of loans which may be included in
the Mortgage Pools may involve additional uncertainties not present in
traditional types of loans. For example, certain of the Mortgage Loans provide
for escalating or variable payments by the borrower under the Mortgage Loan (the
"Mortgagor"), as to which the Mortgagor is generally qualified on the basis of
the initial payment amount. In some instances, Mortgagors may not be able to
make their loan payments as such payments increase and thus the likelihood of
default will increase. In addition to the foregoing, certain geographic regions
of the United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
For example, a region's economic condition and housing market may be directly,
or indirectly, adversely affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots. The economic impact
of any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans
underlying certain series of Securities may be concentrated in these regions,
and such concentration may present risk considerations in addition to those
generally present for similar mortgage-backed securities without such
concentration. Moreover, as described below, any Mortgage Loan for which a
breach of a representation or warranty exists will remain in the related Trust
Fund in the event that a Seller is unable, or disputes its obligation, to
repurchase such Mortgage Loan and such a breach does not also constitute a
breach of any representation made by any other person. In such event, any
resulting losses will be borne by the related form of credit enhancement, to the
extent available.
Certain of the Mortgage Loans included in a Trust Fund, particularly
those secured by Multifamily Properties, may not be fully amortizing (or may not
amortize at all) over their terms to maturity and, thus, will require
substantial payments of principal and interest (that is, balloon payments) at
their stated maturity. Mortgage Loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a Mortgagor to make a
balloon payment typically will depend upon its ability either to fully refinance
the loan or to sell the related Mortgaged Property at a price sufficient to
permit the Mortgagor to make the balloon payment. The ability of a Mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the Mortgagor's equity in the
related Mortgaged Property, prevailing general economic conditions, the
availability of credit for loans secured by comparable real properties and, in
the case of Multifamily Properties, the financial condition and operating
history of the Mortgagor and the related Mortgaged Property, tax laws and rent
control laws.
It is anticipated that some or all of the Mortgage Loans included in
any Trust Fund, particularly Mortgage Loans secured by Multifamily Properties,
will be nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those Mortgage Loans, recourse in the event of Mortgagor
default will be limited to the specific real property and other assets, if any,
that were pledged to secure the Mortgage Loan. However, even with respect to
those Mortgage Loans that provide for recourse against the Mortgagor and its
assets generally, there can be no assurance that enforcement of such recourse
provisions will be practicable, or that the other assets of the Mortgagor will
be sufficient to permit a recovery in respect of a defaulted Mortgage Loan in
excess of the liquidation value of the related Mortgaged Property.
Mortgage Loans made on the security of Multifamily Properties may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with loans made on the
security of Single Family Properties. The ability of a borrower to repay a loan
secured by an income-producing property typically is dependent primarily upon
the successful operation of such property rather than upon the existence of
independent income or assets of the borrower; thus, the value of an
income-producing property is
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directly related to the net operating income derived from such property. If the
net operating income of the property is reduced (for example, if rental or
occupancy rates decline or real estate tax rates or other operating expenses
increase), the borrower's ability to repay the loan may be impaired. In
addition, the concentration of default, foreclosure and loss risk for a pool of
Mortgage Loans secured by Multifamily Properties may be greater than for a pool
of Mortgage Loans secured by Single Family Properties of comparable aggregate
unpaid principal balance because the pool of Mortgage Loans secured by
Multifamily Properties is likely to consist of a smaller number of higher
balance loans.
Additional special risks associated with particular types of Mortgage
Loans will be specified in the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS. The yield to maturity of the
Offered Securities of each series will depend on, among other things, the rate
and timing of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed interest rate
loans or breaches of representations and warranties) on the related Mortgage
Loans and the price paid by Securityholders. Such yield may be adversely
affected by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans. The yield to maturity on Strip Securities will be
extremely sensitive to the rate of prepayments on the related Mortgage Loans. In
addition, the yield to maturity on certain other types of classes of Securities,
including Accrual Securities, Securities with a Security Interest Rate which
fluctuates inversely with an index or certain other classes in a series
including more than one class of Securities, may be relatively more sensitive to
the rate of prepayment on the related Mortgage Loans than other classes of
Securities. Prepayments are influenced by a number of factors, including
prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility. See "Yield Considerations" and "Maturity and
Prepayment Considerations" herein.
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 that 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
Offered Securities of any series. See "ERISA Considerations".
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
the taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described under "Certain Federal Income Tax
Consequences--REMICs". Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may 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 REMIC 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 REMIC Residual Certificates have received full
payment of their stated interest and principal. A portion (or, in certain
circumstances, all) of such Certificateholder's share of the REMIC taxable
income may be treated as "excess inclusion" income to such holder, which (i)
generally 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 REMIC Residual Certificates may be limited in their
ability to deduct servicing fees and other expenses of the REMIC. In addition,
REMIC Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the taxable
income arising in a given year on a REMIC Residual Certificate 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 a REMIC Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument having
similar cash flow characteristics.
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THE MORTGAGE POOLS
GENERAL
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool will consist primarily of Mortgage Loans, minus the Spread, if
any, or any other interest retained by the Company or any affiliate of the
Company. The Mortgage Loans may consist of Single Family Loans, Multifamily
Loans and Contracts, each as described below.
The Mortgage Loans (other than the Contracts) will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust or
other similar security instruments ("Mortgages") that, in each case, create a
first or junior lien on the related Mortgagor's fee or leasehold interest in the
related Mortgaged Property. The Mortgaged Properties for such loans may consist
of attached or detached one-family dwelling units, two- to four-family dwelling
units, condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other individual dwelling units (a "Single Family
Property" and the related loans, "Single Family Loans"), which in each case may
be owner-occupied or may be a vacation, second or non-owner-occupied home. The
Mortgaged Properties for such loans may also consist of residential properties
consisting of five or more rental or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment buildings or projects ("Multifamily
Properties" and the related loans, "Multifamily Loans").
The "Contracts" will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
The "Manufactured Homes" securing the Contracts will consist of manufactured
homes within the meaning of 42 United States Code, Section 5402(6), which
defines a "manufactured home" as "a structure, transportable in one or more
sections, which in the traveling mode, is eight body feet or more in width or
forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under this chapter."
Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will not be guaranteed or insured by the Company,
any of its affiliates or, unless otherwise specified in the related Prospectus
Supplement, by any governmental agency or instrumentality or other person.
However, if so specified in the related Prospectus Supplement, the Mortgage
Loans may be insured by the Federal Housing Administration (the "FHA" and such
loans, "FHA Loans"). See "Description of Primary Insurance Policies--FHA
Insurance."
A Mortgage Pool may include Mortgage Loans that are delinquent or
non-performing as of the date the related series of Securities is issued. In
that case, the related Prospectus Supplement will set forth, as to each such
Mortgage Loan, available information as to the period of such delinquency or
non-performance and any other information relevant for a prospective purchaser
to make an investment decision.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, from banks, savings and loan associations, mortgage
bankers, investment banking firms, the Resolution Trust Corporation (the "RTC"),
the Federal Deposit Insurance Corporation (the "FDIC") and other mortgage loan
originators or sellers not affiliated with the Company ("Unaffiliated Sellers")
or from SPFC, the parent of the Company, and its affiliates ("Affiliated
Sellers"; Unaffiliated Sellers and Affiliated Sellers are collectively referred
to herein as "Sellers"). If a Mortgage Pool is composed of Mortgage Loans
acquired by the Company directly from Unaffiliated Sellers, the related
Prospectus Supplement will specify the extent of Mortgage Loans so acquired. The
characteristics of the Mortgage Loans are as described in the related Prospectus
Supplement. Other mortgage loans available for purchase by the Company
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may have characteristics which would make them eligible for inclusion in a
Mortgage Pool but were not selected for inclusion in such Mortgage Pool.
Under certain circumstances, the Mortgage Loans to be included in a
Mortgage Pool will be delivered either directly or indirectly to the Company by
one or more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of Securities (a
"Designated Seller Transaction"). Such Securities may be sold in whole or in
part to any such Seller in exchange for the related Mortgage Loans, or may be
offered under any of the other methods described herein under "Methods of
Distribution." The related Prospectus Supplement for a Mortgage Pool composed of
Mortgage Loans acquired by the Company pursuant to a Designated Seller
Transaction will generally include information, provided by the related Seller,
about the Seller, the Mortgage Loans and the underwriting standards applicable
to the Mortgage Loans. None of the Company or, unless it is the Seller, SPFC or
any of their affiliates will make any representation or warranty with respect to
such Mortgage Loans, or any representation as to the accuracy or completeness of
such information provided by the Seller.
If specified in the related Prospectus Supplement, the Trust Fund for a
series of Securities may include mortgage participations and pass-through
certificates evidencing interests in Mortgage Loans ("Mortgage Securities"), as
described herein. The Mortgage Securities may have been issued previously by the
Company or an affiliate thereof, a financial institution or other entity engaged
generally in the business of mortgage lending or a limited purpose corporation
organized for the purpose of, among other things, acquiring and depositing
mortgage loans into such trusts, and selling beneficial interests in such
trusts. Except as otherwise set forth in the related Prospectus Supplement, such
Mortgage Securities will be generally similar to Securities offered hereunder.
As to any such series of Securities, the related Prospectus Supplement will
include a description of such Mortgage Securities and any related credit
enhancement, and the Mortgage Loans underlying such Mortgage Securities will be
described together with any other Mortgage Loans included in the Mortgage Pool
relating to such series.
THE MORTGAGE LOANS
Unless otherwise specified below or in the related Prospectus
Supplement, each of the Mortgage Loans will be a type of mortgage loan described
or referred to in paragraphs numbered (1) through (8) below:
(1) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of not more than
approximately 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of more than 15
years, but not more than approximately 25 or 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ("ARM
Loans") having an original or modified term to maturity of not more
than approximately 25 or 30 years with a related interest rate (a
"Mortgage Rate") which generally adjusts initially either three months,
six months or one, three, five or seven years subsequent to the initial
payment date, and thereafter at either three-month, six-month, one-year
or other intervals (with corresponding adjustments in the amount of
monthly payments) over the term of the mortgage loan to equal the sum
of a fixed percentage set forth in the related Mortgage Note (the "Note
Margin") and an index*. The related Prospectus Supplement will set
forth the relevant index and the
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* The index (the "Index") for a particular Mortgage Pool will be
specified in the related Prospectus Supplement and may include one of
the following indexes: (i) the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of either six months or one
year, (ii) the weekly auction average investment yield of U.S. Treasury
bills of six months, (iii) the daily Bank Prime Loan rate made
available by the Federal Reserve Board, (iv) the cost of funds of
member institutions for the Federal Home Loan Bank of San Francisco,
(v) the interbank offered rates for U.S. dollar deposits in the London
market, each calculated as of a date prior to each scheduled interest
rate adjustment date which will be specified in the related Prospectus
Supplement or (vi) any other index described in the related Prospectus
Supplement.
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highest, lowest and weighted average Note Margin with respect to the
ARM Loans in the related Mortgage Pool. The related Prospectus
Supplement will also indicate any periodic or lifetime limitations on
changes in any per annum Mortgage Rate at the time of any adjustment.
If specified in the related Prospectus Supplement, an ARM Loan may
include a provision that allows the Mortgagor to convert the adjustable
Mortgage Rate to a fixed rate at some point during the term of such ARM
Loan generally not later than six to ten years subsequent to the
initial payment date;
(4) Negatively-amortizing ARM Loans having original or
modified terms to maturity of not more than approximately 25 or 30
years with Mortgage Rates which generally adjust initially on the
payment date referred to in the related Prospectus Supplement, and on
each of certain periodic payment dates thereafter, to equal the sum of
the Note Margin and the index. The scheduled monthly payment will be
adjusted as and when described in the related Prospectus Supplement to
an amount that would fully amortize the Mortgage Loan over its
remaining term on a level debt service basis; provided that increases
in the scheduled monthly payment may be subject to certain limitations
as specified in the related Prospectus Supplement. If an adjustment to
the Mortgage Rate on a Mortgage Loan causes the amount of interest
accrued thereon in any month to exceed the scheduled monthly payment on
such mortgage loan, the resulting amount of interest that has accrued
but is not then payable ("Deferred Interest") will be added to the
principal balance of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
15 years with monthly payments during the first year calculated on the
basis of an assumed interest rate which is a specified percentage below
the Mortgage Rate on such mortgage loan. Such monthly payments increase
at the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year thereafter to
the extent necessary to amortize the mortgage loan over the remainder
of its approximately 15-year term. Deferred Interest, if any, will be
added to the principal balance of such mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
25 or 30 years with monthly payments during the first year calculated
on the basis of an assumed interest rate which is a specified
percentage below the Mortgage Rate. Such monthly payments increase at
the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year thereafter to
the extent necessary to fully amortize the mortgage loan within its
approximately 25- or 30-year term. Deferred Interest, if any, will be
added to the principal balance of such mortgage loan;
(7) Mortgage loans ("Balloon Loans") having payment terms
similar to those described in one of the preceding paragraphs numbered
(1) through (6), calculated on the basis of an assumed amortization
term, but providing for a payment (a "Balloon Payment") of all
outstanding principal and interest to be made at the end of a specified
term that is shorter than such assumed amortization term; or
(8) Another type of mortgage loan described in the related
Prospectus Supplement.
If provided in the related Prospectus Supplement, certain of the
Mortgage Pools may contain Single Family and Multifamily Loans secured by junior
liens, and the related senior liens ("Senior Liens") may not be included in the
Mortgage Pool. The primary risk to holders of such Mortgage Loans secured by
junior liens is the possibility that adequate funds will not be received in
connection with a foreclosure of the related Senior Liens to satisfy fully both
the Senior Liens and the Mortgage Loan. In the event that a holder of a Senior
Lien forecloses on a Mortgaged Property, the proceeds of the foreclosure or
similar sale will be applied first to the payment of court costs and fees in
connection with the foreclosure, second to real estate taxes, third in
satisfaction of all principal, interest, prepayment or acceleration penalties,
if any, and any other sums due and owing to the holder of the Senior Liens. The
claims of the holders of the Senior Liens will be satisfied in full out of
proceeds of the liquidation of the related Mortgaged Property, if such proceeds
are sufficient, before the Trust Fund as holder of the junior lien receives any
payments in respect of the Mortgage Loan. If the Master Servicer were to
foreclose on any such
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Mortgage Loan, it would do so subject to any related Senior Liens. In order for
the debt related to the Mortgage Loan to be paid in full at such sale, a bidder
at the foreclosure sale of such Mortgage Loan would have to bid an amount
sufficient to pay off all sums due under the Mortgage Loan and the Senior Liens
or purchase the Mortgaged Property subject to the Senior Liens. In the event
that such proceeds from a foreclosure or similar sale of the related Mortgaged
Property are insufficient to satisfy all Senior Liens and the Mortgage Loan in
the aggregate, the Trust Fund, as the holder of the junior lien, and,
accordingly, holders of one or more classes of the Securities of the related
series bear (i) the risk of delay in distributions while a deficiency judgment
against the borrower is obtained and (ii) the risk of loss if the deficiency
judgment is not realized upon. Moreover, deficiency judgments may not be
available in certain jurisdictions or the Mortgage Loan may be nonrecourse. In
addition, a junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages.
If so specified in the related Prospectus Supplement, a Mortgage Loan
may contain a prohibition on prepayment (the period of such prohibition, a
"Lock-out Period" and its date of expiration, a "Lock-out Expiration Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Penalty"). A Multifamily Loan may also contain a provision that entitles the
lender to a share of profits realized from the operation or disposition of the
related Mortgaged Property (an "Equity Participation"). If the holders of any
class or classes of Offered Securities of a series will be entitled to all or a
portion of an Equity Participation, the related Prospectus Supplement will
describe the Equity Participation and the method or methods by which
distributions in respect thereof will be made to such holders.
Certain information, including information regarding loan-to-value
ratios (each, a "Loan-to-Value Ratio") at origination (unless otherwise
specified in the related Prospectus Supplement) of the Mortgage Loans underlying
each series of Securities, will be supplied in the related Prospectus
Supplement. In the case of most Mortgage Loans, the "Loan-to-Value Ratio" at
origination is defined generally as the ratio, expressed as a percentage, of the
principal amount of the Mortgage Loan at origination (or, if appropriate, at the
time of an appraisal subsequent to origination), plus, in the case of a Mortgage
Loan secured by a junior lien, the outstanding principal balance of the related
Senior Liens, to the Value of the related Mortgaged Property. Unless otherwise
specified in the related Prospectus Supplement, the "Value" of a Mortgaged
Property securing a Single Family or Multifamily Mortgage Loan will generally be
equal to the lesser of (x) the appraised value determined in an appraisal
obtained at origination of such Mortgage Loan, if any, or, if the related
Mortgaged Property has been appraised subsequent to origination, the value
determined in such subsequent appraisal and (y) the sales price for the related
Mortgaged Property (except in certain circumstances in which there has been a
subsequent appraisal). In the case of certain refinanced, modified or converted
Single Family or Multifamily Loans, unless otherwise specified in the related
Prospectus Supplement, the "Value" of the related Mortgaged Property will be
equal to the lesser of (x) the appraised value of the related Mortgaged Property
determined at origination or in an appraisal, if any, obtained at the time of
refinancing, modification or conversion and (y) the sales price of the related
Mortgage Property or, if the Mortgage Loan is not a rate and term refinance
Mortgage Loan and if the Mortgaged Property was owned for a relatively short
period of time prior to refinancing, modification or conversion, the sum of the
sales price of the related Mortgaged Property plus the added value of any
improvements. Certain Mortgage Loans which are subject to negative amortization
will have Loan-to-Value Ratios which will increase after origination as a result
of such negative amortization. Unless otherwise specified in the related
Prospectus Supplement, for purposes of calculating the Loan-to-Value Ratio of a
Contract relating to a new Manufactured Home, the "Value" is no greater than the
sum of a fixed percentage of the list price of the unit actually billed by the
manufacturer to the dealer (exclusive of freight to the dealer site), including
"accessories" identified in the invoice (the "Manufacturer's Invoice Price"),
plus the actual cost of any accessories purchased from the dealer, a delivery
and set-up allowance, depending on the size of the unit, and the cost of state
and local taxes, filing fees and up to three years prepaid hazard insurance
premiums. Unless otherwise specified in the related Prospectus Supplement, with
respect to a used Manufactured Home, the "Value" is the least of the sale price,
the appraised value, and the National Automobile Dealer's Association book value
plus prepaid taxes and hazard insurance premiums. The appraised value of a
Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable. Manufactured Homes are less likely to experience
appreciation in value and more likely to experience depreciation in value over
time than other types of housing.
The Mortgage Loans may be "equity refinance" Mortgage Loans, as to
which a portion of the proceeds are used to refinance an existing mortgage loan,
and the remaining proceeds may be retained by the Mortgagor or
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used for purposes unrelated to the Mortgaged Property. Alternatively, the
Mortgage Loans may be "rate and term refinance" Mortgage Loans, as to which
substantially all of the proceeds (net of related costs incurred by the
Mortgagor) are used to refinance an existing mortgage loan or loans (which may
include a junior lien) primarily in order to change the interest rate or other
terms thereof. The Mortgage Loans may be mortgage loans which have been
consolidated and/or have had various terms changed, mortgage loans which have
been converted from adjustable rate mortgage loans to fixed rate mortgage loans,
or construction loans which have been converted to permanent mortgage loans. In
addition, a Mortgaged Property may be subject to secondary financing at the time
of origination of the Mortgage Loan or thereafter.
If provided for in the related Prospectus Supplement, a Mortgage Pool
may contain ARM Loans which allow the Mortgagors to convert the adjustable rates
on such Mortgage Loans to a fixed rate at some point during the life of such
Mortgage Loans (each such Mortgage Loan, a "Convertible Mortgage Loan"),
generally not later than six to ten years subsequent to the date of origination,
depending upon the length of the initial adjustment period. If specified in the
related Prospectus Supplement, upon any conversion, the Company, the related
Master Servicer, the applicable Seller or a third party will purchase the
converted Mortgage Loan as and to the extent set forth in the related Prospectus
Supplement. Alternatively, if specified in the related Prospectus Supplement,
the Company or the related Master Servicer (or another party specified therein)
may agree to act as remarketing agent with respect to such converted Mortgage
Loans and, in such capacity, to use its best efforts to arrange for the sale of
converted Mortgage Loans under specified conditions. Upon the failure of any
party so obligated to purchase any such converted Mortgage Loan, the inability
of any remarketing agent to arrange for the sale of the converted Mortgage Loan
and the unwillingness of such remarketing agent to exercise any election to
purchase the converted Mortgage Loan for its own account, the related Mortgage
Pool will thereafter include both fixed rate and adjustable rate Mortgage Loans.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during the
early years of the Mortgage Loan (the "Buydown Period") will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) an amount (such amount, exclusive of investment earnings
thereon, being hereinafter referred to as "Buydown Funds") contributed by the
seller of the Mortgaged Property or another source and placed in a custodial
account (the "Buydown Account"), (ii) if the Buydown Funds are contributed on a
present value basis, investment earnings on such Buydown Funds or (iii)
additional buydown funds to be contributed over time by the Mortgagor's employer
or another source. See "Description of the Securities--Payments on Mortgage
Loans; Deposits to Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly payment.
Accordingly, the repayment of a Buydown Mortgage Loan is dependent on the
ability of the Mortgagor to make larger level monthly payments after the Buydown
Funds have been depleted and, for certain Buydown Mortgage Loans, during the
Buydown Period.
The Prospectus Supplement for each series of Securities will contain
information as to the type of Mortgage Loans that will be included in the
related Mortgage Pool. Each Prospectus Supplement applicable to a series of
Securities will include certain information, generally as of the Cut-off Date
and to the extent then available to the Company, on an approximate basis, as to
(i) the aggregate principal balance of the Mortgage Loans, (ii) the type of
property securing the Mortgage Loans, (iii) the original or modified terms to
maturity of the Mortgage Loans, (iv) the range of principal balances of the
Mortgage Loans at origination or modification, (v) the earliest origination or
modification date and latest maturity date of the Mortgage Loans, (vi) the
Loan-to-Value Ratios of the Mortgage Loans, (vii) the Mortgage Rate or range of
Mortgage Rates borne by the Mortgage Loans, (viii) if any of the Mortgage Loans
are ARM Loans, the applicable Index, the range of Note Margins and the weighted
average Note Margin, (ix) the geographical distribution of the Mortgage Loans,
(x) the number of Buydown Mortgage Loans, if applicable, and (xi) the percent of
ARM Loans which are convertible to fixed-rate mortgage loans, if applicable. A
Current Report on Form 8-K will be available upon request to holders of the
related series of Securities and will be filed, together with the related
Pooling Agreement, with respect to each series of Certificates, or the related
Servicing Agreement, Trust Agreement and Indenture, with respect to each series
of Notes, with the Securities and Exchange Commission within fifteen days after
the initial issuance of such Securities. In the event that Mortgage Loans are
added to or deleted from the Trust Fund after the date of the related Prospectus
Supplement, such addition or deletion will be noted in the Current Report on
Form 8-K.
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The Company will cause the Mortgage Loans constituting each Mortgage
Pool (or Mortgage Securities evidencing interests therein) to be assigned,
without recourse, to the Trustee named in the related Prospectus Supplement, for
the benefit of the holders of all of the Securities of a series. Except to the
extent that servicing of any Mortgage Loan is to be transferred to a Special
Servicer, the Master Servicer named in the related Prospectus Supplement will
service the Mortgage Loans, directly or through other mortgage servicing
institutions ("Subservicers"), pursuant to a Pooling Agreement or Servicing
Agreement and will receive a fee for such services. See "Servicing of Mortgage
Loans," "Description of the Securities" and "The Agreements." With respect to
those Mortgage Loans serviced by the Master Servicer through a Subservicer, the
Master Servicer will remain liable for its servicing obligations under the
related Pooling Agreement or Servicing Agreement as if the Master Servicer alone
were servicing such Mortgage Loans. The Master Servicer's obligations with
respect to the Mortgage Loans will consist principally of its contractual
servicing obligations under the related Pooling Agreement or Servicing Agreement
(including its obligation to enforce certain purchase and other obligations of
Subservicers and Sellers, as more fully described herein under
"--Representations by Sellers" below, "Servicing of Mortgage
Loans--Subservicers," and "Description of the Securities--Assignment of Trust
Fund Assets," and, if and to the extent set forth in the related Prospectus
Supplement, its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans as described
herein under "Description of the Securities--Advances") or pursuant to the terms
of any Mortgage Securities.
UNDERWRITING STANDARDS
Mortgage Loans to be included in a Mortgage Pool will have been
purchased by the Company, either directly or indirectly from Sellers. Such
Mortgage Loans, as well as Mortgage Loans underlying Mortgage Securities, will
generally have been originated in accordance with underwriting standards
acceptable to the Company and generally described below or such alternative
underwriting criteria as may be described in the related Prospectus Supplement.
However, in some cases, particularly those involving Unaffiliated Sellers, the
Company may not be able to establish the underwriting standards used in the
origination of the related Mortgage Loans. In those cases, the related
Prospectus Supplement will include a statement to such effect and will reflect
what, if any, reunderwriting of the related Mortgage Loans was done by the
Company or any of its affiliates.
Unless otherwise specified in the related Prospectus Supplement, the
underwriting standards to be used in originating the Mortgage Loans are
primarily intended to assess the creditworthiness of the Mortgagor, the value of
the Mortgaged Property and the adequacy of such property as collateral for the
Mortgage Loan.
The primary considerations in underwriting a Single Family Loan or
Contract are the Mortgagor's employment stability and whether the Mortgagor has
sufficient monthly income available (i) to meet the Mortgagor's monthly
obligations on the proposed Mortgage Loan (generally determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the home (such as property taxes and hazard insurance) and (ii) to meet
monthly housing expenses and other financial obligations and monthly living
expenses. However, the Loan-to-Value Ratio of the Mortgage Loan is another
critical factor. In addition, a Mortgagor's credit history and repayment
ability, as well as the type and use of the Mortgaged Property, are also
considerations.
In the case of the Multifamily Loans, lenders typically look to the
Debt Service Coverage Ratio of a loan as an important measure of the risk of
default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Multifamily Loan at any given
time is the ratio of (i) the Net Operating Income of the related Mortgaged
Property for a twelve-month period to (ii) the annualized scheduled payments on
the Mortgage Loan and on any other loan that is secured by a lien on the
Mortgaged Property prior to the lien of the related Mortgage. Unless otherwise
defined in the related Prospectus Supplement, "Net Operating Income" means, for
any given period, the total operating revenues derived from a Multifamily
Property during such period, minus the total operating expenses incurred in
respect of such property during such period other than (i) non-cash items such
as depreciation and amortization, (ii) capital expenditures and (iii) debt
service on loans (including the related Mortgage Loan) secured by liens on such
property. The Net Operating Income of a Multifamily Property will fluctuate over
time and may or may not be sufficient to cover debt service on the related
Mortgage Loan at any given time. As the primary source of the operating revenues
of a Multifamily Property, rental income (and maintenance payments from
tenant-stockholders of a cooperatively owned Multifamily Property) may be
affected by the condition of the applicable real estate market and/or area
economy. Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
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interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Multifamily Loan.
Lenders also look to the Loan-to-Value Ratio of a Multifamily Loan as a measure
of risk of loss if a property must be liquidated following a default.
It is expected that each prospective Mortgagor will complete a mortgage
loan application that includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. One or more credit reports on each applicant from national credit
reporting companies will generally be required. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions, or judgments. In the case of a Multifamily Loan,
the Mortgagor will also be required to provide certain information regarding the
related Multifamily Property, including a current rent roll and operating income
statements (which may be pro forma and unaudited). In addition, the originator
will generally also consider the location of the Multifamily Property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market area, the overall economy and demographic
features of the geographic area and the Mortgagor's prior experience in owning
and operating properties similar to the Multifamily Properties.
Unless otherwise specified in the related Prospectus Supplement,
Mortgaged Properties will be appraised by licensed appraisers. The appraiser
will generally address neighborhood conditions, site and zoning status and
condition and valuation of improvements. In the case of Single Family
Properties, the appraisal report will generally include a reproduction cost
analysis (when appropriate) based on the current cost of constructing a similar
home and a market value analysis based on recent sales of comparable homes in
the area. With respect to Multifamily Properties, the appraisal must specify
whether an income analysis, a market analysis or a cost analysis was used. An
appraisal employing the income approach to value analyzes a property's projected
net cash flow, capitalization and other operational information in determining
the property's value. The market approach to value analyzes the prices paid for
the purchase of similar properties in the property's area, with adjustments made
for variations between those other properties and the property being appraised.
The cost approach to value requires the appraiser to make an estimate of land
value and then determine the current cost of reproducing the improvements less
any accrued depreciation. In any case, the value of the property being financed,
as indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance. Unless
otherwise specified in the related Prospectus Supplement, all appraisals are
required to conform to the Uniform Standards of Professional Appraisal Practice
and the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and must be on forms acceptable to the Federal National Mortgage
Association ("FNMA") and/or the Federal Home Loan Mortgage Corporation
("FHLMC").
Notwithstanding the foregoing, Loan-to-Value Ratios will not
necessarily constitute an accurate measure of the risk of liquidation loss in a
pool of Mortgage Loans. For example, the value of a Mortgaged Property as of the
date of initial issuance of the related series of Securities may be less than
the Value determined at loan origination, and will likely continue to fluctuate
from time to time based upon changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value for a Multifamily Property. As stated above, appraised values
of Multifamily Properties are generally based on the market analysis, the cost
analysis, the income analysis, or upon a selection from or interpolation of the
values derived from such approaches. Each of these appraisal methods can present
analytical difficulties. It is often difficult to find truly comparable
properties that have recently been sold; the replacement cost of a property may
have little to do with its current market value; and income capitalization is
inherently based on inexact projections of income and expenses and the selection
of an appropriate capitalization rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of default and
loss risks, is even more difficult.
If so specified in the related Prospectus Supplement, the underwriting
of a Multifamily Loan may also include environmental testing. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), a lender may be liable, as an
"owner" or "operator", for costs of addressing releases or threatened releases
of hazardous substances at a property, if agents or employees of the lender have
become sufficiently involved in the operations of the borrower, regardless
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of whether or not the environmental damage or threat was caused by the borrower
or a prior owner. A lender also risks such liability on foreclosure of the
mortgage. See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation".
With respect to any FHA Loan the Mortgage Loan Seller will be required
to represent that it has complied with the applicable underwriting policies of
the FHA. See "Description of Primary Insurance Policies--FHA Insurance".
To the extent relevant and available, the related Prospectus Supplement
will include delinquency and foreclosure experience for the applicable
Seller(s).
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan will be originated, directly or through mortgage brokers and
correspondents, by 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 by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to sections
203 and 211 of the National Housing Act of 1934, as amended (the "Housing Act").
Except with respect to Designated Seller Transactions or unless otherwise
specified in the related Prospectus Supplement, each Seller must satisfy certain
criteria as to financial stability evaluated on a case-by-case basis by the
Company.
REPRESENTATIONS BY SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will have made representations and warranties in respect of the Mortgage
Loans and/or Mortgage Securities sold by such Seller and evidenced by a series
of Securities. In the case of Mortgage Loans, such representations and
warranties will generally include, among other things, that as to each such
Mortgage Loan: (i) any required hazard and primary mortgage insurance policies
were effective at the origination of such Mortgage Loan, and each such policy
remained in effect on the date of purchase of such Mortgage Loan from the Seller
by or on behalf of the Company; (ii) with respect to each Mortgage Loan other
than a Contract, either (A) a title insurance policy insuring (subject only to
permissible title insurance exceptions) the lien status of the Mortgage was
effective at the origination of such Mortgage Loan and such policy remained in
effect on the date of purchase of the Mortgage Loan from the Seller by or on
behalf of the Company or (B) if the Mortgaged Property securing such Mortgage
Loan is located in an area where such policies are generally not available,
there is in the related mortgage file an attorney's certificate of title
indicating (subject to such permissible exceptions set forth therein) the first
lien status of the mortgage; (iii) the Seller has good title to such Mortgage
Loan and such Mortgage Loan was subject to no offsets, defenses or counterclaims
except as may be provided under the Relief Act and except to the extent that any
buydown agreement exists for a Buydown Mortgage Loan; (iv) there are no
mechanics' liens or claims for work, labor or material affecting the related
Mortgaged Property which are, or may be a lien prior to, or equal with, the lien
of the related Mortgage (subject only to permissible title insurance
exceptions); (v) the related Mortgaged Property is free from damage and in good
repair; (vi) there are no delinquent tax or assessment liens against the related
Mortgaged Property; (vii) such Mortgage Loan is not more than 30 days'
delinquent as to any scheduled payment of principal and/or interest; (viii) if a
Primary Insurance Policy is required with respect to such Mortgage Loan, such
Mortgage Loan is the subject of such a policy; and (ix) such Mortgage Loan was
made in compliance with, and is enforceable under, all applicable local, state
and federal laws in all material respects. In the case of Mortgage Securities,
such representations and warranties will generally include, among other things,
that as to each such Mortgage Security: (i) such Mortgage Security is validly
issued and outstanding and entitled to the benefits of the agreement pursuant to
which it was issued; and (ii) the Seller has good title to such Mortgage
Security. In the event of a breach of a Seller's representation or warranty that
materially adversely affects the interests of the Securityholders in a Mortgage
Loan or Mortgage Security, unless otherwise specified in the related Prospectus
Supplement, the related Seller will be obligated to cure the breach or
repurchase or, if permitted, replace such Mortgage Loan or Mortgage Security as
described below. However, there can be no assurance that a Seller will honor its
obligation to repurchase or, if permitted, replace any Mortgage Loan or Mortgage
Security as to which such a breach of a representation or warranty arises.
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All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and warranties
were made will be a date prior to the date of initial issuance of the related
series of Securities or, in the case of a Designated Seller Transaction, will be
the date of closing of the related sale by the applicable Seller. A substantial
period of time may have elapsed between the date as of which the representations
and warranties were made and the later date of initial issuance of the related
series of Securities. Accordingly, the Seller's purchase obligation (or, if
specified in the related Prospectus Supplement, limited replacement option)
described below will not arise if, during the period commencing on the date of
sale of a Mortgage Loan or Mortgage Security by the Seller, an event occurs that
would have given rise to such an obligation had the event occurred prior to sale
of the affected Mortgage Loan or Mortgage Security, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, the only
representations and warranties to be made for the benefit of holders of
Securities in respect of any related Mortgage Loan or Mortgage Security relating
to the period commencing on the date of sale of such Mortgage Loan or Mortgage
Security by the Seller to or on behalf of the Company will be certain limited
representations of the Company and the Master Servicer described under
"Description of the Securities--Assignment of Trust Fund Assets" below.
The Company will assign to the Trustee for the benefit of the holders
of the related series of Securities all of its right, title and interest in each
agreement by which it purchased a Mortgage Loan or Mortgage Security from a
Seller insofar as such agreement relates to the representations and warranties
made by such Seller in respect of such Mortgage Loan or Mortgage Security and
any remedies provided for with respect to any breach of such representations and
warranties. If a Seller cannot cure a breach of any representation or warranty
made by it in respect of a Mortgage Loan or Mortgage Security which materially
and adversely affects the interests of the Securityholders therein within a
specified period after having discovered or received notice of such breach,
then, unless otherwise specified in the related Prospectus Supplement, such
Seller will be obligated to purchase such Mortgage Loan or Mortgage Security at
a price (the "Purchase Price") set forth in the related Pooling Agreement or
Servicing Agreement which Purchase Price will generally be equal to the
principal balance thereof as of the date of purchase plus accrued and unpaid
interest through or about the date of purchase at the related Mortgage Rate or
pass-through rate, as applicable (net of any portion of such interest payable to
such Seller in respect of master servicing compensation, special servicing
compensation or subservicing compensation, as applicable, and the Spread, if
any).
Unless otherwise specified in the related Prospectus Supplement, as to
any Mortgage Loan required to be purchased by an Affiliated Seller as provided
above, rather than repurchase the Mortgage Loan, the Seller will be entitled, at
its sole option, to remove such Mortgage Loan (a "Deleted Mortgage Loan") from
the Trust Fund and substitute in its place another Mortgage Loan of like kind (a
"Qualified Substitute Mortgage Loan"); however, with respect to a series of
Certificates for which no REMIC election is to be made, such substitution must
be effected within 120 days of the date of the initial issuance of the related
series of Certificates. With respect to a Trust Fund for which a REMIC election
is to be made, except as otherwise provided in the related Prospectus
Supplement, such substitution of a defective Mortgage Loan must be effected
within two years of the date of the initial issuance of the related series of
Certificates, and may not be made if such substitution would cause the Trust
Fund, or any portion thereof, to fail to qualify as a REMIC or result in a
prohibited transaction tax under the Code. Except as otherwise provided in the
related Prospectus Supplement, any Qualified Substitute Mortgage Loan generally
will, on the date of substitution, (i) have an outstanding principal balance,
after deduction of the principal portion of the monthly payment due in the month
of substitution, not in excess of the outstanding principal balance of the
Deleted Mortgage Loan (the amount of any shortfall to be deposited in the
Certificate Account by the Master Servicer in the month of substitution for
distribution to the Securityholders), (ii) have a Mortgage Rate and a Net
Mortgage Rate not less than (and not more than one percentage point greater
than) the Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted
Mortgage Loan as of the date of substitution, (iii) have a Loan-to-Value Ratio
at the time of substitution no higher than that of the Deleted Mortgage Loan at
the time of substitution, (iv) have a remaining term to maturity not greater
than (and not more than one year less than) that of the Deleted Mortgage Loan,
(v) comply with all of the representations and warranties made by such
Affiliated Seller as of the date of substitution, and (vi) be covered under a
primary insurance policy if such Mortgage Loan has a Loan-to-Value Ratio greater
than 80%. The related purchase agreement may include additional requirements
relating to ARM Loans or other specific types of Mortgage Loans, or additional
provisions relating to meeting the foregoing requirements on an aggregate basis
where a number of substitutions occur contemporaneously. Unless otherwise
specified in the
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related Prospectus Supplement, an Unaffiliated Seller will have no option to
substitute for a Mortgage Loan that it is obligated to repurchase in connection
with a breach of a representation and warranty, and neither an Affiliated Seller
nor an Unaffiliated Seller will have any option to substitute for a Mortgage
Security that it is obligated to repurchase in connection with a breach of a
representation and warranty.
The Master Servicer will be required under the applicable Pooling
Agreement or Servicing Agreement to use reasonable efforts to enforce this
purchase or substitution obligation for the benefit of the Trustee and the
Securityholders, following such practices it would employ in its good faith
business judgment and which are normal and usual in its general mortgage
servicing activities; provided, however, that this purchase or substitution
obligation will not become an obligation of the Master Servicer in the event the
applicable Seller fails to honor such obligation. In instances where a Seller is
unable, or disputes its obligation, to purchase affected Mortgage Loans and/or
Mortgage Securities, the Master Servicer, employing the standards set forth in
the preceding sentence, may negotiate and enter into one or more settlement
agreements with such Seller that could provide for, among other things, the
purchase of only a portion of the affected Mortgage Loans and/or Mortgage
Securities. Any such settlement could lead to losses on the Mortgage Loans
and/or Mortgage Securities which would be borne by the related Securities. In
accordance with the above described practices, the Master Servicer will not be
required to enforce any purchase obligation of a Seller arising from any
misrepresentation by the Seller, if the Master Servicer determines in the
reasonable exercise of its business judgment that the matters related to such
misrepresentation did not directly cause or are not likely to directly cause a
loss on the related Mortgage Loan or Mortgage Security. If the Seller fails to
repurchase and no breach of any other party's representations has occurred, the
Seller's purchase obligation will not become an obligation of the Company or any
other party. In the case of a Designated Seller Transaction where the Seller
fails to repurchase a Mortgage Loan or Mortgage Security and neither the Company
nor any other entity has assumed the representations and warranties, such
repurchase obligation of the Seller will not become an obligation of the Company
or any other party. Unless otherwise specified in the related Prospectus
Supplement, the foregoing obligations will constitute the sole remedies
available to Securityholders or the Trustee for a breach of any representation
by a Seller or for any other event giving rise to such obligations as described
above.
Neither the Company nor the Master Servicer will be obligated to
purchase a Mortgage Loan or Mortgage Security if a Seller defaults on its
obligation to do so, and no assurance can be given that the Sellers will carry
out such purchase obligations. Such a default by a Seller is not a default by
the Company or by the Master Servicer. However, to the extent that a breach of
the representations and warranties of a Seller also constitutes a breach of a
representation made by the Company or the Master Servicer, as described below
under "Description of the Securities--Assignment of Trust Fund Assets," the
Company or the Master Servicer may have a purchase or substitution obligation.
Any Mortgage Loan or Mortgage Security not so purchased or substituted for shall
remain in the related Trust Fund and any losses related thereto shall be
allocated to the related credit enhancement, to the extent available, and
otherwise to one or more classes of the related series of Securities.
If a person other than a Seller makes the representations and
warranties referred to in the first paragraph of this "--Representations by
Sellers" section, or a person other than a Seller is responsible for
repurchasing or replacing any Mortgage Loan or Mortgage Security in connection
with a breach of such representations and warranties, the identity of such
person will be specified in the related Prospectus Supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The Mortgage Loans and Mortgage Securities included in each Mortgage
Pool will be serviced and administered pursuant to either a Pooling Agreement or
a Servicing Agreement. Forms of Pooling Agreements and a form of Servicing
Agreement have been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. However, the provisions of each Pooling Agreement or
Servicing Agreement will vary depending upon the nature of the related Mortgage
Pool. The following summaries describe certain servicing-related provisions that
may appear in a Pooling Agreement or Servicing Agreement for a Mortgage Pool
that includes Mortgage Loans. The related Prospectus Supplement will describe
any servicing-related provision of such a Pooling Agreement or Servicing
Agreement that materially differs from the description thereof contained in this
Prospectus and, if the related Mortgage Pool includes Mortgage Securities, will
summarize all of the material provisions of the related
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Pooling Agreement or Servicing Agreement that govern the administration of such
Mortgage Securities and identify the party responsible for such administration.
The summaries herein do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
related Pooling Agreement or Servicing Agreement and the description of such
provisions in the related Prospectus Supplement.
With respect to any series of Securities as to which the related
Mortgage Pool includes Mortgage Securities, the servicing and administration of
the Mortgage Loans underlying such Mortgage Securities will be pursuant to the
terms of such Mortgage Securities. It is expected that Mortgage Loans underlying
any Mortgage Securities in a Mortgage Pool would be serviced and administered
generally in the same manner as Mortgage Loans included in a Mortgage Pool,
however, there can be no assurance that such will be the case, particularly if
such Mortgage Securities are issued by an entity other than the Company or any
of its affiliates. The related Prospectus Supplement will describe any material
differences between the servicing described below and the servicing of Mortgage
Loans underlying the Mortgage Securities in any Mortgage Pool.
THE MASTER SERVICER
The master servicer (the "Master Servicer"), if any, for a series of
Securities will be named in the related Prospectus Supplement and may be SPFC or
another affiliate of the Company. The Master Servicer is required to maintain a
fidelity bond and errors and omissions policy with respect to its officers and
employees and other persons acting on behalf of the Master Servicer in
connection with its activities under a Pooling Agreement or a Servicing
Agreement.
COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer for any Mortgage Pool, directly or through Subservicers, will be
obligated under the Pooling Agreement or Servicing Agreement to service and
administer the Mortgage Loans in such Mortgage Pool for the benefit of the
related Securityholders, in accordance with applicable law and the terms of such
Pooling Agreement or Servicing Agreement, such Mortgage Loans and any instrument
of credit enhancement included in the related Trust Fund, and, to the extent
consistent with the foregoing, in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located. Subject to
the foregoing, the Master Servicer will have full power and authority to do any
and all things in connection with such servicing and administration that it may
deem necessary and desirable.
As part of its servicing duties, a Master Servicer will be required to
make reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided such procedures are consistent with the terms of the related Pooling
Agreement or Servicing Agreement, including the servicing standard specified
therein and generally described in the preceding paragraph (as such may be more
particularly described in the related Prospectus Supplement, the "Servicing
Standard"), and do not impair recovery under any instrument of credit
enhancement included in the related Trust Fund. Consistent with the foregoing,
the Master Servicer will be permitted, in its discretion, to waive any
Prepayment Premium, late payment charge or other charge in connection with any
Mortgage Loan.
Under a Pooling Agreement or a Servicing Agreement, a Master Servicer
will be granted certain discretion to extend relief to Mortgagors whose payments
become delinquent. In the case of Single Family Loans and Contracts, a Master
Servicer may, among other things, grant a period of temporary indulgence
(generally up to four months) to a Mortgagor or may enter into a liquidating
plan providing for repayment by such Mortgagor of delinquent amounts within a
specified period (generally up to one year) from the date of execution of the
plan. However, unless otherwise specified in the related Prospectus Supplement,
the Master Servicer must first determine that any such waiver or extension will
not impair the coverage of any related insurance policy or materially adversely
affect the security for such Mortgage Loan. In addition, unless otherwise
specified in the related Prospectus Supplement, if a material default occurs or
a payment default is reasonably foreseeable with respect to a Multifamily Loan,
the Master Servicer will be permitted, subject to any specific limitations set
forth in the related Pooling Agreement or Servicing Agreement and described in
the related Prospectus Supplement, to modify, waive
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or amend any term of such Mortgage Loan, including deferring payments, extending
the stated maturity date or otherwise adjusting the payment schedule, provided
that such modification, waiver or amendment (i) is reasonably likely to produce
a greater recovery with respect to such Mortgage Loan on a present value basis
than would liquidation and (ii) will not adversely affect the coverage under any
applicable instrument of credit enhancement.
In the case of Multifamily Loans, a Mortgagor's failure to make
required Mortgage Loan payments may mean that operating income is insufficient
to service the mortgage debt, or may reflect the diversion of that income from
the servicing of the mortgage debt. In addition, a Mortgagor under a Multifamily
Loan that is unable to make Mortgage Loan payments may also be unable to make
timely payment of taxes and otherwise to maintain and insure the related
Mortgaged Property. In general, the related Master Servicer will be required to
monitor any Multifamily Loan that is in default, evaluate whether the causes of
the default can be corrected over a reasonable period without significant
impairment of the value of the related Mortgaged Property, initiate corrective
action in cooperation with the Mortgagor if cure is likely, inspect the related
Mortgaged Property and take such other actions as are consistent with the
Servicing Standard. A significant period of time may elapse before the Master
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Master Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Securityholders of the related series may
vary considerably depending on the particular Multifamily Loan, the Mortgaged
Property, the Mortgagor, the presence of an acceptable party to assume the
Multifamily Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. If a Mortgagor files a bankruptcy petition, the Master
Servicer may not be permitted to accelerate the maturity of the related
Multifamily Loan or to foreclose on the Mortgaged Property for a considerable
period of time. See "Certain Legal Aspects of Mortgage Loans."
Certain of the Mortgage Loans in a Mortgage Pool may contain a
due-on-sale clause that entitles the lender to accelerate payment of the
Mortgage Loan upon any sale or other transfer of the related Mortgaged Property
made without the lender's consent. Certain of the Multifamily Loans in a
Mortgage Pool may also contain a due-on-encumbrance clause that entitles the
lender to accelerate the maturity of the Mortgage Loan upon the creation of any
other lien or encumbrance upon the Mortgaged Property. In any case in which
property subject to a Single Family Loan or Contract is being conveyed by the
Mortgagor, unless the related Prospectus Supplement provides otherwise, the
Master Servicer will in general be obligated, to the extent it has knowledge of
such conveyance, to exercise its rights to accelerate the maturity of such
Mortgage Loan under any due-on-sale clause applicable thereto, but only if the
exercise of such rights is permitted by applicable law and only to the extent it
would not adversely affect or jeopardize coverage under any Primary Insurance
Policy or applicable credit enhancement arrangements. If the Master Servicer is
prevented from enforcing such due-on-sale clause under applicable law or if the
Master Servicer determines that it is reasonably likely that a legal action
would be instituted by the related Mortgagor to avoid enforcement of such
due-on-sale clause, the Master Servicer will enter into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Loan subject to certain specified conditions. The original Mortgagor
may be released from liability on a Single Family Loan or Contract if the Master
Servicer shall have determined in good faith that such release will not
adversely affect the collectability of the Mortgage Loan. Unless otherwise
provided in the related Prospectus Supplement, the Master Servicer will
determine whether to exercise any right the Trustee may have under any
due-on-sale or due-on-encumbrance provision in a Multifamily Loan in a manner
consistent with the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will be entitled to retain as
additional servicing compensation any fee collected in connection with the
permitted transfer of a Mortgaged Property. See "Certain Legal Aspects of
Mortgage Loans--Enforceability of Certain Provisions." FHA Loans contain no such
clause and may be assumed by the purchaser of the mortgaged property.
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer may approve such a request if it has
determined, exercising its good faith business judgment in the same manner as it
would if it were the owner of the related Mortgage Loan, that such approval will
not adversely affect the security for, or the timely and full collectability of,
the related Mortgage Loan. Any fee collected by the Master Servicer for
processing such request will be retained by the Master Servicer as additional
servicing compensation.
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In the case of Single Family and Multifamily Loans secured by junior
liens on the related Mortgaged Properties, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will be required to file (or
cause to be filed) of record a request for notice of any action by a superior
lienholder under the Senior Lien for the protection of the related Trustee's
interest, where permitted by local law and whenever applicable state law does
not require that a junior lienholder be named as a party defendant in
foreclosure proceedings in order to foreclose such junior lienholder's equity of
redemption. Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer also will be required to notify any superior lienholder in
writing of the existence of the Mortgage Loan and request notification of any
action (as described below) to be taken against the Mortgagor or the Mortgaged
Property by the superior lienholder. If the Master Servicer is notified that any
superior lienholder has accelerated or intends to accelerate the obligations
secured by the related Senior Lien, or has declared or intends to declare a
default under the mortgage or the promissory note secured thereby, or has filed
or intends to file an election to have the related Mortgaged Property sold or
foreclosed, then, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be required to take, on behalf of the
related Trust Fund, whatever actions are necessary to protect the interests of
the related Securityholders, and/or to preserve the security of the related
Mortgage Loan, subject to the application of the REMIC Provisions, if
applicable. Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be required to advance the necessary funds to cure the
default or reinstate the superior lien, if such advance is in the best interests
of the related Securityholders and the Master Servicer determines such advances
are recoverable out of payments on or proceeds of the related Mortgage Loan.
The Master Servicer for any Mortgage Pool will also be required to
perform other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts for payment of taxes, insurance premiums
and similar items, or otherwise monitoring the timely payment of those items;
adjusting Mortgage Rates on ARM Loans; maintaining Buydown Accounts; supervising
foreclosures and similar proceedings; managing Mortgage Properties acquired
through or in lieu of foreclosure (each, an "REO Property"); and maintaining
servicing records relating to the Mortgage Loans in such Mortgage Pool. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be responsible for filing and settling claims in respect of particular
Mortgage Loans under any applicable instrument of credit enhancement. See
"Description of Credit Enhancement."
SUBSERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced by it to one or more third-party servicers (each, a
"Subservicer"), but the Master Servicer will remain liable for such obligations
under the related Pooling Agreement or Servicing Agreement unless otherwise
provided in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will be solely liable for all
fees owed by it to any Subservicer, irrespective of whether the Master
Servicer's compensation pursuant to the related Pooling Agreement or Servicing
Agreement is sufficient to pay such fees. Each Subservicer will be entitled to
reimbursement for certain expenditures which it makes, generally to the same
extent as would the Master Servicer for making the same expenditures. See
"--Servicing and Other Compensation and Payment of Expenses; Spread" below and
"Description of the Securities--The Certificate Account."
SPECIAL SERVICERS
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Pooling
Agreement or Servicing Agreement or may be appointed by the Master Servicer or
another specified party to perform certain specified duties in respect of
servicing the related Mortgage Loans that would otherwise be performed by the
Master Servicer (for example, the workout and/or foreclosure of defaulted
Mortgage Loans). The rights and obligations of any Special Servicer will be
specified in the related Prospectus Supplement, and the Master Servicer will be
liable for the performance of a Special Servicer only if, and to the extent, set
forth in such Prospectus Supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below or in the related Prospectus Supplement, the
Master Servicer will be required, in a manner consistent with the Servicing
Standard, to foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans in the related Mortgage Pool as
come into and
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continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments. In connection therewith, the Master Servicer
will be authorized to institute foreclosure proceedings, exercise any power of
sale contained in the related Mortgage, obtain a deed in lieu of foreclosure, or
otherwise acquire title to the related Mortgaged Property, by operation of law
or otherwise, if such action is consistent with the Servicing Standard. The
Master Servicer's actions in this regard must be conducted, however, in a manner
that will permit recovery under any instrument of credit enhancement included in
the related Trust Fund. In addition, the Master Servicer will not be required to
expend its own funds in connection with any foreclosure or to restore any
damaged property unless it shall determine that (i) such foreclosure and/or
restoration will increase the proceeds of liquidation of the Mortgage Loan to
the related Securityholders after reimbursement to itself for such expenses and
(ii) such expenses will be recoverable to it from related Insurance Proceeds,
Liquidation Proceeds or amounts drawn out of any fund or under any instrument
constituting credit enhancement (respecting which it shall have priority for
purposes of withdrawal from the Certificate Account in accordance with the
Pooling Agreement or Servicing Agreement).
Notwithstanding the foregoing, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer may not acquire title to any
Multifamily Property securing a Mortgage Loan or take any other action that
would cause the related Trustee, for the benefit of Securityholders of the
related series, or any other specified person to be considered to hold title to,
to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator" of
such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions
as are necessary to bring the Mortgaged Property into compliance
therewith is reasonably likely to produce a greater recovery on a
present value basis than not taking such actions; and
(ii) there are no circumstances or conditions present at the
Mortgaged Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations or, if such circumstances or conditions are present for
which any such action could be required, taking such actions with
respect to the Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis than not taking such actions.
See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation."
In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not be obligated to foreclose upon or
otherwise convert the ownership of any Single Family Property securing a
Mortgage Loan if it has received notice or has actual knowledge that such
property may be contaminated with or affected by hazardous wastes or hazardous
substances; however, no environmental testing will generally be required. The
Master Servicer will not be liable to the Securityholders of the related series
if, based on its belief that no such contamination or effect exists, the Master
Servicer forecloses on a Mortgaged Property and takes title to such Mortgaged
Property, and thereafter such Mortgaged Property is determined to be so
contaminated or affected.
With respect to a Mortgage Loan in default, the Master Servicer may
pursue foreclosure (or similar remedies) concurrently with pursuing any remedy
for a breach of a representation and warranty. However, the Master Servicer is
not required to continue to pursue both such remedies if it determines that one
such remedy is more likely to result in a greater recovery. Upon the first to
occur of final liquidation (by foreclosure or otherwise) and a repurchase or
substitution pursuant to a breach of a representation and warranty, such
Mortgage Loan will be removed from the related Trust Fund if it has not been
removed previously. The Master Servicer may elect to treat a defaulted Mortgage
Loan as having been finally liquidated if substantially all amounts expected to
be received in connection therewith have been received. Any additional
liquidation expenses relating to such Mortgage Loan thereafter incurred will be
reimbursable to the Master Servicer (or any Subservicer) from any amounts
otherwise distributable to holders of Securities of the related series, or may
be offset by any subsequent recovery related to such Mortgage Loan.
Alternatively, for purposes of determining the amount of related Liquidation
Proceeds to be distributed to Securityholders, the amount of any Realized Loss
or the amount required to be drawn under any applicable form of credit support,
the Master Servicer may take into account minimal amounts of additional receipts
expected to be received, as well as estimated additional liquidation expenses
expected to be incurred in connection
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with such defaulted Mortgage Loan. With respect to certain series of Securities,
if so provided in the related Prospectus Supplement, the applicable form of
credit enhancement may provide, to the extent of coverage thereunder, that a
defaulted Mortgage Loan will be removed from the Trust Fund prior to the final
liquidation thereof. In addition, a Pooling Agreement or Servicing Agreement may
grant to the Master Servicer, a Special Servicer, a provider of credit
enhancement and/or the holder or holders of certain classes of Securities of the
related series a right of first refusal to purchase from the Trust Fund, at a
predetermined purchase price (which, if insufficient to fully fund the
entitlements of Securityholders to principal and interest thereon, will be
specified in the related Prospectus Supplement), any Mortgage Loan as to which a
specified number of scheduled payments are delinquent. Furthermore, a Pooling
Agreement or a Servicing Agreement may authorize the Master Servicer to sell any
defaulted Mortgage Loan if and when the Master Servicer determines, consistent
with the Servicing Standard, that such a sale would produce a greater recovery
to Securityholders on a present value basis than would liquidation of the
related Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure, deed in lieu of foreclosure or otherwise, the deed or certificate
of sale will be issued to the Trustee or to its nominee on behalf of
Securityholders of the related series. Notwithstanding any such acquisition of
title and cancellation of the related Mortgage Loan, such Mortgage Loan (an "REO
Mortgage Loan") will be considered for most purposes to be an outstanding
Mortgage Loan held in the Trust Fund until such time as the Mortgaged Property
is sold and all recoverable Liquidation Proceeds and Insurance Proceeds have
been received with respect to such defaulted Mortgage Loan (a "Liquidated
Mortgage Loan"). For purposes of calculations of amounts distributable to
Securityholders in respect of an REO Mortgage Loan, unless otherwise specified
in the related Prospectus Supplement, the amortization schedule in effect at the
time of any such acquisition of title (before any adjustment thereto by reason
of any bankruptcy or any similar proceeding or any moratorium or similar waiver
or grace period) will be deemed to have continued in effect (and, in the case of
an ARM Loan, such amortization schedule will be deemed to have adjusted in
accordance with any interest rate changes occurring on any adjustment date
therefor) so long as such REO Mortgage Loan is considered to remain in the Trust
Fund.
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee receives an opinion of independent counsel to the
effect that the holding of the property by the Trust Fund for more than two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing and
any other tax-related constraints, the Master Servicer will generally be
required to solicit bids for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property. Unless
otherwise provided in the related Prospectus Supplement, if title to any
Mortgaged Property is acquired by a Trust Fund as to which a REMIC election has
been made, the Master Servicer will also be required to ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from non-permitted assets as described in Code Section 860F(a)(2)(B), and that
the Trust Fund does not derive any "net income from foreclosure property" within
the meaning of Code Section 860G(c)(2), with respect to such property.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer with respect to such Mortgage Loan, and
the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the Trust Fund will realize a loss in the
amount of such difference. The Master Servicer will be entitled to reimburse
itself from the Liquidation Proceeds recovered on any defaulted Mortgage Loan,
prior to the distribution of such Liquidation Proceeds to Securityholders,
amounts that represent unpaid servicing compensation in respect of the Mortgage
Loan, unreimbursed servicing expenses incurred with respect to the Mortgage Loan
and any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. If so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide for reinstatement subject to
certain conditions in the event that, following the final liquidation of a
Mortgage Loan and a draw under such credit enhancement, subsequent recoveries
are received. In addition, if a gain results from the final liquidation of a
defaulted Mortgage Loan or an REO Mortgage Loan which is not required by law to
be remitted to the related Mortgagor, the Master Servicer
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will be entitled to retain such gain as additional servicing compensation unless
the related Prospectus Supplement provides otherwise. For a description of the
Master Servicer's (or other specified person's) obligations to maintain and make
claims under applicable forms of credit enhancement and insurance relating to
the Mortgage Loans, see "Description of Credit Enhancement" and "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The principal servicing compensation to be paid to the Master Servicer
in respect of its master servicing activities for a series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Mortgage Loan, and such compensation will be retained by it on a
monthly or other periodic basis from collections of interest on such Mortgage
Loan in the related Trust Fund at the time such collections are deposited into
the applicable Certificate Account. In addition, unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will retain all
Prepayment Premiums, assumption fees and late payment charges, to the extent
collected from Mortgagors, and any benefit which may accrue as a result of the
investment of funds in the applicable Certificate Account. Any additional
servicing compensation will be described in the related Prospectus Supplement.
Any Subservicer will receive a portion of the Master Servicer's compensation as
its sub-servicing compensation.
In addition to amounts payable to any Subservicer, the Master Servicer
will pay or cause to be paid certain ongoing expenses associated with each Trust
Fund and incurred by it in connection with its responsibilities under the
Pooling Agreement or Servicing Agreement, including, if so specified in the
related Prospectus Supplement, payment of any fee or other amount payable in
respect of any alternative credit enhancement arrangements, payment of the fees
and disbursements of the Trustee, any custodian appointed by the Trustee and the
Security Registrar, and payment of expenses incurred in enforcing the
obligations of Subservicers and Sellers. The Master Servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of Subservicers
and Sellers under certain limited circumstances. In addition, the Master
Servicer will be entitled to reimbursements for certain expenses incurred by it
in connection with Liquidated Mortgage Loans and in connection with the
restoration of Mortgaged Properties, such right of reimbursement being prior to
the rights of Securityholders to receive any related Liquidation Proceeds or
Insurance Proceeds. If and to the extent so provided in the related Prospectus
Supplement, the Master Servicer will be entitled to receive interest on amounts
advanced to cover such reimbursable expenses for the period that such advances
are outstanding at the rate specified in such Prospectus Supplement, and the
Master Servicer will be entitled to payment of such interest periodically from
general collections on the Mortgage Loans in the related Trust Fund prior to any
payment to Securityholders or as otherwise provided in the related Pooling
Agreement or Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for a series of Securities will specify
whether there will be any Spread retained. Any such Spread will be a specified
portion of the interest payable on each Mortgage Loan in a Mortgage Pool and
will not be part of the related Trust Fund. Any such Spread will be established
on a loan-by-loan basis and the amount thereof with respect to each Mortgage
Loan in a Mortgage Pool will be specified on an exhibit to the related Pooling
Agreement or Servicing Agreement. Any partial recovery of interest in respect of
a Mortgage Loan will be allocated between the owners of any Spread and the
holders of classes of Securities entitled to payments of interest as provided in
the related Prospectus Supplement and the applicable Pooling Agreement or
Servicing Agreement.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any period to any Prepayment Interest
Shortfalls resulting from Mortgagor prepayments during such period. See "Yield
Considerations."
EVIDENCE AS TO COMPLIANCE
Each Pooling Agreement and Servicing Agreement will provide that on or
before a specified date in each year, beginning the first such date that is at
least a specified number of months after the Cut-off Date, a firm of independent
public accountants will furnish a statement to the Company and the Trustee to
the effect that, on the basis of an examination by such firm conducted
substantially in compliance with the Uniform Single Audit Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC, the servicing of
mortgage loans under agreements (including the related Pooling Agreement or
Servicing Agreement) substantially similar to each
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other was conducted in compliance with such agreements except for such
significant exceptions or errors in records that, in the opinion of the firm,
the Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to those Subservicers which also have been the subject of such an
examination.
Each Pooling Agreement and Servicing Agreement will also provide for
delivery to the Trustee, on or before a specified date in each year, of an
annual statement signed by one or more officers of the Master Servicer to the
effect that, to the best knowledge of each such officer, the Master Servicer has
fulfilled in all material respects its obligations under the Pooling Agreement
or Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status thereof. Such
statement may be provided as a single form making the required statements as to
more than one Pooling Agreement or Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies
of the annual accountants' statement and the annual statement of officers of a
Master Servicer may be obtained by Securityholders without charge upon written
request to the Master Servicer or Trustee.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Certificates
(or, in certain instances, two or more series of Certificates) will be issued
pursuant to a Pooling Agreement, similar to one of the forms filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Each Pooling
Agreement will be filed with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K. Each series of Notes (or, in certain
instances, two or more series of Notes) will be issued pursuant to an Indenture
between the related Issuer and the Trustee, similar to the form filed as an
exhibit to the Registration Statement of which this Prospectus is a part. Such
Trust Fund will be created pursuant to an Owner Trust Agreement (the "Owner
Trust Agreement"; an Owner Trust Agreement, Servicing Agreement, Indenture or
Pooling Agreement, an "Agreement") between the Company and the Owner Trustee.
Each Indenture, along with the related Servicing Agreement and Owner Trust
Agreement, will be filed with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K. The following summaries (together with
additional summaries under "The Agreements" below) describe certain provisions
relating to the Securities common to each Agreements. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the related Agreements for each series
and the related Prospectus Supplement. Wherever particular sections or defined
terms of the Agreements are referred to herein, such sections or defined terms
are thereby incorporated herein by reference.
Unless otherwise specified in the related Prospectus Supplement, each
series of Certificates covered by a particular Pooling Agreement will evidence
specified beneficial ownership interests in a separate Trust Fund created
pursuant to such Pooling Agreement. Unless otherwise specified in the related
Prospectus Supplement, each series of Notes covered by a particular Indenture
will evidence indebtedness of a separate Trust Fund created pursuant to the
related Owner Trust Agreement. A Trust Fund will consist of, to the extent
provided in the Pooling Agreement or Owner Trust Agreement: (i) such Mortgage
Loans (and the related mortgage documents) or interests therein (including any
Mortgage Securities) underlying a particular series of Securities as from time
to time are subject to the Pooling Agreement or Servicing Agreement, exclusive
of, if specified in the related Prospectus Supplement, any Spread or other
interest retained by the Company or any of its affiliates with respect to each
such Mortgage Loan; (ii) such assets including, without limitation, all payments
and collections in respect of the Mortgage Loans or Mortgage Securities due
after the related Cut-off Date, as from time to time are identified as deposited
in respect thereof in the related Certificate Account as described below; (iii)
any property acquired in respect of Mortgage Loans in the Trust Fund, whether
through foreclosure of such Mortgage Loans or by deed in lieu of foreclosure
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or otherwise; (iv) hazard insurance policies, Primary Insurance Policies and FHA
insurance policies, if any, maintained in respect of Mortgage Loans in the Trust
Fund and certain proceeds of such policies; (v) certain rights of the Company
under any Mortgage Loan Purchase Agreement, including in respect of any
representations and warranties therein; and (vi) any combination, as and to the
extent specified in the related Prospectus Supplement, of a Letter of Credit,
Purchase Obligation, Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond or other type of credit enhancement as described under
"Description of Credit Enhancement." To the extent that any Trust Fund includes
certificates of interest or participations in Mortgage Loans, the related
Prospectus Supplement will describe the material terms and conditions of such
certificates or participations.
If provided in the related Prospectus Supplement, the original
principal amount of a series of Securities may exceed the principal balance of
the Mortgage Loans or Mortgage Securities initially being delivered to the
Trustee. Cash in an amount equal to such difference will be deposited into a
separate trust account (the "Pre-Funding Account") maintained with the Trustee.
During the period set forth in the related Prospectus Supplement, amounts on
deposit in the Pre-Funding Account may be used to purchase additional Mortgage
Loans or Mortgage Securities for the related Trust Fund. Any amounts remaining
in the Pre-Funding Account at the end of such period will be distributed as a
principal prepayment to the holders of the related series of Securities at the
time and in the manner set forth in the related Prospectus Supplement.
Each series of Securities may consist of any one or a combination of
the following: (i) a single class of Securities; (ii) two or more classes of
Securities, one or more classes of which will be senior ("Senior Securities") in
right of payment to one or more of the other classes ("Subordinate Securities"),
and as to which certain classes of Senior (or Subordinate) Securities may be
senior to other classes of Senior (or Subordinate) Securities, as described in
the respective Prospectus Supplement (any such series, a "Senior/Subordinate
Series"); (iii) two or more classes of Securities, one or more classes ("Strip
Securities") of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no principal distributions;
(iv) two or more classes of Securities which differ as to the timing, sequential
order, rate, pass-through rate or amount of distributions of principal or
interest or both, or as to which distributions of principal or interest or both
on any such class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned amortization classes"
and "targeted amortization classes"), or on the basis of collections from
designated portions of the Mortgage Pool, and which classes may include one or
more classes of Securities ("Accrual Securities") with respect to which certain
accrued interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period described in
the related Prospectus Supplement; or (v) other types of classes of Securities,
as described in the related Prospectus Supplement. With respect to any series of
Notes, the Equity Certificates, insofar as they represent the beneficial
ownership interest in the Issuer, will be subordinate to the related Notes. As
to each series, all Securities offered hereby (the "Offered Securities") will be
rated in one of the four highest rating categories by one or more Rating
Agencies. Credit support for the Offered Securities of each series may be
provided by a Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Letter of Credit, Purchase Obligation, Reserve Fund or other
credit enhancement as described under "Description of Credit Enhancement," by
the subordination of one or more other classes of Securities as described under
"Subordination" or by any combination of the foregoing.
If so specified in the Prospectus Supplement relating to a series of
Certificates, one or more elections may be made to treat the related Trust Fund,
or a designated portion thereof, as a REMIC. If such an election is made with
respect to a series of Certificates, one of the classes of Certificates in such
series will be designated as evidencing the sole class of "residual interests"
in each related REMIC, as defined in the Code; alternatively, a separate class
of ownership interests will evidence such residual interests. All other classes
of Certificates in such series will constitute "regular interests" in the
related REMIC, as defined in the Code and will be designated as such. As to each
series of Certificates as to which a REMIC election is to be made, the Master
Servicer, Trustee or other specified person will be obligated to take certain
specified actions required in order to comply with applicable laws and
regulations.
FORM OF SECURITIES
Unless otherwise specified in the related Prospectus Supplement, the
Offered Securities of each series will be issued as physical certificates or
notes in fully registered form only in the denominations specified in the
related Prospectus Supplement, and will be transferrable and exchangeable at the
corporate trust office of the registrar (the
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"Security Registrar") named in the related Prospectus Supplement. With respect
to each series of Certificates or Notes, the Security Registrar will be referred
to as the "Certificate Registrar" or "Note Registrar," respectively. No service
charge will be made for any registration of exchange or transfer of Offered
Securities, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge. The term "Securityholder" or "Holder" as used
herein refers to the entity whose name appears on the records of the Security
Registrar (consisting of or including the "Security Register") as the registered
holder of a Security, except as otherwise indicated in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"). As to any such class of
Securities ("DTC Registered Securities"), the record Holder of such Securities
will be DTC's nominee. DTC is a limited-purpose trust company organized under
the laws of the State of New York, which holds securities for its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Other institutions that are not Participants but
clear through or maintain a custodial relationship with Participants (such
institutions, "Intermediaries") have indirect access to DTC's clearance system.
Unless otherwise specified in the related Prospectus Supplement, no
person acquiring an interest in any DTC Registered Securities (each such person,
a "Beneficial Owner") will be entitled to receive a Security representing such
interest in registered, certificated form, unless either (i) DTC ceases to act
as depository in respect thereof and a successor depository is not obtained, or
(ii) the Company elects in its sole discretion to discontinue the registration
of such Securities through DTC. Prior to any such event, Beneficial Owners will
not be recognized by the Trustee or the Master Servicer as Holders of the
related Securities for purposes of the related Pooling Agreement or Indenture,
and Beneficial Owners will be able to exercise their rights as owners of such
Securities only indirectly through DTC, Participants and Intermediaries. Any
Beneficial Owner that desires to purchase, sell or otherwise transfer any
interest in DTC Registered Securities may do so only through DTC, either
directly if such Beneficial Owner is a Participant or indirectly through
Participants and, if applicable, Intermediaries. Pursuant to the procedures of
DTC, transfers of the beneficial ownership of any DTC Registered Securities will
be required to be made in minimum denominations specified in the related
Prospectus Supplement. The ability of a Beneficial Owner to pledge DTC
Registered Securities to persons or entities that are not Participants in the
DTC system, or to otherwise act with respect to such Securities, may be limited
because of the lack of physical certificates or notes evidencing such Securities
and because DTC may act only on behalf of Participants.
Distributions in respect of the DTC Registered Securities will be
forwarded by the Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will be
responsible for disbursing such payments to the Beneficial Owners it represents
or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their Securities.
Under DTC's procedures, DTC will take actions permitted to be taken by Holders
of any class of DTC Registered Securities under the Pooling Agreement or
Indenture only at the direction of one or more Participants to whose account the
DTC Registered Securities are credited and whose aggregate holdings represent no
less than any minimum amount of Percentage Interests or voting rights required
therefor. DTC may take conflicting actions with respect to any action of Holders
of Securities of any Class to the extent that Participants authorize such
actions. None of the Master Servicer, the Company, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
DTC Registered Securities, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Securities, the Company will
assign, or cause to be assigned, to the related Trustee (or its nominee),
without recourse, the Mortgage Loans or Mortgage Securities being included in
the related Trust Fund, together with, unless otherwise specified in the related
Prospectus Supplement, all principal and interest received on or with respect to
such Mortgage Loans or Mortgage Securities after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. If specified in the
related Prospectus Supplement, the Company or any of its affiliates may retain
the Spread, if any, for itself or transfer the same to others. The
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Trustee will, concurrently with such assignment, deliver the Securities of such
series to or at the direction of the Company in exchange for the Mortgage Loans
and/or Mortgage Securities in the related Trust Fund. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling
Agreement or Servicing Agreement. Such schedule will include, among other
things, information as to the principal balance of each Mortgage Loan in the
related Trust Fund as of the Cut-off Date, as well as information respecting the
Mortgage Rate, the currently scheduled monthly payment of principal and
interest, the maturity of the Mortgage Note and the Loan-to-Value Ratio at
origination or modification (without regard to any secondary financing).
In addition, unless otherwise specified in the related Prospectus
Supplement, the Company will, as to each Mortgage Loan (other than Mortgage
Loans underlying any Mortgage Securities and other than Contracts), deliver, or
cause to be delivered, to the related Trustee (or to the custodian described
below) the Mortgage Note endorsed, without recourse, either in blank or to the
order of such Trustee (or its nominee), the Mortgage with evidence of recording
indicated thereon (except for any Mortgage not returned from the public
recording office), an assignment of the Mortgage in blank or to the Trustee (or
its nominee) in recordable form, together with any intervening assignments of
the Mortgage with evidence of recording thereon (except for any such assignment
not returned from the public recording office), and, if applicable, any riders
or modifications to such Mortgage Note and Mortgage, together with certain other
documents at such times as set forth in the related Pooling Agreement or
Servicing Agreement. Such assignments may be blanket assignments covering
Mortgages on Mortgaged Properties located in the same county, if permitted by
law. Notwithstanding the foregoing, a Trust Fund may include Mortgage Loans
where the original Mortgage Note is not delivered to the Trustee if the Company
delivers, or causes to be delivered, to the related Trustee (or the custodian) a
copy or a duplicate original of the Mortgage Note, together with an affidavit
certifying that the original thereof has been lost or destroyed. In addition, if
the Company cannot deliver, with respect to any Mortgage Loan, the Mortgage or
any intervening assignment with evidence of recording thereon concurrently with
the execution and delivery of the related Pooling Agreement or Servicing
Agreement because of a delay caused by the public recording office, the Company
will deliver, or cause to be delivered, to the related Trustee (or the
custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Company will deliver, or cause to be delivered, to
the related Trustee (or the custodian) such Mortgage or assignment with evidence
of recording indicated thereon after receipt thereof from the public recording
office. If the Company cannot deliver, with respect to any Mortgage Loan, the
Mortgage or any intervening assignment with evidence of recording thereon
concurrently with the execution and delivery of the related Pooling Agreement or
Servicing Agreement because such Mortgage or assignment has been lost, the
Company will deliver, or cause to be delivered, to the related Trustee (or the
custodian) a true and correct photocopy of such Mortgage or assignment with
evidence of recording thereon. Assignments of the Mortgage Loans to the Trustee
(or its nominee) will be recorded in the appropriate public recording office,
except in states where, in the opinion of counsel acceptable to the Trustee,
such recording is not required to protect the Trustee's interests in the
Mortgage Loan against the claim of any subsequent transferee or any successor to
or creditor of the Company or the originator of such Mortgage Loan, or except as
otherwise specified in the related Prospectus Supplement as to any series of
Securities. In addition, unless specified in the related Prospectus Supplement,
the Company will, as to each Contract, deliver, or cause to be delivered, the
original Contract endorsed, without recourse, to the order of the Trustee and
copies of documents and instruments related to the Contract and the security
interest in the Manufactured Home securing the Contract, together with a blanket
assignment to the Trustee of all Contracts in the related Trust Fund and such
documents and instruments. In order to give notice of the right, title and
interest of the Securityholders to the Contracts, the Company will cause to be
executed and delivered to the Trustee a UCC-1 financing statement identifying
the Trustee as the secured party and identifying all Contracts as collateral.
Unless otherwise specified in the related Prospectus Supplement, the Company
will, as to each Mortgage Security included in a Mortgage Pool, deliver, or
cause to be delivered, to the related Trustee (or the custodian) a physical
certificate or note evidencing such Mortgage Security, registered in the name of
the related Trustee (or its nominee), or endorsed in blank or to the related
Trustee (or its nominee), or accompanied by transfer documents sufficient to
effect a transfer to the Trustee (or its nominee).
The Trustee (or the custodian hereinafter referred to) will hold such
documents in trust for the benefit of the related Securityholders, and generally
will review such documents within 90 days after receipt thereof in the case of
documents delivered concurrently with the execution and delivery of the related
Pooling Agreement or Indenture, and within the time period specified in the
related Pooling Agreement or Indenture in the case of all other documents
delivered. Unless otherwise specified in the related Prospectus Supplement, if
any such document is found to be missing or defective in any material respect,
the Trustee (or such custodian) will be required to promptly
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so notify the Master Servicer, the Company, and the related Seller. If the
related Seller does not cure the omission or defect within a specified period
after notice is given thereto by the Trustee, and such omission or defect
materially and adversely affects the interests of Securityholders in the
affected Mortgage Loan or Mortgage Security, then, unless otherwise specified in
the related Prospectus Supplement, the related Seller will be obligated to
purchase such Mortgage Loan or Mortgage Security from the Trustee at its
Purchase Price (or, if and to the extent it would otherwise be permitted to do
so for a breach of representation and warranty as described under "The Mortgage
Pools--Representations of Sellers," to substitute for such Mortgage Loan or
Mortgage Security). The Trustee will be obligated to enforce this obligation of
the Seller to the extent described above under "The Mortgage
Pools--Representations by Sellers," but there can be no assurance that the
applicable Seller will fulfill its obligation to purchase (or substitute for)
the affected Mortgage Loan or Mortgage Security as described above. Unless
otherwise specified in the related Prospectus Supplement, neither the Master
Servicer nor the Company will be obligated to purchase or substitute for such
Mortgage Loan or Mortgage Security if the Seller defaults on its obligation to
do so. Unless otherwise specified in the related Prospectus Supplement, this
purchase or substitution obligation constitutes the sole remedy available to the
related Securityholders and the related Trustee for omission of, or a material
defect in, a constituent document. Any affected Mortgage Loan or Mortgage
Security not so purchased or substituted for shall remain in the related Trust
Fund.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
and/or Mortgage Securities in any Mortgage Pool, and to maintain possession of
and, if applicable, to review, the documents relating to such Mortgage Loans
and/or Mortgage Securities, in any case as the agent of the Trustee. The
identity of any such custodian to be appointed on the date of initial issuance
of the Securities will be set forth in the related Prospectus Supplement. Any
such custodian may be an affiliate of the Company or the Master Servicer.
With respect to the Mortgage Loans in a Mortgage Pool, except in the
case of a Designated Seller Transaction or as to Mortgage Loans underlying any
Mortgage Securities or unless otherwise specified in the related Prospectus
Supplement, the Company will make certain representations and warranties as to
the types and geographical concentrations of such Mortgage Loans and as to the
accuracy, in all material respects, of certain identifying information furnished
to the related Trustee in respect of each such Mortgage Loan (E.G., original
Loan-to-Value Ratio, principal balance as of the Cut-off Date, Mortgage Rate and
maturity). Upon a breach of any such representation which materially and
adversely affects the interests of the Securityholders in a Mortgage Loan, the
Company will be obligated to cure the breach in all material respects, to
purchase the Mortgage Loan at its Purchase Price or, unless otherwise specified
in the related Prospectus Supplement, to substitute for such Mortgage Loan a
Qualified Substitute Mortgage Loan in accordance with the provisions for such
substitution by Affiliated Sellers as described above under "The Mortgage
Pools--Representations by Sellers." However, the Company will not be required to
repurchase or substitute for any Mortgage Loan in connection with a breach of a
representation and warranty if the substance of any such breach also constitutes
fraud in the origination of the related Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, this purchase or substitution
obligation constitutes the sole remedy available to Securityholders or the
Trustee for such a breach of representation by the Company. Any Mortgage Loan
not so purchased or substituted for shall remain in the related Trust Fund.
Pursuant to the related Pooling Agreement or Servicing Agreement, the
Master Servicer for any Mortgage Pool, either directly or through Subservicers,
will service and administer the Mortgage Loans included in such Mortgage Pool
and assigned to the related Trustee as more fully set forth under "Servicing of
Mortgage Loans." The Master Servicer will make certain representations and
warranties regarding its authority to enter into, and its ability to perform its
obligations under, the Pooling Agreement or Servicing Agreement.
CERTIFICATE ACCOUNT
GENERAL. The Master Servicer and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more separate accounts for the collection of payments on the related Mortgage
Loans and/or Mortgage Securities constituting such Trust Fund (collectively, the
"Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Securities of the related series. A Certificate Account may be maintained either
as an interest-bearing or a non-interest-bearing account, and the funds held
therein may be held as cash or invested in United States government securities
and other investment grade obligations specified in the related Pooling
Agreement or the
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related Servicing Agreement and Indenture ("Permitted Investments"). Unless
otherwise provided in the related Prospectus Supplement, any interest or other
income earned on funds in the Certificate Account will be paid to the related
Master Servicer or Trustee as additional compensation. If permitted by such
Rating Agency or Agencies and so specified in the related Prospectus Supplement,
a Certificate Account may contain funds relating to more than one series of
mortgage pass-through certificates and may contain other funds representing
payments on mortgage loans owned by the related Master Servicer or serviced by
it on behalf of others.
DEPOSITS. Unless otherwise provided in the related Pooling Agreement or
the related Servicing Agreement and Indenture and described in the related
Prospectus Supplement, the related Master Servicer, Trustee or Special Servicer
will be required to deposit or cause to be deposited in the Certificate Account
for each Trust Fund within a certain period following receipt (in the case of
collections and payments), the following payments and collections received, or
advances made, by the Master Servicer, the Trustee or any Special Servicer
subsequent to the Cut-off Date with respect to the Mortgage Loans and/or
Mortgage Securities in such Trust Fund (other than payments due on or before the
Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage
Loans, including any default interest collected, in each case net of
any portion thereof retained by the Master Servicer, any Special
Servicer or Sub-Servicer as its servicing compensation or as
compensation to the Trustee, and further net of any Spread;
(iii) all payments on the Mortgage Securities;
(iv) all proceeds received under any hazard, title, primary
mortgage, FHA or other insurance policy that provides coverage with
respect to a particular Mortgaged Property or the related Mortgage Loan
(other than proceeds applied to the restoration of the property or
released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or, if applicable, a
Special Servicer) and/or the terms and conditions of the related
Mortgage (collectively, "Insurance Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted
Mortgage Loans or property acquired in respect thereof, by foreclosure
or otherwise ("Liquidation Proceeds"), together with the net operating
income (less reasonable reserves for future expenses) derived from the
operation of any Mortgaged Properties acquired by the Trust Fund
through foreclosure or otherwise;
(v) any amounts paid under any instrument or drawn from any
fund that constitutes credit enhancement for the related series of
Securities as described under "Description of Credit Enhancement";
(vi) any advances made as described under "--Advances" below;
(vii) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Securityholders, as described
below;
(viii) all proceeds of any Mortgage Loan or Mortgage Security
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer, the
Company, a Seller or any other person pursuant to the terms of the
related Pooling Agreement or Servicing Agreement as described under
"The Mortgage Pools--Representations by Sellers," "Servicing of
Mortgage Loans--Realization Upon and Sale of Defaulted Mortgage Loans,"
"--Assignment of Trust Fund Assets" above, "The
Agreements--Termination" and "Purchase Obligations" (all of the
foregoing, also "Liquidation Proceeds");
(ix) any amounts paid by the Master Servicer to cover
Prepayment Interest Shortfalls arising out of the prepayment of
Mortgage Loans as described under "Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses;
Spread";
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(x) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer, any payments on account of modification or assumption fees,
late payment charges, Prepayment Premiums or Equity Participations on
the Mortgage Loans;
(xi) any amount required to be deposited by the Master
Servicer or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the Trustee, as
the case may be, of funds held in the Certificate Account; and
(xii) any other amounts required to be deposited in the
Certificate Account as provided in the related Pooling Agreement or the
related Servicing Agreement and Indenture and described herein or in
the related Prospectus Supplement.
With respect to each Buydown Mortgage Loan, the Master Servicer will be
required to deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein with respect to
the Certificate Account. Unless otherwise specified in the related Prospectus
Supplement, the terms of all Buydown Mortgage Loans provide for the contribution
of Buydown Funds in an amount equal to or exceeding either (i) the total
payments to be made from such funds pursuant to the related buydown plan or (ii)
if such Buydown Funds are to be deposited on a discounted basis, that amount of
Buydown Funds which, together with investment earnings thereon at a rate as will
support the scheduled level of payments due under the Buydown Mortgage Loan.
Neither the Master Servicer nor the Company will be obligated to add to any such
discounted Buydown Funds any of its own funds should investment earnings prove
insufficient to maintain the scheduled level of payments. To the extent that any
such insufficiency is not recoverable from the Mortgagor or, in an appropriate
case, from the Seller, distributions to Securityholders may be affected. With
respect to each Buydown Mortgage Loan, the Master Servicer will be required
monthly to withdraw from the Buydown Account and deposit in the Certificate
Account as described above the amount, if any, of the Buydown Funds (and, if
applicable, investment earnings thereon) for each Buydown Mortgage Loan that,
when added to the amount due from the Mortgagor on such Buydown Mortgage Loan,
equals the full monthly payment which would be due on the Buydown Mortgage Loan
if it were not subject to the buydown plan. The Buydown Funds will in no event
be a part of the related Trust Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan
in its entirety during the Buydown Period, the Master Servicer will be required
to withdraw from the Buydown Account and remit to the Mortgagor or such other
designated party in accordance with the related buydown plan any Buydown Funds
remaining in the Buydown Account. If a prepayment by a Mortgagor during the
Buydown Period together with Buydown Funds will result in full prepayment of a
Buydown Mortgage Loan, the Master Servicer will generally be required to
withdraw from the Buydown Account and deposit in the Certificate Account the
Buydown Funds and investment earnings thereon, if any, which together with such
prepayment will result in a prepayment in full; provided that Buydown Funds may
not be available to cover a prepayment under certain Mortgage Loan programs. Any
Buydown Funds so remitted to the Master Servicer in connection with a prepayment
described in the preceding sentence will be deemed to reduce the amount that
would be required to be paid by the Mortgagor to repay fully the related
Mortgage Loan if the Mortgage Loan were not subject to the buydown plan. Any
investment earnings remaining in the Buydown Account after prepayment or after
termination of the Buydown Period will be remitted to the related Mortgagor or
such other designated party pursuant to the agreement relating to each Buydown
Mortgage Loan (the "Buydown Agreement"). If the Mortgagor defaults during the
Buydown Period with respect to a Buydown Mortgage Loan and the property securing
such Buydown Mortgage Loan is sold in liquidation (either by the Master
Servicer, the Primary Insurer, the insurer under the Mortgage Pool Insurance
Policy (the "Pool Insurer") or any other insurer), the Master Servicer will be
required to withdraw from the Buydown Account the Buydown Funds and all
investment earnings thereon, if any, and either deposit the same in the
Certificate Account or, alternatively, pay the same to the Primary Insurer or
the Pool Insurer, as the case may be, if the Mortgaged Property is transferred
to such insurer and such insurer pays all of the loss incurred in respect of
such default.
WITHDRAWALS. Unless otherwise provided in the related Pooling Agreement
or the related Servicing Agreement and Indenture and described in the related
Prospectus Supplement, a Master Servicer, Trustee or Special Servicer may make
withdrawals from the Certificate Account for each Trust Fund for any of the
following purposes:
(i) to make distributions to the related Securityholders on
each Distribution Date;
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(ii) to reimburse the Master Servicer or any other specified
person for unreimbursed amounts advanced by it as described under
"--Advances" below in respect of Mortgage Loans in the Trust Fund, such
reimbursement to be made out of amounts received which were identified
and applied by the Master Servicer as late collections of interest (net
of related servicing fees) on and principal of the particular Mortgage
Loans with respect to which the advances were made or out of amounts
drawn under any form of credit enhancement with respect to such
Mortgage Loans;
(iii) to reimburse the Master Servicer or a Special Servicer
for unpaid servicing fees earned by it and certain unreimbursed
servicing expenses incurred by it with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such
reimbursement to be made out of amounts that represent Liquidation
Proceeds and Insurance Proceeds collected on the particular Mortgage
Loans and properties, and net income collected on the particular
properties, with respect to which such fees were earned or such
expenses were incurred or out of amounts drawn under any form of credit
enhancement with respect to such Mortgage Loans and properties;
(iv) to reimburse the Master Servicer or any other specified
person for any advances described in clause (ii) above made by it and
any servicing expenses referred to in clause (iii) above incurred by it
which, in the good faith judgment of the Master Servicer or such other
person, will not be recoverable from the amounts described in clauses
(ii) and (iii), respectively, such reimbursement to be made from
amounts collected on other Mortgage Loans in the Trust Fund or, if and
to the extent so provided by the related Pooling Agreement or the
related Servicing Agreement and Indenture and described in the related
Prospectus Supplement, only from that portion of amounts collected on
such other Mortgage Loans that is otherwise distributable on one or
more classes of Subordinate Securities of the related series;
(v) if and to the extent described in the related
Prospectus Supplement, to pay the Master Servicer, a Special Servicer
or another specified entity (including a provider of credit
enhancement) interest accrued on the advances described in clause (ii)
above made by it and the servicing expenses described in clause (iii)
above incurred by it while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust
Fund for environmental site assessments performed with respect to
Multifamily Properties that constitute security for defaulted Mortgage
Loans, and for any containment, clean-up or remediation of hazardous
wastes and materials present on such Mortgaged Properties, as described
under "Servicing of Mortgage Loans--Realization Upon Defaulted Mortgage
Loans";
(vii) to reimburse the Master Servicer, the Company, or any
of their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "The Agreements--Certain
Matters Regarding the Master Servicer and the Company";
(viii) if and to the extent described in the related
Prospectus Supplement, to pay the fees of the Trustee;
(ix) to reimburse the Trustee or any of its directors,
officers, employees and agents, as the case may be, for certain
expenses, costs and liabilities incurred thereby, as and to the extent
described under "The Agreements--Certain Matters Regarding the
Trustee";
(x) to pay the Master Servicer or the Trustee, as
additional compensation, interest and investment income earned in
respect of amounts held in the Certificate Account;
(xi) to pay (generally from related income) for costs
incurred in connection with the operation, management and maintenance
of any Mortgaged Property acquired by the Trust Fund by foreclosure or
otherwise;
(xii) if one or more elections have been made to treat the
Trust Fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the Trust Fund or its assets
or
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transactions, as and to the extent described under "Certain Federal
Income Tax Consequences--REMICS--Prohibited Transactions and Other
Possible REMIC Taxes";
(xiii) to pay for the cost of an independent appraiser or
other expert in real estate matters retained to determine a fair sale
price for a defaulted Mortgage Loan or a property acquired in respect
thereof in connection with the liquidation of such Mortgage Loan or
property;
(xiv) to pay for the cost of various opinions of counsel
obtained pursuant to the related Pooling Agreement or the related
Servicing Agreement and Indenture for the benefit of the related
Securityholders;
(xv) to pay to itself, the Company, a Seller or any other
appropriate person all amounts received with respect to each Mortgage
Loan purchased, repurchased or removed from the Trust Fund pursuant to
the terms of the related Pooling Agreement or the related Servicing
Agreement and Indenture and not required to be distributed as of the
date on which the related Purchase Price is determined;
(xvi) to make any other withdrawals permitted by the related
Pooling Agreement or the related Servicing Agreement and Indenture and
described in the related Prospectus Supplement; and
(xvii) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
DISTRIBUTIONS
Distributions on the Securities of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. Unless otherwise provided in
the related Prospectus Supplement, the "Available Distribution Amount" for any
series of Securities and any Distribution Date will refer to the total of all
payments or other collections (or advances in lieu thereof) on, under or in
respect of the Mortgage Loans and/or Mortgage Securities and any other assets
included in the related Trust Fund that are available for distribution to the
Securityholders of such series on such date. The particular components of the
Available Distribution Amount for any series on each Distribution Date will be
more specifically described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Securities of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Securities are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Securities on each Distribution Date
will be allocated PRO RATA among the outstanding Securities in such class.
Payments will be made either by wire transfer in immediately available funds to
the account of a Securityholder at a bank or other entity having appropriate
facilities therefor, if such Securityholder has provided the Trustee or other
person required to make such payments with wiring instructions no later than
five business days prior to the related Record Date or such other date specified
in the related Prospectus Supplement (and, if so provided in the related
Prospectus Supplement, such Securityholder holds Securities in the requisite
amount or denomination specified therein), or by check mailed to the address of
such Securityholder as it appears on the Security Register; provided, however,
that the final distribution in retirement of any class of Securities will be
made only upon presentation and surrender of such Securities at the location
specified in the notice to Securityholders of such final distribution.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE SECURITIES
Each class of Securities of each series (other than certain classes of
Strip Securities and certain REMIC Residual Certificates that have no Security
Interest Rate) may have a different Security Interest Rate, which may be fixed,
variable or adjustable, or any combination of two or more such rates. The
related Prospectus Supplement will specify the Security Interest Rate or, in the
case of a variable or adjustable Security Interest Rate, the method for
determining the Security Interest Rate, for each class. Unless otherwise
specified in the related Prospectus
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Supplement, interest on the Securities of each series will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Securities of any class
(other than any class of Securities that will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Securities"), and other than any class of Strip Securities or REMIC Residual
Certificates that is not entitled to any distributions of interest) will be made
on each Distribution Date based on the Accrued Certificate Interest for such
class and such Distribution Date, subject to the sufficiency of the portion of
the Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Securities, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the principal balance thereof on each
Distribution Date. With respect to each class of Securities (other than certain
classes of Strip Securities and REMIC Residual Certificates), "Accrued
Certificate Interest" for each Distribution Date will be equal to interest at
the applicable Security Interest Rate accrued for a specified period (generally
one month) on the outstanding principal balance thereof immediately prior to
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, Accrued Certificate Interest for each Distribution Date on Strip
Securities entitled to distributions of interest will be similarly calculated
except that it will accrue on a notional amount that is either (i) based on the
principal balances of some or all of the Mortgage Loans and/or Mortgage
Securities in the related Trust Fund or (ii) equal to the principal balances of
one or more other classes of Securities of the same series. Reference to such a
notional amount with respect to a class of Strip Securities is solely for
convenience in making certain calculations and does not represent the right to
receive any distribution of principal. If so specified in the related Prospectus
Supplement, the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Securities, that may otherwise be
added to the principal balance of) one or more classes of the Securities of a
series will be reduced to the extent that any Prepayment Interest Shortfalls, as
described under "Yield Considerations", exceed the amount of any sums
(including, if and to the extent specified in the related Prospectus Supplement,
the Master Servicer's servicing compensation) that are applied to offset such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or all of the classes of Securities of that series will be specified
in the related Prospectus Supplement. The related Prospectus Supplement will
also describe the extent to which the amount of Accrued Certificate Interest
that is otherwise distributable on (or, in the case of Accrual Securities, that
may otherwise be added to the principal balance of) a class of Offered
Securities may be reduced as a result of any other contingencies, including
delinquencies, losses and Deferred Interest on or in respect of the related
Mortgage Loans or application of the Relief Act with respect to such Mortgage
Loans. Unless otherwise provided in the related Prospectus Supplement, any
reduction in the amount of Accrued Certificate Interest otherwise distributable
on a class of Securities by reason of the allocation to such class of a portion
of any Deferred Interest on or in respect of the related Mortgage Loans will
result in a corresponding increase in the principal balance of such class.
As and to the extent described in the related Prospectus Supplement,
distributions of principal with respect to a series of Securities will be made
on each Distribution Date to the holders of the class or classes of Securities
of such series entitled thereto until the principal balance(s) of such
Securities have been reduced to zero. In the case of a series of Securities
which includes two or more classes of Securities, the timing, sequential order,
priority of payment or amount of distributions in respect of principal, and any
schedule or formula or other provisions applicable to the determination thereof
(including distributions among multiple classes of Senior Securities or
Subordinate Securities), shall be as set forth in the related Prospectus
Supplement. Distributions of principal with respect to one or more classes of
Securities may be made at a rate that is faster (and, in some cases,
substantially faster) than the rate at which payments or other collections of
principal are received on the Mortgage Loans and/or Mortgage Securities in the
related Trust Fund, may not commence until the occurrence of certain events,
such as the retirement of one or more other classes of Securities of the same
series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on such Mortgage Loans and/or Mortgage Securities. In
addition, distributions of principal with respect to one or more classes of
Securities may be made, subject to available funds, based on a specified
principal payment schedule and, with respect to one or more classes of
Securities, may be contingent on the specified principal payment schedule for
another class of the same series and the rate at which payments and other
collections of principal on the Mortgage Loans and/or Mortgage Securities in the
related Trust Fund are received.
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DISTRIBUTIONS ON THE SECURITIES IN RESPECT OF PREPAYMENT PREMIUMS OR IN RESPECT
OF EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations received on or in
connection with the Mortgage Assets in any Trust Fund will be distributed on
each Distribution Date to the holders of the class of Securities of the related
series entitled thereto in accordance with the provisions described in such
Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Loans and/or Mortgage Securities in any Trust Fund (to the extent not covered or
offset by draws on any reserve fund or under any instrument of credit
enhancement) will be allocated among the respective classes of Securities of the
related series in the priority and manner, and subject to the limitations,
specified in the related Prospectus Supplement. As described in the related
Prospectus Supplement, such allocations may result in reductions in the
entitlements to interest and/or principal balances of one or more such classes
of Securities, or may be effected simply by a prioritization of payments among
such classes of Securities.
ADVANCES
If and to the extent provided in the related Prospectus Supplement, and
subject to any limitations specified therein, the related Master Servicer may be
obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Securities for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any Balloon Payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date. Unless otherwise provided in the related
Prospectus Supplement, a "Due Period" is the period between Distribution Dates,
and scheduled payments on the Mortgage Loans in any Trust Fund that became due
during a given Due Period will, to the extent received by the related
Determination Date or advanced by the related Master Servicer or other specified
person, be distributed on the Distribution Date next succeeding such
Determination Date.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Securities entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made from the Master Servicer's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts received under any
fund or instrument constituting credit enhancement) respecting which such
advances were made (as to any Mortgage Loan, "Related Proceeds") and such other
specific sources as may be identified in the related Prospectus Supplement,
including in the case of a series that includes one or more classes of
Subordinate Securities, collections on other Mortgage Loans in the related Trust
Fund that would otherwise be distributable to the holders of one or more classes
of such Subordinate Securities. No advance will be required to be made by the
Master Servicer if, in the good faith judgment of the Master Servicer, such
advance would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, a Nonrecoverable Advance will be
reimbursable from any amounts in the related Certificate Account prior to any
distributions being made to the related series of Securityholders.
If advances have been made from excess funds in a Certificate Account,
the Master Servicer that advanced such funds will be required to replace such
funds in the Certificate Account on any future Distribution Date to the extent
that funds then in the Certificate Account are insufficient to permit full
distributions to Securityholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer to make advances may
be secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If any person other than the Master Servicer has any obligation to make
advances as described above, the related Prospectus Supplement will identify
such person.
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If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to Securityholders or as otherwise
provided in the related Pooling Agreement or Servicing Agreement and described
in such Prospectus Supplement.
As specified in the related Prospectus Supplement with respect to any
series of Securities as to which the Trust Fund includes Mortgage Securities,
the advancing obligations with respect to the underlying Mortgage Loans will be
pursuant to the terms of such Mortgage Securities, as may be supplemented by the
terms of the applicable Pooling Agreement or Servicing Agreement, and may differ
from the provisions described above.
REPORTS TO SECURITYHOLDERS
With each distribution to Securityholders of a particular class of
Offered Securities, the related Master Servicer or Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Fund setting forth the
information specifically described in the related Pooling Agreement or the
related Servicing Agreement or Indenture, which generally will include the
following as applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest;
(iii) the amount, if any, of such distribution allocable to
(A) Prepayment Premiums and (B) payments on account of Equity
Participations;
(iv) with respect to a series consisting of two or more
classes, the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on such
Distribution Date;
(v) the amount of servicing compensation received by the
related Master Servicer (and, if payable directly out of the related
Trust Fund, by any Special Servicer and any Sub-Servicer);
(vi) the aggregate amount of advances included in the
distributions on such Distribution Date, and the aggregate amount of
unreimbursed advances at the close of business on such Distribution
Date;
(vii) the aggregate principal balance of the Mortgage Loans in
the related Mortgage Pool on, or as of a specified date shortly prior
to, such Distribution Date;
(viii) the number and aggregate principal balance of any
Mortgage Loans in the related Mortgage Pool in respect of which (A) one
scheduled payment is delinquent, (B) two scheduled payments are
delinquent, (C) three or more scheduled payments are delinquent and (D)
foreclosure proceedings have been commenced;
(ix) the book value of any real estate acquired by such Trust
Fund through foreclosure or grant of a deed in lieu of foreclosure;
(x) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(xi) the amount of coverage under any Letter of Credit,
Mortgage Pool Insurance Policy or other form of credit enhancement
covering default risk as of the close of business on the applicable
Determination Date and a description of any credit enhancement
substituted therefor;
(xii) the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the applicable
Distribution Date and a description of any change in the calculation of
such amounts;
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(xiii) in the case of Securities benefiting from alternative
credit enhancement arrangements described in a Prospectus Supplement,
the amount of coverage under such alternative arrangements as of the
close of business on the applicable Determination Date; and
(xiv) with respect to any series of Securities as to which the
Trust Fund includes Mortgage Securities, certain additional information
as required under the related Pooling Agreement and specified in the
related Prospectus Supplement.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Securities or per a specified portion of such
minimum denomination. In addition to the information described above, reports to
Securityholders will contain such other information as is set forth in the
applicable Pooling Agreement or the applicable Servicing Agreement or Indenture,
which may include, without limitation, prepayments, reimbursements to
Subservicers and the Master Servicer and losses borne by the related Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Trustee will furnish a report to each
holder of record of a class of Offered Securities at any time during such
calendar year which, among other things, will include information as to the
aggregate of amounts reported pursuant to subclauses (i)-(iii) above for such
calendar year or, in the event such person was a holder of record of a class of
Securities during a portion of such calendar year, for the applicable portion of
such a year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Unless otherwise provided in the applicable Prospectus Supplement,
credit support with respect to the Offered Securities of each series may be
comprised of one or more of the following components. Each component will have a
dollar limit and, unless otherwise specified in the related Prospectus
Supplement, will provide coverage with respect to certain losses on the related
Mortgage Loans (as more particularly described in the related Prospectus
Supplement, "Realized Losses") that are (i) attributable to the Mortgagor's
failure to make any payment of principal or interest as required under the
Mortgage Note, but not including Special Hazard Losses, Extraordinary Losses or
other losses resulting from damage to a Mortgaged Property, Bankruptcy Losses or
Fraud Losses (any such loss, a "Defaulted Mortgage Loss"); (ii) of a type
generally covered by a Special Hazard Insurance Policy (as defined below) (any
such loss, a "Special Hazard Loss"); (iii) attributable to certain actions which
may be taken by a bankruptcy court in connection with a Mortgage Loan, including
a reduction by a bankruptcy court of the principal balance of or the Mortgage
Rate on a Mortgage Loan or an extension of its maturity (any such loss, a
"Bankruptcy Loss"); and (iv) incurred on defaulted Mortgage Loans as to which
there was fraud in the origination of such Mortgage Loans (any such loss, a
"Fraud Loss"). Unless otherwise specified in the related Prospectus Supplement,
Defaulted Mortgage Losses, Special Hazard Losses, Bankruptcy Losses and Fraud
Losses in excess of the amount of coverage provided therefor and losses
occasioned by war, civil insurrection, certain governmental actions, nuclear
reaction and certain other risks ("Extraordinary Losses") will not be covered.
To the extent that the credit support for the Offered Securities of any series
is exhausted, the holders thereof will bear all further risks of loss not
otherwise insured against.
As set forth below and in the applicable Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided by one or
more of a Letter of Credit or a Mortgage Pool Insurance Policy, (ii) coverage
with respect to Special Hazard Losses may be provided by one or more of a Letter
of Credit or a Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii) coverage with
respect to Bankruptcy Losses may be provided by one or more of a Letter of
Credit or a Bankruptcy Bond and (iv) coverage with respect to Fraud Losses may
be provided by one or more of a Letter of Credit, Mortgage Pool Insurance Policy
or mortgage repurchase bond. In addition, if provided in the applicable
Prospectus Supplement, in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of a Reserve Fund to cover
such losses, in the form of subordination of one or more classes of Subordinate
Securities to provide credit support to one or more classes of Senior
Securities, or in the form of a specified entity's agreement to repurchase
certain Mortgage Loans or fund certain losses pursuant to a Purchase
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Obligation, which obligations may be supported by a Letter of Credit, surety
bonds or other types of insurance policies, certain other secured or unsecured
corporate guarantees or in such other form as may be described in the related
Prospectus Supplement, or in the form of a combination of two or more of the
foregoing. The credit support may be provided by an assignment of the right to
receive certain cash amounts, a deposit of cash into a Reserve Fund or other
pledged assets, or by banks, insurance companies, guarantees or any combination
thereof identified in the applicable Prospectus Supplement.
The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to the Offered Securities of each
series will be set forth in the related Prospectus Supplement. To the extent
provided in the applicable Prospectus Supplement and the Pooling Agreement or
Indenture, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the aggregate outstanding principal balance
of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, credit support for the Offered Securities
of one series may cover the Offered Securities of one or more other series.
The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
In general, references to "Mortgage Loans" under this "Description of
Credit Enhancement" section are to Mortgage Loans in a Trust Fund. However, if
so provided in the Prospectus Supplement for a series of Securities, any
Mortgage Securities included in the related Trust Fund and/or the related
underlying Mortgage Loans may be covered by one or more of the types of credit
support described herein. The related Prospectus Supplement will specify, as to
each such form of credit support, the information indicated below with respect
thereto, to the extent such information is material and available.
SUBORDINATE SECURITIES
If so specified in the related Prospectus Supplement, one or more
classes of Securities of a series may be Subordinate Securities. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Securities to receive distributions from the Certificate Account on
any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Securities. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or may
be limited to) certain types of losses or shortfalls. The related prospectus
Supplement will set forth information concerning the manner and amount of
subordination provided by a class or classes of Subordinate Securities in a
series and the circumstances under which such subordination will be available.
The Offered Securities of any series may include one or more classes of
Subordinate Securities.
If the Mortgage Loans and/or Mortgage Securities in any Trust Fund are
divided into separate groups, each supporting a separate class or classes of
Securities of the related series, credit enhancement may be provided by
cross-support provisions requiring that distributions be made on Senior
Securities evidencing interests in one group of Mortgage Loans and/or Mortgage
Securities prior to distributions on Subordinate Securities evidencing interests
in a different group of Mortgage Loans and/or Mortgage Securities within the
Trust Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
LETTER OF CREDIT
If any component of credit enhancement as to the Offered Securities of
any series is to be provided by a letter of credit (the "Letter of Credit"), a
bank (the "Letter of Credit Bank") will deliver to the related Trustee an
irrevocable Letter of Credit. The Letter of Credit may provide direct coverage
with respect to the Mortgage Loans or, if specified in the related Prospectus
Supplement, support an entity's obligation pursuant to a Purchase Obligation to
make certain payments to the related Trustee with respect to one or more
components of credit enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
credit enhancement, will be specified in the applicable Prospectus Supplement.
If so specified
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in the related Prospectus Supplement, the Letter of Credit may permit draws only
in the event of certain types of losses and shortfalls. The Letter of Credit may
also provide for the payment of advances which the Master Servicer would be
obligated to make with respect to delinquent monthly mortgage payments. The
amount available under the Letter of Credit will, in all cases, be reduced to
the extent of the unreimbursed payments thereunder and may otherwise be reduced
as described in the related Prospectus Supplement. The Letter of Credit will
expire on the expiration date set forth in the related Prospectus Supplement,
unless earlier terminated or extended in accordance with its terms.
MORTGAGE POOL INSURANCE POLICIES
Any Mortgage Pool Insurance Policy obtained by the Company for each
Trust Fund will be issued by the Pool Insurer named in the applicable Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As set forth under
"Maintenance of Credit Enhancement," the Master Servicer will use reasonable
efforts to maintain the Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the related Trustee and the
related Securityholders. The Mortgage Pool Insurance Policies, however, are not
blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Unless specified in the related
Prospectus Supplement, the Mortgage Pool Insurance Policies may not cover losses
due to a failure to pay or denial of a claim under a Primary Insurance Policy,
irrespective of the reason therefor.
Each Mortgage Pool Insurance Policy will generally provide that no
claims may be validly presented thereunder unless, among other things, (i) any
required Primary Insurance Policy is in effect for the defaulted Mortgage Loan
and a claim thereunder has been submitted and settled, (ii) hazard insurance on
the property securing such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid by the
Master Servicer, (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its condition (reasonable wear and
tear excepted) at the Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens except
certain permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Mortgage Loan at a price equal to the principal balance thereof plus
accrued and unpaid interest at the applicable Mortgage Rate to the date of
purchase and certain expenses incurred by the Master Servicer, Special Servicer
or Subservicer on behalf of the related Trustee and Securityholders, or (b) to
pay the amount by which the sum of the principal balance of the defaulted
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under any related Primary
Insurance Policy. Securityholders will experience a shortfall in the amount of
interest payable on the related Securities in connection with the payment of
claims under a Mortgage Pool Insurance Policy because the Pool Insurer is only
required to remit unpaid interest through the date a claim is paid rather than
through the end of the month in which such claim is paid. In addition, the
Securityholders will also experience losses with respect to the related
Securities in connection with payments made under a Mortgage Pool Insurance
Policy to the extent that the Master Servicer expends funds to cover unpaid real
estate taxes or to repair the related Mortgaged Property in order to make a
claim under a Mortgage Pool Insurance Policy, as those amounts will not be
covered by payments under such policy and will be reimbursable to the Master
Servicer from funds otherwise payable to the Securityholders. If any Mortgaged
Property securing a defaulted Mortgage Loan is damaged and proceeds, if any (see
"Special Hazard Insurance Policies" below for risks which are not covered by
such policies), from the related hazard insurance policy or applicable Special
Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under the Mortgage Pool Insurance
Policy, the Master Servicer is not required to expend its own funds to restore
the damaged property unless it determines (x) that such restoration will
increase the proceeds to one or more classes of Securityholders on liquidation
of the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (y) that such expenses will be recoverable by it through Liquidation
Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus Supplement, a
Mortgage Pool Insurance Policy (and certain Primary Insurance Policies) will
likely not insure against loss sustained by reason of a default arising from,
among other things, (i) fraud or negligence in the origination or servicing of a
Mortgage Loan, including
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misrepresentation by the Mortgagor, the Seller or other persons involved in the
origination thereof, or (ii) failure to construct a Mortgaged Property in
accordance with plans and specifications. Depending upon the nature of the
event, a breach of representation made by a Seller may also have occurred. Such
a breach, if it materially and adversely affects the interests of
Securityholders and cannot be cured, would give rise to a purchase obligation on
the part of the Seller, as more fully described under "The Mortgage
Pools--Representations by Sellers." However, such an event would not give rise
to a breach of a representation and warranty or a purchase obligation on the
part of the Company or Master Servicer.
The original amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the related series of Securities by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed properties. The
amount of claims paid includes certain expenses incurred by the Master Servicer,
Special Servicer or Subservicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. Accordingly, if aggregate
net claims paid under any Mortgage Pool Insurance Policy reach the original
policy limit, coverage under that Mortgage Pool Insurance Policy will be
exhausted and any further losses will be borne by holders of the related series
of Securities. In addition, unless the Master Servicer could determine that an
advance in respect of a delinquent Mortgage Loan would be recoverable to it from
the proceeds of the liquidation of such Mortgage Loan or otherwise, the Master
Servicer would not be obligated to make an advance respecting any such
delinquency since the advance would not be ultimately recoverable to it from
either the Mortgage Pool Insurance Policy or from any other related source.
See "Description of the Securities--Advances."
Since each Mortgage Pool Insurance Policy will require that the
property subject to a defaulted Mortgage Loan be restored to its original
condition prior to claiming against the Pool Insurer, such policy will not
provide coverage against hazard losses. As set forth under "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder," the hazard policies covering
the Mortgage Loans typically exclude from coverage physical damage resulting
from a number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement cost of such
losses. Further, no coverage in respect of Special Hazard Losses, Fraud Losses
or Bankruptcy Losses will cover all risks, and the amount of any such coverage
will be limited. See "Special Hazard Insurance Policies" below. As a result,
certain hazard risks will not be insured against and will therefore be borne by
the related Securityholders.
SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust Fund will be issued by
the insurer named in the applicable Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to limitations described below, protect holders
of the related series of Securities from (i) losses due to direct physical
damage to a Mortgaged Property other than any loss of a type covered by a hazard
insurance policy or a flood insurance policy, if applicable, and (ii) losses
from partial damage caused by reason of the application of the co-insurance
clauses contained in hazard insurance policies ("Special Hazard Losses"). See
"Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder." However, a
Special Hazard Insurance Policy will not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, chemical
contamination, waste by the Mortgagor and certain other risks. Aggregate claims
under a Special Hazard Insurance Policy will be limited to the amount set forth
in the related Prospectus Supplement and will be subject to reduction as
described in such related Prospectus Supplement. A Special Hazard Insurance
Policy will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan has been kept in
force and other protection and preservation expenses have been paid by the
Master Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance Policy
will provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer,
Special Servicer or the Subservicer, the insurer will pay the lesser of (i) the
cost of repair or replacement of such property or (ii) upon transfer of the
property to the insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the Mortgage Rate to the date of claim
settlement and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer with respect to such property. If the
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property is transferred to a third party in a sale approved by the issuer of the
Special Hazard Insurance Policy (the "Special Hazard Insurer"), the amount that
the Special Hazard Insurer will pay will be the amount under (ii) above reduced
by the net proceeds of the sale of the property. No claim may be validly
presented under the Special Hazard Insurance Policy unless hazard insurance on
the property securing a defaulted Mortgage Loan has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance by the Special Hazard Insurer). If the
unpaid principal balance plus accrued interest and certain expenses is paid by
the insurer, the amount of further coverage under the related Special Hazard
Insurance Policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair of the property will
further reduce coverage by such amount. Restoration of the property with the
proceeds described under (i) above will satisfy the condition under each
Mortgage Pool Insurance Policy that the property be restored before a claim
under such Mortgage Pool Insurance Policy may be validly presented with respect
to the defaulted Mortgage Loan secured by such property. The payment described
under (ii) above will render presentation of a claim in respect of such Mortgage
Loan under the related Mortgage Pool Insurance Policy unnecessary. Therefore, so
long as a Mortgage Pool Insurance Policy remains in effect, the payment by the
insurer under a Special Hazard Insurance Policy of the cost of repair or of the
unpaid principal balance of the related Mortgage Loan plus accrued interest and
certain expenses will not affect the total Insurance Proceeds paid to
Securityholders, but will affect the relative amounts of coverage remaining
under the related Special Hazard Insurance Policy and Mortgage Pool Insurance
Policy.
As and to the extent set forth in the applicable Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of Securities may be
provided, in whole or in part, by a type of Special Hazard Instrument other than
a Special Hazard Insurance Policy or by means of the special hazard
representation of the Company.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, it is possible
that the bankruptcy court may establish the value of the Mortgaged Property of
such Mortgagor at an amount less than the then outstanding principal balance of
the Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the value
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 a reduction in the amount of the Monthly Payment on the
related Mortgage Loan (a "Debt Service Reduction"; Debt Service Reductions and
Deficient Valuations, collectively referred to herein as Bankruptcy Losses). See
"Certain Legal Aspects of Mortgage Loans and Related Matters--Anti-Deficiency
Legislation and Other Limitations on Lenders." Any Bankruptcy Bond to provide
coverage for Bankruptcy Losses for proceedings under the federal Bankruptcy Code
obtained by the Company for a Trust Fund will be issued by an insurer named in
the applicable Prospectus Supplement. The level of coverage under each
Bankruptcy Bond will be set forth in the applicable Prospectus Supplement.
RESERVE FUNDS
If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument satisfactory
to the relevant Rating Agency or Agencies, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, to the extent described in
the related Prospectus Supplement, a Reserve Fund may be funded through
application of all or a portion of amounts otherwise payable on any related
Subordinate Securities, from the Spread or otherwise. To the extent that the
funding of the Reserve Fund is dependent on amounts otherwise payable on related
Subordinate Securities, Spread or other cash flows attributable to the related
Mortgage Loans or on reinvestment income, the Reserve Fund may provide less
coverage than initially expected if the cash flows or reinvestment income on
which such funding is dependent are lower than anticipated. In addition, with
respect to any series of Securities as to which credit enhancement includes a
Letter of Credit, if so specified in the related Prospectus Supplement, under
certain circumstances the remaining amount of the Letter of Credit may be drawn
by the Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may be
distributed to Securityholders, or applied to reimburse the Master Servicer for
outstanding advances, or may
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be used for other purposes, in the manner and to the extent specified in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, any such Reserve Fund will not be deemed to be part of
the related Trust Fund. If set forth in the related Prospectus Supplement, a
Reserve Fund may provide coverage to more than one series of Securities.
In connection with the establishment of any Reserve Fund, unless
otherwise specified in the related Prospectus Supplement, the Reserve Fund will
be structured so that the Trustee will have a perfected security interest for
the benefit of the Securityholders in the assets in the Reserve Fund. However,
to the extent that the Company, any affiliate thereof or any other entity has an
interest in any Reserve Fund, in the event of the bankruptcy, receivership or
insolvency of such entity, there could be delays in withdrawals from the Reserve
Fund and corresponding payments to the Securityholders which could adversely
affect the yield to investors on the related Securities.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Master Servicer or any other person named in the related Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the applicable Prospectus Supplement does not
expressly provide for alternative credit enhancement arrangements in lieu of
some or all of the arrangements mentioned below, the following paragraphs shall
apply.
If a Letter of Credit or alternate form of credit enhancement has been
obtained for a series of Securities, the Master Servicer will be obligated to
exercise reasonable efforts to keep or cause to be kept such Letter of Credit
(or an alternate form of credit support) in full force and effect throughout the
term of the applicable Pooling Agreement or Indenture, unless coverage
thereunder has been exhausted through payment of claims or otherwise, or
substitution therefor is made as described below under "--Reduction or
Substitution of Credit Enhancement." Unless otherwise specified in the
applicable Prospectus Supplement, if a Letter of Credit obtained for a series of
Securities is scheduled to expire prior to the date the final distribution on
such Securities is made and coverage under such Letter of Credit has not been
exhausted and no substitution has occurred, the Trustee will draw the amount
available under the Letter of Credit and maintain such amount in trust for such
Securityholders.
If a Mortgage Pool Insurance Policy has been obtained for a series of
Securities, the Master Servicer will be obligated to exercise reasonable efforts
to keep such Mortgage Pool Insurance Policy (or an alternate form of credit
support) in full force and effect throughout the term of the applicable Pooling
Agreement or Servicing Agreement, unless coverage thereunder has been exhausted
through payment of claims or until such Mortgage Pool Insurance Policy is
replaced in accordance with the terms of the applicable Pooling Agreement or
Servicing Agreement. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will agree to pay the premiums for each Mortgage
Pool Insurance Policy on a timely basis. In the event the Pool Insurer ceases to
be a Qualified Insurer (such term being defined to mean a private mortgage
guaranty insurance company duly qualified as such under the laws of the state of
its incorporation and each state having jurisdiction over the insurer in
connection with the Mortgage Pool Insurance Policy and approved as an insurer by
FHLMC, FNMA or any successor entity) because it ceases to be qualified under any
such law to transact such insurance business or coverage is terminated for any
reason other than exhaustion of such coverage, the Master Servicer will use
reasonable efforts to obtain from another Qualified Insurer a replacement
insurance policy comparable to the Mortgage Pool Insurance Policy with a total
coverage equal to the then outstanding coverage of such Mortgage Pool Insurance
Policy, provided that, if the cost of the replacement policy is greater than the
cost of such Mortgage Pool Insurance Policy, the coverage of the replacement
policy will, unless otherwise agreed to by the Company, be reduced to a level
such that its premium rate does not exceed the premium rate on such Mortgage
Pool Insurance Policy. In the event that the Pool Insurer ceases to be a
Qualified Insurer because it ceases to be approved as an insurer by FHLMC, FNMA
or any successor entity, the Master Servicer will be obligated to review, not
less often than monthly, the financial condition of the Pool Insurer with a view
toward determining whether recoveries under the Mortgage Pool Insurance Policy
are jeopardized for reasons related to the financial condition of the Pool
Insurer. If the Master Servicer determines that recoveries are so jeopardized,
it will be obligated to exercise its best reasonable efforts to obtain from
another Qualified Insurer a replacement insurance policy as described above,
subject to the same cost limit.
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Any losses associated with any reduction or withdrawal in rating by an
applicable Rating Agency shall be borne by the related Securityholders.
In lieu of the Master Servicer's obligation to maintain a Letter of
Credit, Mortgage Pool Insurance Policy or other form of credit enhancement as
provided above, the Master Servicer may obtain a substitute Letter of Credit,
Mortgage Pool Insurance Policy or an alternate form of credit enhancement. If
the Master Servicer obtains such a substitute Letter of Credit, Mortgage Pool
Insurance Policy or other form of credit enhancement, it will maintain and keep
such Letter of Credit, Mortgage Pool Insurance Policy or alternate form of
credit enhancement in full force and effect as provided herein. Prior to its
obtaining any substitute Letter of Credit, Mortgage Pool Insurance Policy or
alternate form of credit enhancement, the Master Servicer will obtain written
confirmation from the Rating Agency or Agencies that rated the related series of
Securities that the substitution of such Mortgage Pool Insurance Policy, Letter
of Credit, or alternate form of credit enhancement for the existing credit
enhancement will not adversely affect the then-current ratings assigned to such
Securities by such Rating Agency or Agencies.
If a Special Hazard Instrument has been obtained for a series of
Securities, the Master Servicer will also be obligated to exercise reasonable
efforts to maintain and keep such Special Hazard Instrument in full force and
effect throughout the term of the applicable Pooling Agreement or Servicing
Agreement, unless coverage thereunder has been exhausted through payment of
claims or otherwise or substitution therefor is made as described below under
"--Reduction or Substitution of Credit Enhancement." If the Special Hazard
Instrument takes the form of a Special Hazard Insurance Policy, such policy will
provide coverage against risks of the type described herein under "Description
of Credit Enhancement--Special Hazard Insurance Policies." The Master Servicer
may obtain a substitute Special Hazard Instrument for the existing Special
Hazard Instrument if prior to such substitution the Master Servicer obtains
written confirmation from the Rating Agency or Agencies that rated the related
Securities that such substitution shall not adversely affect the then-current
ratings assigned to such Securities by such Rating Agency or Agencies.
If a Bankruptcy Bond has been obtained for a series of Securities, the
Master Servicer will be obligated to exercise reasonable efforts to maintain and
keep such Bankruptcy Bond in full force and effect throughout the term of the
Pooling Agreement or Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims or substitution therefor is made as
described below under "--Reduction or Substitution of Credit Enhancement." The
Master Servicer may obtain a substitute Bankruptcy Bond or other credit
enhancement for the existing Bankruptcy Bond if prior to such substitution the
Master Servicer obtains written confirmation from the Rating Agency or Agencies
that rated the related Securities that such substitution shall not adversely
affect the then-current ratings assigned to such Securities by such Rating
Agency or Agencies. See "--Bankruptcy Bonds" above.
The Master Servicer, on behalf of itself, the Trustee and
Securityholders, will provide the Trustee information required for the Trustee
to draw under the Letter of Credit and will present claims to the provider of
any Purchase Obligation, to each Pool Insurer, to the issuer of each Special
Hazard Insurance Policy or other Special Hazard Instrument, to the issuer of
each Bankruptcy Bond and, in respect of defaulted Mortgage Loans for which there
is no Subservicer, to each Primary Insurer and take such reasonable steps as are
necessary to permit recovery under such Letter of Credit, Purchase Obligation,
insurance policies or comparable coverage respecting defaulted Mortgage Loans or
Mortgage Loans which are the subject of a bankruptcy proceeding. Additionally,
the Master Servicer will present such claims and take such steps as are
reasonably necessary to provide for the performance by the provider of the
Purchase Obligation of its Purchase Obligation. As set forth above, all
collections by the Master Servicer under any Purchase Obligation, any Mortgage
Pool Insurance Policy, any Primary Insurance Policy or any Bankruptcy Bond and,
where the related property has not been restored, any Special Hazard Instrument,
are to be deposited in the related Certificate Account, subject to withdrawal as
described above. All draws under any Letter of Credit are also to be deposited
in the related Certificate Account. In those cases in which a Mortgage Loan is
serviced by a Subservicer, the Subservicer, on behalf of itself, the Trustee and
the Securityholders will present claims to the Primary Insurer, and all
collections thereunder shall initially be deposited in a subservicing account
that generally meets the requirements for the Certificate Account prior to being
delivered to the Master Servicer for deposit in the related Certificate Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property
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to a condition sufficient to permit recovery under any Letter of Credit,
Mortgage Pool Insurance Policy or any related Primary Insurance Policy, the
Master Servicer is not required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will increase the
proceeds to one or more classes of Securityholders on liquidation of the
Mortgage Loan after reimbursement of the Master Servicer for its expenses and
(ii) that such expenses will be recoverable by it through Liquidation Proceeds
or Insurance Proceeds. If recovery under any Letter of Credit, Mortgage Pool
Insurance Policy, other credit enhancement or any related Primary Insurance
Policy is not available because the Master Servicer has been unable to make the
above determinations, has made such determinations incorrectly or recovery is
not available for any other reason, the Master Servicer is nevertheless
obligated to follow such normal practices and procedures (subject to the
preceding sentence) as it deems necessary or advisable to realize upon the
defaulted Mortgage Loan and in the event such determination has been incorrectly
made, is entitled to reimbursement of its expenses in connection with such
restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
Unless otherwise specified in the Prospectus Supplement, the amount of
credit support provided pursuant to any form of credit enhancements (including,
without limitation, a Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond, Letter of Credit, Reserve Fund, Purchase Obligation, or
any alternative form of credit enhancement) may be reduced under certain
specified circumstances. In most cases, the amount available pursuant to any
form of credit enhancement will be subject to periodic reduction in accordance
with a schedule or formula on a nondiscretionary basis pursuant to the terms of
the related Pooling Agreement or Indenture. Additionally, in most cases, such
form of credit support (and any replacements therefor) may be replaced, reduced
or terminated, and the formula used in calculating the amount of coverage with
respect to Bankruptcy Losses, Special Hazard Losses or Fraud Losses may be
changed, without the consent of the Securityholders, upon the written assurance
from each applicable Rating Agency that the then-current rating of the related
series of Securities will not be adversely affected. Furthermore, in the event
that the credit rating of any obligor under any applicable credit enhancement is
downgraded, the credit rating(s) of the related series of Securities may be
downgraded to a corresponding level, and, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will not be obligated to
obtain replacement credit support in order to restore the rating(s) of the
related series of Securities. The Master Servicer will also be permitted to
replace such credit support with other credit enhancement instruments issued by
obligors whose credit ratings are equivalent to such downgraded level and in
lower amounts which would satisfy such downgraded level, provided that the
then-current rating(s) of the related series of Securities are maintained. Where
the credit support is in the form of a Reserve Fund, a permitted reduction in
the amount of credit enhancement will result in a release of all or a portion of
the assets in the Reserve Fund to the Company, the Master Servicer or such other
person that is entitled thereto. Any assets so released will not be available
for distributions in future periods.
PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be included in any
Mortgage Pool, if specified in the related Prospectus Supplement, the Mortgage
Loans may be sold subject to a Purchase Obligation as described below that would
become applicable on a specified date or upon the occurrence of a specified
event. For example, with respect to certain types of ARM Loans as to which the
Mortgage Rate is fixed for the first five years, a Purchase Obligation may apply
on the first date that the Mortgage Rate of such Mortgage Loan is adjusted, and
such obligation may apply to the Mortgage Loans or to the related Securities
themselves, or to a corresponding Purchase Obligation of the Company or another
person as specified in the related Prospectus Supplement. With respect to any
Purchase Obligation, such obligation will be an obligation of an entity (which
may include a bank or other financial institution or an insurance company)
specified in the related Prospectus Supplement, and an instrument evidencing
such obligation (a "Purchase Obligation") shall be delivered to the related
Trustee for the benefit of the Securityholders to the related series.
The specific terms and conditions applicable to any Purchase Obligation
will be described in the related Prospectus Supplement, including the purchase
price, the timing of and any limitations and conditions to any such purchase.
Any Purchase Obligation will be payable solely to the Trustee for the benefit of
the Securityholders of the related series and will be nontransferable. Unless
otherwise provided in the related Prospectus Supplement, each
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Purchase Obligation will be a general unsecured obligation of the provider
thereof, and prospective purchasers of Offered Securities must look solely to
the credit of such entity for payment under the Purchase Obligation.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, if required as described below, a Primary
Insurance Policy. The following is only a brief description of certain insurance
policies and does not purport to summarize or describe all of the provisions of
these policies. Such insurance is subject to underwriting and approval of
individual Mortgage Loans by the respective insurers. The descriptions of any
insurance policies described in this Prospectus or any Prospectus Supplement and
the coverage thereunder do not purport to be complete and are qualified in their
entirety by reference to such forms of policies, sample copies of which are
available upon request.
PRIMARY MORTGAGE INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, (i)
each Single Family Loan having a Loan-to-Value Ratio at origination of over 80%
is required by the Company to be covered by a primary mortgage guaranty
insurance policy (a "Primary Insurance Policy") insuring against default on such
Mortgage Loan as to at least the principal amount thereof exceeding 75% of the
Value of the related Mortgaged Property at origination of the Mortgage Loan,
unless and until the principal balance of the Mortgage Loan is reduced to a
level that would produce a Loan-to-Value Ratio equal to or less than at least
80%, and (ii) the Company will represent and warrant that, to the best of the
Company's knowledge, such Mortgage Loans are so covered. However, the foregoing
standard may vary significantly depending on the characteristics of the Mortgage
Loans and the applicable underwriting standards. A Mortgage Loan will not be
considered to be an exception to the foregoing standard if no Primary Insurance
Policy was obtained at origination but the Mortgage Loan has amortized to below
an 80% Loan-to-Value Ratio level as of the applicable Cut-off Date. Mortgage
Loans which are subject to negative amortization will only be covered by a
Primary Insurance Policy if such coverage was so required upon their
origination, notwithstanding that subsequent negative amortization may cause
such Mortgage Loan's Loan-to-Value Ratio (based on the then-current balance) to
subsequently exceed the limits which would have required such coverage upon
their origination. Multifamily Loans will not be covered by a Primary Insurance
Policy, regardless of the related Loan-to-Value Ratio.
While the terms and conditions of the Primary Insurance Policies issued
by one primary mortgage guaranty insurer (a "Primary Insurer") will differ from
those in Primary Insurance Policies issued by other Primary Insurers, each
Primary Insurance Policy will in general provide substantially the following
coverage. The amount of the loss as calculated under a Primary Insurance Policy
covering a Mortgage Loan (herein referred to as the "Loss") will generally
consist of the unpaid principal amount of such Mortgage Loan and accrued and
unpaid interest thereon and reimbursement of certain expenses, less (i) rents or
other payments collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from the related Mortgaged Property, (ii)
hazard insurance proceeds in excess of the amount required to restore such
Mortgaged Property and which have not been applied to the payment of the
Mortgage Loan, (iii) amounts expended but not approved by the Primary Insurer,
(iv) claim payments previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
The Primary Insurer will generally be required to pay either: (i) the
insured percentage of the Loss; (ii) the entire amount of the Loss, after
receipt by the Primary Insurer of good and merchantable title to, and possession
of, the Mortgaged Property; or (iii) at the option of the Primary Insurer under
certain Primary Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
insured until the earlier of (a) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (b) an approved sale.
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As conditions precedent to the filing or payment of a claim under a
Primary Insurance Policy, in the event of default by the Mortgagor, the insured
will typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
Primary Insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the Primary Insurance Policy (ordinary wear
and tear excepted); and (iii) tender to the Primary Insurer good and
merchantable title to, and possession of, the Mortgaged Property.
For any Securities offered hereunder, the Master Servicer will maintain
or cause each Subservicer to maintain, as the case may be, in full force and
effect and to the extent coverage is available a Primary Insurance Policy with
regard to each Single Family Loan for which such coverage is required under the
standard described above, provided that such Primary Insurance Policy was in
place as of the Cut-off Date and the Company had knowledge of such Primary
Insurance Policy. In the event that the Company gains knowledge that as of the
Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at origination in excess
of 80% and was not the subject of a Primary Insurance Policy (and was not
included in any exception to such standard disclosed in the related Prospectus
Supplement) and that such Mortgage Loan has a then current Loan-to-Value Ratio
in excess of 80%, then the Master Servicer is required to use reasonable efforts
to obtain and maintain a Primary Insurance Policy to the extent that such a
policy is obtainable at a reasonable price. The Master Servicer or, in the case
of a Designated Seller Transaction, the Seller will not cancel or refuse to
renew any such Primary Insurance Policy in effect at the time of the initial
issuance of a series of Securities that is required to be kept in force under
the applicable Pooling Agreement or Indenture unless the replacement Primary
Insurance Policy for such cancelled or non-renewed policy is maintained with an
insurer whose claims-paying ability is acceptable to the Rating Agency or
Agencies that rated such series of Securities for mortgage pass-through
certificates having a rating equal to or better than the highest then-current
rating of any class of such series of Securities. For further information
regarding the extent of coverage under any Mortgage Pool Insurance Policy or
Primary Insurance Policy, see "Description of Credit Enhancement--Mortgage Pool
Insurance Policies."
HAZARD INSURANCE POLICIES
The terms of the Mortgage Loans require each Mortgagor to maintain a
hazard insurance policy for their Mortgage Loan. Additionally, the Pooling
Agreement or Servicing Agreement will require the Master Servicer to cause to be
maintained 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 customary in the state in which the property is located.
Unless otherwise specified in the related Prospectus Supplement, such coverage
generally will be in an amount equal to the lesser of the principal balance
owing on such Mortgage Loan or 100% of the insurable value of the improvements
securing the Mortgage Loan except that, if generally available, such coverage
must not be less than the minimum amount required under the terms thereof to
fully compensate for any damage or loss on a replacement cost basis. The ability
of the Master Servicer to ensure that hazard insurance proceeds are
appropriately applied may be dependent on its being named as an additional
insured under any hazard insurance policy and under any flood insurance policy
referred to below, or upon the extent to which information in this regard is
furnished to the Master Servicer by Mortgagors or Subservicers.
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 deposited in the related
Certificate Account. The Pooling Agreement or Servicing Agreement will provide
that the Master Servicer may satisfy its obligation to cause hazard policies to
be maintained by maintaining a blanket policy insuring against losses on the
Mortgage Loans. If such blanket policy contains a deductible clause, the Master
Servicer will deposit in the applicable Certificate Account all sums which would
have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
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the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. Where the improvements securing a Mortgage Loan are located in a
federally designated flood area at the time of origination of such Mortgage
Loan, the Pooling Agreement or Servicing Agreement requires the Master Servicer
to cause to be maintained for each such Mortgage Loan serviced, flood insurance
(to the extent available) in an amount equal in general to the lesser of the
amount required to compensate for any loss or damage on a replacement cost basis
or the maximum insurance available under the federal flood insurance program.
The hazard insurance policies covering the Mortgaged Properties
typically contain a co-insurance 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, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(i) the replacement cost of the improvements damaged or destroyed less physical
depreciation 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 the amount of hazard insurance that Mortgagors are required to
maintain on the improvements securing the Mortgage Loans may decline as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss. See "Description of Credit Enhancement--Special Hazard Insurance Policies"
for a description of the limited protection afforded by any Special Hazard
Insurance Policy against losses occasioned by hazards which are otherwise
uninsured against (including losses caused by the application of the
co-insurance clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are generally
required to present claims to insurers under hazard insurance policies
maintained on the Mortgaged Properties. The Master Servicer, on behalf of the
Trustee and Securityholders, is obligated to present claims under any Special
Hazard Insurance Policy or other Special Hazard Instrument and any blanket
insurance policy insuring against hazard losses on the Mortgaged Properties.
However, the ability of the Master Servicer to present such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer or the Subservicers by Mortgagors.
FHA INSURANCE
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under The Housing Act and the United
States Housing Act of 1937, as amended.
There are two primary FHA insurance programs that are available for
multifamily mortgage loans. Sections 221(d)(3) and (d)(4) of the Housing Act
allow the Department of Housing and Urban Development ("HUD") to insure mortgage
loans that are secured by newly constructed and substantially rehabilitated
multifamily rental projects. Section 244 of the Housing Act provides for
co-insurance of such mortgage loans made under Sections 221(d)(3) and (d)(4) by
HUD/FHA and a HUD-approved co-insurer. Generally the term of such a mortgage
loan may be up to 40 years and the ratio of the loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Presently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. Unless
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otherwise provided in the related Prospectus Supplement, the Master Servicer
will be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA insured Mortgage Loan serviced by it for an amount equal to the
principal amount of any such debenture.
The Master Servicer will be required to take such steps as are
reasonably necessary to keep FHA insurance in full force and effect.
THE COMPANY
The Company is a wholly-owned subsidiary of Southern Pacific Funding
Corporation ("SPFC"). The Company was incorporated in the State of California on
April 12, 1995. The Company was organized for the purpose of serving as a
private secondary mortgage market conduit. The Company does not have, nor is it
expected in the future to have, any significant assets.
SPFC may from time to time be a Seller or act as Master Servicer with
respect to a Mortgage Pool. SPFC, a California corporation, is a publicly traded
mortgage banking company that originates or acquires one- to four-family
residential mortgage loans nationwide. SPFC primarily originates or acquires
mortgage loans from approved mortgage brokers through either its wholesale,
correspondent or conduit divisions.
The Company maintains its principal office at One Centerpointe Drive,
Suite 500, Lake Oswego, Oregon 97035. Its telephone number is (503) 684-4700.
THE AGREEMENTS
GENERAL
Each series of Certificates will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties to a
Pooling Agreement will include the Company, the Trustee, the Master Servicer
and, in some cases, a Special Servicer. However, a Pooling Agreement that
relates to a Trust Fund that includes Mortgage Securities may include a party
solely responsible for the administration of such Mortgage Securities, and a
Pooling Agreement that relates to a Trust Fund that consists solely of Mortgage
Securities may not include a Master Servicer, Special Servicer or other servicer
as a party. All parties to each Pooling Agreement under which Securities of a
series are issued will be identified in the related Prospectus Supplement. Each
series of Notes will be issued pursuant to an Indenture. The parties to each
Indenture will be the related Issuer and the Trustee. The Issuer will be created
pursuant to an Owner Trust Agreement between the Company and the Owner Trustee.
Forms of the Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. However, the provisions of each
Agreement will vary depending upon the nature of the Securities to be issued
thereunder and the nature of the related Trust Fund. The following summaries
describe certain provisions that may appear in a Pooling Agreement with respect
to a series of Certificates or in either the Servicing Agreement or Indenture
with respect to a series of Notes. The Prospectus Supplement for a series of
Securities will describe any provision of the related Agreements that materially
differs from the description thereof set forth below. The summaries herein do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreements for each
series of Securities and the description of such provisions in the related
Prospectus Supplement. As used herein with respect to any series, the term
"Security" refers to all of the Securities of that series, whether or not
offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Company will provide a copy of the Agreement (without
exhibits) that relates to any series of Securities without charge upon written
request of a holder of a Security of such series addressed to it at its
principal executive offices specified herein under "The Company".
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CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
The Pooling Agreement or Servicing Agreement for each series of
Securities will provide that the Master Servicer may not resign from its
obligations and duties thereunder except upon a determination that performance
of such duties is no longer permissible under applicable law or except (a) in
connection with a permitted transfer of servicing or (b) upon appointment of a
successor servicer reasonably acceptable to the Trustee and upon receipt by the
Trustee of a letter from each Rating Agency generally to the effect that such
resignation and appointment will not, in and of itself, result in a downgrading
of the Securities. No such resignation will become effective until the Trustee
or a successor servicer has assumed the Master Servicer's obligations and duties
under the Pooling Agreement or Servicing Agreement.
Each Pooling Agreement and Servicing Agreement will also provide that,
except as set forth below, neither the Master Servicer, the Company, nor any
director, officer, employee or agent of the Master Servicer or the Company will
be under any liability to the Trust Fund or the Securityholders for any action
taken or for refraining from the taking of any action in good faith pursuant to
such Agreement, or for errors in judgment; provided, however, that neither the
Master Servicer, the Company, 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. Each Pooling Agreement and
Servicing Agreement will further provide that the Master Servicer, the Company,
and any director, officer, employee or agent of the Master Servicer or the
Company 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 Pooling Agreement or Servicing Agreement or the
related series of Securities, other than any loss, liability or expense related
to any specific Mortgage Loan or Mortgage Loans (except any such loss, liability
or expense otherwise reimbursable pursuant to the Pooling Agreement) and 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, each
Pooling Agreement and Servicing Agreement will provide that neither the Master
Servicer nor the Company will be under any obligation to appear in, prosecute or
defend any legal or administrative action that is not incidental to its
respective duties under the Pooling Agreement or Servicing Agreement and which
in its opinion may involve it in any expense or liability. The Master Servicer
or the Company may, however, in its discretion undertake any such action which
it may deem necessary or desirable with respect to the Pooling Agreement or
Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Securityholders thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom will be expenses,
costs and liabilities of the Trust Fund, and the Master Servicer or the Company,
as the case may be, will be entitled to be reimbursed therefor out of funds
otherwise distributable to Securityholders.
Any person into which the Master Servicer may be merged or
consolidated, any person resulting from any merger or consolidation to which the
Master Servicer is a party or any person succeeding to the business of the
Master Servicer will be the successor of the Master Servicer under the related
Pooling Agreement or Servicing Agreement, provided that (i) such person is
qualified to service mortgage loans on behalf of FNMA or FHLMC and (ii) such
merger, consolidation or succession does not adversely affect the then-current
ratings of the classes of Securities of the related series that have been rated.
In addition, notwithstanding the prohibition on its resignation, the Master
Servicer may assign its rights under a Pooling Agreement or Servicing Agreement
to any person to whom the Master Servicer is transferring a substantial portion
of its mortgage servicing portfolio, provided clauses (i) and (ii) above are
satisfied and such person is reasonably satisfactory to the Company and the
Trustee. In the case of any such assignment, the Master Servicer will be
released from its obligations under such Pooling Agreement or Servicing
Agreement, exclusive of liabilities and obligations incurred by it prior to the
time of such assignment.
EVENTS OF DEFAULT AND RIGHTS UPON EVENT DEFAULT
POOLING AGREEMENT
Events of Default under the Pooling Agreement in respect of a series of
Certificates, unless otherwise specified in the Prospectus Supplement, will
include, without limitation, (i) any failure by the Master Servicer to
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make a required deposit to the Certificate Account or, if the Master Servicer is
so required, to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for 5 days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Company, or to the Master Servicer, the Company and the Trustee by the
holders of Certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related Trust Fund; (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 Pooling Agreement with
respect to such series of Certificates which continues unremedied for 30 days
(15 days in the case of a failure to pay the premium for any insurance policy
which is required to be maintained under the Pooling Agreement) after the giving
of written notice of such failure to the Master Servicer by the Trustee or the
Company, or to the Master Servicer, the Company and the Trustee by the holders
of Certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related Trust Fund; and
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations. A default pursuant to the terms of any Mortgage Securities included
in any Trust Fund will not constitute an Event of Default under the related
Pooling Agreement.
So long as an Event of Default remains unremedied, either the Company
or the Trustee may, and at the direction of the holders of Certificates
evidencing not less than 51% of the aggregate undivided interests (or, if
applicable, voting rights) in the related Trust Fund the Trustee shall, by
written notification to the Master Servicer and to the Company or the Trustee,
as applicable, terminate all of the rights and obligations of the Master
Servicer under the Pooling Agreement (other than any rights of the Master
Servicer as Certificateholder) covering such Trust Fund and in and to the
Mortgage Loans and the proceeds thereof, whereupon the Trustee or, upon notice
to the Company and with the Company's consent, its designee will succeed to all
responsibilities, duties and liabilities of the Master Servicer under such
Pooling Agreement (other than the obligation to purchase Mortgage Loans under
certain circumstances) and will be entitled to similar compensation
arrangements. In the event that the Trustee would be obligated to succeed the
Master Servicer but is unwilling so to act, it may appoint (or if it is unable
so to act, it shall appoint) or petition a court of competent jurisdiction for
the appointment of, a FNMA- or FHLMC-approved mortgage servicing institution
with a net worth of at least $10,000,000 to act as successor to the Master
Servicer under the Pooling Agreement (unless otherwise set forth in the Pooling
Agreement). Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the initial Master Servicer under the Pooling Agreement.
No Certificateholder will have any right under a Pooling Agreement to
institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting rights)
in the related Trust Fund have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity and the Trustee for 60 days after receipt of
such request and indemnity has neglected or refused to institute any such
proceeding. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates covered by
such Pooling Agreement, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
The holders of Certificates representing at least 66% of the aggregate
undivided interests (or, if applicable, voting rights) evidenced by those
Certificates affected by a default or Event of Default may waive such default or
Event of Default (other than a failure by the Master Servicer to make an
advance); provided, however, that (a) a default or Event of Default under clause
(i) under "--Events of Default" above may be waived only by all of the holders
of Certificates affected by such default or Event of Default and (b) no waiver
shall reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed to, or otherwise
materially adversely affect, any non-consenting Certificateholder.
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SERVICING AGREEMENT
Unless otherwise provided in the related Prospectus Supplement for a
series of Notes, a "Servicing Default" under the related Servicing Agreement
generally will include: (i) any failure by the Master Servicer to make a
required deposit to the Certificate Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Notes or Equity
Certificates of such series any required payment which continues unremedied for
five business days (or other period of time described in the related Prospectus
Supplement) after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Issuer; (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 Servicing Agreement with respect to such series of Securities
which continues unremedied for 45 days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Issuer; (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations and (iv) any other Servicing Default as set forth in the Servicing
Agreement.
So long as a Servicing Default remains unremedied, either the Company
or the Trustee may, by written notification to the Master Servicer and to the
Issuer or the Trustee or Trust Fund, as applicable, terminate all of the rights
and obligations of the Master Servicer under the Servicing Agreement (other than
any right of the Master Servicer as Noteholder or as holder of the Equity
Certificates and other than the right to receive servicing compensation and
expenses for servicing the Mortgage Loans during any period prior to the date of
such termination), whereupon the Trustee will succeed to all responsibilities,
duties and liabilities of the Master Servicer under such Servicing Agreement
(other than the obligation to purchase Mortgage Loans under certain
circumstances) and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but is
unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of an
approved mortgage servicing institution with a net worth of at least $15,000,000
to act as successor to the Master Servicer under the Servicing Agreement (unless
otherwise set forth in the Servicing Agreement). Pending such appointment, the
Trustee is obligated to act in such capacity. The Trustee and such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the initial Master Servicer under the Servicing
Agreement.
INDENTURE
Unless otherwise provided in the related Prospectus Supplement for a
series of Notes, an Event of Default under the Indenture generally will include:
(i) a default for five days or more (or other period of time described in the
related Prospectus Supplement) in the payment of any principal of or interest on
any Note of such series; (ii) failure to perform any other covenant of the
Company or the Trust Fund in the Indenture which continues for a period of
thirty days after notice thereof is given in accordance with the procedures
described in the related Prospectus Supplement; (iii) any representation or
warranty made by the Company or the Trust Fund in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith with respect to or affecting such series having been incorrect in a
material respect as of the time made, and such breach is not cured within thirty
days after notice thereof is given in accordance with the procedures described
in the related Prospectus Supplement; (iv) certain events of bankruptcy,
insolvency, receivership or liquidation of the Company or the Trust Fund; or (v)
any other Event of Default provided with respect to Notes of that series.
If an Event of Default with respect to the Notes of any series at the
time outstanding occurs and is continuing, the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such series
may declare the principal amount (or, if the Notes of that series are Accrual
Securities, such portion of the principal amount as may be specified in the
terms of that series, as provided in the related Prospectus Supplement) of all
the Notes of such series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of a
majority in aggregate outstanding amount of the related Notes.
If following an Event of Default with respect to any series of Notes,
the Notes of such series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such series and to continue
to apply payments on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds
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for the payment of principal of and interest on the Notes of such series as they
would have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a series following an Event of Default, unless (a) the holders of 100% of the
then aggregate outstanding amount of the Notes of such series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the outstanding Notes
of such series at the date of such sale or (c) the Trustee determines that such
collateral would not be sufficient on an ongoing basis to make all payments on
such Notes as such payments would have become due if such Notes had not been
declared due and payable, and the Trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the Notes of such series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default, the Indenture provides that the Trustee will have a
prior lien on the proceeds of any such liquidation for unpaid fees and expenses.
As a result, upon the occurrence of such an Event of Default, the amount
available for payments to the Noteholders would be less than would otherwise be
the case. However, the Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a series is declared due and
payable, as described above, the holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount that is unamortized.
No Noteholder or holder of an Equity Certificate generally will have
any right under an Owner Trust Agreement or Indenture to institute any
proceeding with respect to such Agreement unless (a) such holder previously has
given to the Trustee written notice of default and the continuance thereof, (b)
the holders of Notes or Equity Certificates of any class evidencing not less
than 25% of the aggregate Percentage Interests constituting such class (i) have
made written request upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and (ii) have offered to the Trustee reasonable
indemnity, (c) the Trustee has neglected or refused to institute any such
proceeding for 60 days after receipt of such request and indemnity and (d) no
direction inconsistent with such written request has been given to the Trustee
during such 60 day period by the Holders of a majority of the Note Balances of
such class. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the applicable Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Notes or Equity
Certificates covered by such Agreement, unless such holders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
AMENDMENT
Each Pooling Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling
Agreement, (i) to cure any ambiguity, (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error, (iii) to change the timing and/or nature of deposits in
the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not adversely
affect the then-current rating of any rated classes of Certificates, as
evidenced by a letter from each applicable Rating Agency, (iv) if a REMIC
election has been made with respect to the related Trust Fund, to modify,
eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund as a REMIC or to avoid
or minimize the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an opinion of counsel to the effect that
(1) such action is necessary or desirable to maintain such qualification or to
avoid or minimize such risk, and (2) such action will not adversely affect in
any material respect the interests of any holder of Certificates covered by the
Pooling Agreement, or (B) to restrict the transfer of the REMIC Residual
Certificates, provided that the Company has determined that the then-current
ratings of the classes of the Certificates that have been rated will not be
adversely affected, as evidenced by a letter from each applicable Rating Agency,
and that any such amendment will not give rise to any tax with respect to the
transfer of the REMIC Residual Certificates to a non-Permitted Transferee, (v)
to make any other provisions with respect to matters or questions arising under
such Pooling Agreement which are not materially inconsistent with the provisions
thereof, provided that such action will not adversely affect in any
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material respect the interests of any Certificateholder, or (vi) to amend
specified provisions that are not material to holders of any class of
Certificates offered hereunder.
The Pooling Agreement may also be amended by the parties thereto with
the consent of the holders of Certificates of each class affected thereby
evidencing, in each case, not less than 662/3% of the aggregate Percentage
Interests constituting such class for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Pooling
Agreement or of modifying in any manner the rights of the holders of
Certificates covered by such Pooling Agreement, except that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on a Certificate
of any class without the consent of the holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates of any class the holders of
which are required to consent to any such amendment without the consent of the
holders of all Certificates of such class covered by such Pooling Agreement then
outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be entitled to consent
to any amendment to a Pooling Agreement without having first received an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to the Master Servicer, the Company, the Trustee or any other specified
person in accordance with such amendment will not result in the imposition of a
tax on the related Trust Fund or cause such Trust Fund to fail to qualify as a
REMIC.
With respect to each series of Notes, each related Servicing Agreement
or Indenture may be amended by the parties thereto without the consent of any of
the holders of the Notes covered by such Agreement, to cure any ambiguity, to
correct, modify or supplement any provision therein, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that such
action will not adversely affect in any material respect the interests of any
holder of Notes covered by the Agreement. Each Agreement may also be amended by
the parties thereto with the consent of the holders of Notes evidencing not less
than 66% of the Voting Rights, for any purpose; provided, however, that no such
amendment may (i) reduce in any manner the amount of or delay the timing of,
payments received on Trust Fund Assets which are required to be distributed on
any Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of any
class of Notes in a manner other than as described in (i), without the consent
of the holders of Notes of such class evidencing not less than 66% of the
aggregate Voting Rights of such class or (iii) reduce the aforesaid percentage
of Voting Rights required for the consent to any such amendment without the
consent of the holders of all Notes covered by such Agreement then outstanding.
The Voting Rights evidenced by any Certificate will be the portion of the voting
rights of all of the Notes in the related series allocated in the manner
described in the related Prospectus Supplement.
TERMINATION; RETIREMENT OF SECURITIES
The obligations created by the related Agreements for each series of
Securities (other than certain limited payment and notice obligations of the
Trustee and the Company, respectively) will terminate upon the payment to
Securityholders of that series of all amounts held in the Certificate Account or
by the Master Servicer and required to be paid to them pursuant to such
Agreements following the earlier of (i) the final payment or other liquidation
or disposition (or any advance with respect thereto) of the last Mortgage Loan,
REO Property and/or Mortgage Security subject thereto and (ii) the purchase by
the Master Servicer or the Company or (A) if specified in the related Prospectus
Supplement with respect to each series of Certificates, by the holder of the
REMIC Residual Certificates (see "Certain Federal Income Tax Consequences"
below) or (B) if specified in the Prospectus Supplement with respect to each
series of Notes, by the holder of the Equity Certificates, from the Trust Fund
for such series of all remaining Mortgage Loans, REO Properties and/or Mortgage
Securities. In addition to the foregoing, the Master Servicer or the Company
will have the option to purchase, in whole but not in part, the Securities
specified in the related Prospectus Supplement in the manner set forth in the
related Prospectus Supplement. Upon the purchase of such Securities or at any
time thereafter, at the option of the Master Servicer or the Company, the assets
of the Trust Fund may be sold, thereby effecting a retirement of the Securities
and the termination of the Trust Fund, or the Securities so purchased may be
held or resold by the Master Servicer or the Company. In no event, however, will
the trust created by the Pooling Agreement continue beyond the expiration of 21
years from the death of the survivor of certain persons named in such Pooling
Agreement. Written notice of termination of the Pooling Agreement will be given
to each Securityholder, and the final distribution will be made only upon
surrender and cancellation of the Securities at an office or agency appointed by
the Trustee which will
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be specified in the notice of termination. If the Securityholders are permitted
to terminate the trust under the applicable Pooling Agreement, a penalty may be
imposed upon the Securityholders based upon the fee that would be foregone by
the Master Servicer because of such termination.
Any such purchase of Mortgage Loans and property acquired in respect of
Mortgage Loans evidenced by a series of Securities shall be made at the option
of the Master Servicer, the Company or, if applicable, the holder of the REMIC
Residual Certificates or Equity Certificates at the price specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Securities of that series, but the right of the Master
Servicer, the Company or, if applicable, such holder to so purchase is subject
to the aggregate principal balance of the Mortgage Loans and/or Mortgage
Securities in the Trust Fund for that series as of the Distribution Date on
which the purchase proceeds are to be distributed to Securityholders being less
than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of such Mortgage Loans and/or Mortgage Securities at
the Cut-off Date for that series. The Prospectus Supplement for each series of
Securities will set forth the amounts that the holders of such Securities will
be entitled to receive upon such early retirement. Such early termination may
adversely affect the yield to holders of certain classes of such Securities. If
a REMIC election has been made, the termination of the related Trust Fund will
be effected in a manner consistent with applicable federal income tax
regulations and its status as a REMIC.
THE TRUSTEE
The Trustee under each Pooling Agreement and Indenture will be named in
the related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Company and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee for each series of Securities will make no representation
as to the validity or sufficiency of the related Agreements, the Securities or
any underlying Mortgage Loan, Mortgage Security or related document and will not
be accountable for the use or application by or on behalf of any Master Servicer
or Special Servicer of any funds paid to the Master Servicer or Special Servicer
in respect of the Securities or the underlying Mortgage Loans or Mortgage
Securities, or any funds deposited into or withdrawn from the Certificate
Account for such series or any other account by or on behalf of the Master
Servicer or Special Servicer. If no Event of Default has occurred and is
continuing, the Trustee for each series of Securities will be required to
perform only those duties specifically required under the related Pooling
Agreement or Indenture. However, upon receipt of any of the various
certificates, reports or other instruments required to be furnished to it
pursuant to the related Agreement, a Trustee will be required to examine such
documents and to determine whether they conform to the requirements of such
agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement,
the fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be borne
by the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Securities will be entitled to indemnification, from
amounts held in the Certificate Account for such series, for any loss, liability
or expense incurred by the Trustee in connection with the Trustee's acceptance
or administration of its trusts under the related Pooling Agreement or
Indenture; provided, however, that such indemnification will not extend to any
loss liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence on the part of the Trustee in the performance of its
obligations and duties thereunder, or by reason of its reckless disregard of
such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Securities will be entitled to execute any of its
trusts or powers under the related Pooling Agreement or perform any of this
duties thereunder either directly or by or through agents or attorneys, and the
Trustee will not be responsible for any willful misconduct or gross negligence
on the part of any such agent or attorney appointed by it with due care.
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RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Company will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the holders of
Securities evidencing not less than 51% of the aggregate undivided interests
(or, if applicable, voting rights) in the related Trust Fund. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
YIELD CONSIDERATIONS
The yield to maturity of an Offered Certificate will depend on the
price paid by the holder for such Certificate, the Security Interest Rate on any
such Certificate entitled to payments of interest (which Security Interest Rate
may vary if so specified in the related Prospectus Supplement) and the rate and
timing of principal payments (including prepayments, defaults, liquidations and
repurchases) on the Mortgage Loans and the allocation thereof to reduce the
principal balance of such Certificate (or notional amount thereof if applicable)
and other factors.
A class of Securities may be entitled to payments of interest at a
fixed Security Interest Rate, a variable Security Interest Rate or adjustable
Security Interest Rate, or any combination of such Security Interest Rates, each
as specified in the related Prospectus Supplement. A variable Security Interest
Rate may be calculated based on the weighted average of the Mortgage Rates (in
each case, net of the per annum rate or rates applicable to the calculation of
servicing and administrative fees and any Spread (each, a "Net Mortgage Rate"))
of the related Mortgage Loans for the month preceding the Distribution Date if
so specified in the related Prospectus Supplement. As will be described in the
related Prospectus Supplement, the aggregate payments of interest on a class of
Securities, and the yield to maturity thereon, will be affected by the rate of
payment of principal on the Securities (or the rate of reduction in the notional
balance of Securities entitled only to payments of interest) and, in the case of
Securities evidencing interests in ARM Loans, by changes in the Net Mortgage
Rates on the ARM Loans. See "Maturity and Prepayment Considerations" below. The
yield on the Securities will also be affected by liquidations of Mortgage Loans
following Mortgagor defaults and by purchases of Mortgage Loans in the event of
breaches of representations made in respect of such Mortgage Loans by the
Company, the Master Servicer and others, or conversions of ARM Loans to a fixed
interest rate. See "The Mortgage Pools--Representations by Sellers" and
"Descriptions of the Securities--Assignment of Trust Fund Assets" above. Holders
of certain Strip Securities or a class of Securities having a Security Interest
Rate that varies based on the weighted average Mortgage Rate of the underlying
Mortgage Loans will be affected by disproportionate prepayments and repurchases
of Mortgage Loans having higher Net Mortgage Rates or rates applicable to the
Strip Securities, as applicable.
With respect to any series of Securities, a period of time will elapse
between the date upon which payments on the related Mortgage Loans are due and
the Distribution Date on which such payments are passed through to
Securityholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Securityholders on or near the date they were due.
In general, if a class of Securities is purchased at initial issuance
at a premium and payments of principal on the related Mortgage Loans occur at a
rate faster than anticipated at the time of purchase, the purchaser's actual
yield to maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Securities is purchased at initial issuance at a
discount and payments of principal on the related Mortgage Loans occur at a rate
slower than that assumed at the time of purchase, the purchaser's actual yield
to maturity will be lower than that originally anticipated. The effect of
principal prepayments, liquidations and purchases on yield will be particularly
significant in the case of a series of Securities having a class entitled to
payments of interest only or to payments of interest that are disproportionately
high relative to the principal payments to which such class is entitled. Such a
class will likely be sold at a substantial premium to its principal balance and
any faster than anticipated rate of prepayments will adversely affect the yield
to holders thereof. In certain circumstances extremely rapid prepayments may
result in the failure of such holders to recoup their original investment. In
addition, the yield to maturity on certain other types of classes of Securities,
including Accrual Securities, Securities with a Security Interest Rate which
fluctuates inversely with or at a multiple of an index or certain other classes
in a series including more than
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one class of Securities, may be relatively more sensitive to the rate of
prepayment on the related Mortgage Loans than other classes of Securities.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. In general, the earlier
a prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of Securities
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is generally charged interest only for the period from the due date of
the preceding scheduled payment up to the date of such prepayment, instead of
for the full accrual period, that is, the period from the due date of the
preceding scheduled payment up to the due date for the next scheduled payment.
In addition, a partial principal prepayment may likewise be applied as of a date
prior to the next scheduled due date (and, accordingly, be accompanied by
interest thereon for less than the full accrual period). However, interest
accrued on any series of Securities and distributable thereon on any
Distribution Date will generally correspond to interest accrued on the principal
balance of Mortgage Loans for their respective full accrual periods.
Consequently, if a prepayment on any Mortgage Loan is distributable to
Securityholders on a particular Distribution Date, but such prepayment is not
accompanied by interest thereon for the full accrual period, the interest
charged to the borrower (net of servicing and administrative fees and any
Spread) may be less (such shortfall, a "Prepayment Interest Shortfall") than the
corresponding amount of interest accrued and otherwise payable on the Securities
of the related series. If and to the extent that any such shortfall is allocated
to a class of Offered Securities, the yield thereon will be adversely affected.
The Prospectus Supplement for a series of Securities will describe the manner in
which any such shortfalls will be allocated among the classes of such
Securities. If so specified in the related Prospectus Supplement, the Master
Servicer will be required to apply some or all of its servicing compensation for
the corresponding period to offset the amount of any such shortfalls. The
related Prospectus Supplement will also describe any other amounts available to
offset such shortfalls. See Servicing of Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses; Spread".
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans and thus the yield on the
Securities. In general, defaults on Single Family Loans are expected to occur
with greater frequency in their early years. However, there is a risk that
Mortgage Loans, including Multifamily Loans, that require Balloon Payments may
default at maturity, or that the maturity of such a Mortgage Loan may be
extended in connection with a workout. The rate of default on Single Family
Loans which are refinance or limited documentation mortgage loans, and on
Mortgage Loans, including Multifamily Loans, with high Loan-to-Value Ratios, may
be higher than for other types of Mortgage Loans. Furthermore, the rate and
timing of prepayments, defaults and liquidations on the Mortgage Loans will be
affected by the general economic condition of the region of the country in which
the related Mortgaged Properties are located. The risk of delinquencies and loss
is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Risk Factors."
With respect to certain Mortgage Loans including ARM Loans, the
Mortgage Rate at origination may be below the rate that would result if the
index and margin relating thereto were applied at origination. Under the
applicable underwriting standards, the Mortgagor under each Mortgage Loan
generally will be qualified, or the Mortgage Loan otherwise approved, on the
basis of the Mortgage Rate in effect at origination. The repayment of any such
Mortgage Loan may thus be dependent on the ability of the mortgagor to make
larger level monthly payments following the adjustment of the Mortgage Rate. In
addition, the periodic increase in the amount paid by the Mortgagor of a Buydown
Mortgage Loan during or at the end of the applicable Buydown Period may create a
greater financial burden for the Mortgagor, who might not have otherwise
qualified for a mortgage under applicable underwriting guidelines, and may
accordingly increase the risk of default with respect to the related Mortgage
Loan.
The Mortgage Rates on certain ARM Loans subject to negative
amortization generally adjust monthly and their amortization schedules adjust
less frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the Indices applicable at origination
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and the related Note Margins), the amount of interest accruing on the principal
balance of such Mortgage Loans may exceed the amount of the minimum scheduled
monthly payment thereon. As a result, a portion of the accrued interest on
negatively amortizing Mortgage Loans may become Deferred Interest which will be
added to the principal balance thereof and will bear interest at the applicable
Mortgage Rate. The addition of any such Deferred Interest to the principal
balance of any related class or classes of Securities will lengthen the weighted
average life thereof and may adversely affect yield to holders thereof,
depending upon the price at which such Securities were purchased. In addition,
with respect to certain ARM Loans subject to negative amortization, during a
period of declining interest rates, it might be expected that each minimum
scheduled monthly payment on such a Mortgage Loan would exceed the amount of
scheduled principal and accrued interest on the principal balance thereof, and
since such excess will be applied to reduce the principal balance of the related
class or classes of Securities, the weighted average life of such Securities
will be reduced and may adversely affect yield to holders thereof, depending
upon the price at which such Securities were purchased.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Securities will contain information with respect to
the types and maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans may be prepaid without penalty in full or in part at any time.
The prepayment experience with respect to the Mortgage Loans in a Mortgage Pool
will affect the life and yield of the related series of Securities.
With respect to Balloon Loans, payment of the Balloon Payment (which,
based on the amortization schedule of such Mortgage Loans, is expected to be a
substantial amount) will generally depend on the Mortgagor's ability to obtain
refinancing of such Mortgage Loans or to sell the Mortgaged Property prior to
the maturity of the Balloon Loan. The ability to obtain refinancing will depend
on a number of factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the Mortgagor's financial
situation, prevailing mortgage loan interest rates, the Mortgagor's equity in
the related Mortgaged Property, tax laws and prevailing general economic
conditions. Unless otherwise specified in the related Prospectus Supplement,
none of the Company, the Master Servicer, or any of their affiliates will be
obligated to refinance or repurchase any Mortgage Loan or to sell the Mortgaged
Property.
The extent of prepayments of principal of the Mortgage Loans may be
affected by a number of factors, including, without limitation, solicitations
and the availability of mortgage credit, the relative economic vitality of the
area in which the Mortgaged Properties are located and, in the case of
Multifamily Loans, the quality of management of the Mortgage Properties, the
servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. In addition, the rate of principal payments on the
Mortgage Loans may be affected by the existence of Lock-out Periods and
requirements that principal prepayments be accompanied by Prepayment Premiums,
as well as due-on-sale and due-on-encumbrance provisions, and by the extent to
which such provisions may be practicably enforced. See "Servicing of Mortgage
Loans--Collection and Other Servicing Procedures" and "Certain Legal Aspects of
the Mortgage Loans--Enforceability of Certain Provisions" for a description of
certain provisions of the Pooling Agreement and certain legal developments that
may affect the prepayment experience on the Mortgage Loans.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. In addition, as prevailing market interest rates decline, even borrowers
with ARM Loans that have experienced a corresponding interest rate decline may
have an increased incentive to refinance for purposes of either (i) converting
to a fixed rate loan and thereby "locking in" such rate or (ii) taking advantage
of the initial "teaser rate" (a mortgage interest rate below what it would
otherwise be if the applicable index and gross margin were applied) on another
adjustable rate mortgage loan. Moreover, although the Mortgage Rates on ARM
Loans will be subject to periodic adjustments, such adjustments generally will,
unless otherwise specified in the related Prospectus Supplement, (i) not
increase or decrease such Mortgage Rates by more than a fixed percentage amount
on each adjustment date, (ii) not increase such Mortgage Rates over a fixed
percentage amount during the life of any ARM Loan and (iii) be based on an
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index (which may not rise and fall consistently with mortgage interest rates)
plus the related Note Margin (which may be different from margins being used at
the time for newly originated adjustable rate mortgage loans). As a result, the
Mortgage Rates on the ARM Loans at any time may not equal the prevailing rates
for similar, newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then-current Mortgage Rates on ARM Loans
that the rate of prepayment may increase as a result of refinancings. There can
be no certainty as to the rate of prepayments on the Mortgage Loans during any
period or over the life of any series of Securities.
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Company is not aware of any publicly available statistics relating to
the principal prepayment experience of diverse portfolios of mortgage loans such
as the Mortgage Loans over an extended period of time. All statistics known to
the Company that have been compiled with respect to prepayment experience on
mortgage loans indicate that while some mortgage loans may remain outstanding
until their stated maturities, a substantial number will be paid prior to their
respective stated maturities. No representation is made as to the particular
factors that will affect the prepayment of the Mortgage Loans or as to the
relative importance of such factors.
Under certain circumstances, the Master Servicer, the Company or, if
specified in the related Prospectus Supplement, the holders of the REMIC
Residual Certificates or Equity Certificates may have the option to purchase the
assets in a Trust Fund and effect early retirement of the related series of
Securities. See "The Agreements--Termination; Retirement of Securities."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part 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 Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS
GENERAL. Each Single Family and Multifamily Loan will be evidenced by a
note or bond and secured by an instrument granting a security interest in real
property, which may be a mortgage, deed of trust or a deed to secure debt,
depending upon the prevailing practice and law in the state in which the related
Mortgaged Property is located. Mortgages, deed of trust and deeds to secure debt
are herein collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered thereby, and
represents the security for the repayment of the indebtedness customarily
evidenced by a promissory note. The priority of the lien created or interest
granted will depend on the terms of the mortgage and, in some cases, on the
terms of separate subordination agreements or intercreditor agreements with
others that hold interests in the real property, the knowledge of the parties to
the mortgage and, generally, the order of recordation of the mortgage in the
appropriate public recording office. However, the lien of a recorded mortgage
will generally be subordinate to later-arising liens for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS. There are two parties to a mortgage: a
mortgagor (the borrower and usually the owner of the subject property) and a
mortgagee (the lender). In contrast, a deed of trust is a three-party
instrument, among a trustor (the equivalent of a borrower), a trustee to whom
the real property is conveyed, and a beneficiary (the lender) for whose benefit
the conveyance is made. Under a deed of trust, the trustor grants the property,
irrevocably until the debt is paid, in trust and generally with a power of sale,
to the trustee to secure repayment of the indebtedness evidenced by the related
note. A deed to secure debt typically has two parties. The borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower executes a separate undertaking to make payments on the
mortgage note. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a deed to
secure debt are governed by the express provisions of
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the related instrument, the law of the state in which the real property is
located, certain federal laws (including, without limitation, the Relief Act)
and, in some deed of trust transactions, the directions of the beneficiary.
LEASES AND RENTS. Mortgages that encumber income-producing multifamily
properties often contain an assignment of rents and leases, pursuant to which
the borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived therefrom, while (unless rents
are to be paid directly to the lender) retaining a revocable license to collect
the rents for so long as there is no default. If the borrower defaults, the
license terminates and the lender is entitled to collect the rents. Local law
may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
CONTRACTS
Under the laws of most states, manufactured housing constitutes
personal property and is subject to the motor vehicle registration laws of the
state or other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for manufactured homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC which has been adopted by all states. Such financing statements are
effective for five years and must be renewed at the end of each five years. The
certificate of title laws adopted by the majority of states provide that
ownership of motor vehicles and manufactured housing shall be evidenced by a
certificate of title issued by the motor vehicles department (or a similar
entity) of such state. In the states that have enacted certificate of title
laws, a security interest in a unit of manufactured housing, so long as it is
not attached to land in so permanent a fashion as to become a fixture, is
generally perfected by the recording of such interest on the certificate of
title to the unit in the appropriate motor vehicle registration office or by
delivery of the required documents and payment of a fee to such office,
depending on state law.
The Master Servicer will be required under the related Pooling
Agreement or Servicing Agreement to effect such notation or delivery of the
required documents and fees, and to obtain possession of the certificate of
title, as appropriate under the laws of the state in which any Manufactured Home
is registered. In the event the Master Servicer fails, due to clerical errors or
otherwise, to effect such notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the Trustee may not have a first priority
security interest in the Manufactured Home securing a Contract. As manufactured
homes have become larger and often have been attached to their sites without any
apparent intention by the borrowers to move them, courts in many states have
held that manufactured homes may, under certain circumstances, become subject to
real estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the holder of the security interest must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the home is located. Generally,
Contracts will contain provisions prohibiting the obligor from permanently
attaching the Manufactured Home to its site. So long as the obligor does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest in
the Manufactured Home. If, however, a Manufactured Home is permanently attached
to its site, other parties could obtain an interest in the Manufactured Home
that is prior to the security interest originally retained by the Seller and
transferred to the Company.
The Company will assign or cause to be assigned a security interest in
the Manufactured Homes to the Trustee, on behalf of the Securityholders. Unless
otherwise specified in the related Prospectus Supplement, neither the Company,
the Master Servicer nor the Trustee will amend the certificates of title to
identify the Trustee, on behalf of the Securityholders, as the new secured party
and, accordingly, the Company or the Seller will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of title
and the new secured party succeeds to the Company's rights as the secured party.
However, in some states there exists a risk that, in the absence of an amendment
to the certificate of title, such assignment of the security interest might not
be held effective against creditors of the Company or Seller.
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In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Company on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Trustee against the rights of subsequent purchasers of
a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the Company
has failed to perfect or cause to be perfected the security interest assigned to
the Trust Fund, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the Trustee, on
behalf of the Securityholders, as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the Trustee
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and reregister
the Manufactured Home in such state, and if the Company did not take steps to
re-perfect its security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states that provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related Pooling Agreement or Servicing Agreement, the Master
Servicer will be obligated to take such steps, at the Master Servicer's expense,
as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Company will obtain the representation of the related Seller that it has no
knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Securityholders in the event
such a lien arises.
FORECLOSURE ON MORTGAGES
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
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, in some states, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a request for a copy of notice of default and notice of
sale. In addition, 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 a specified
period, a notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers. In addition,
some 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 real
property.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
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In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, in such states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for a credit bid less than or equal to the unpaid
principal amount of the mortgage or deed of trust, accrued and unpaid interest
and the expense of foreclosure. Generally, state law controls the amount of
foreclosure costs and expenses, including attorneys' fees, which may be
recovered by a lender. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the lender will
assume the burdens of ownership, including obtaining hazard insurance and making
such repairs at its own expense as are necessary to render the property suitable
for sale. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property and, in some
states, subject to the terms of the loan, the lender may be entitled to a
deficiency judgment. Any loss may be reduced by the receipt of any mortgage
insurance proceeds.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those Single Family and
Multifamily Loans which are junior mortgage loans, if the lender purchases the
property, the lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee or trustee from
the sale are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the mortgagor or trustor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgagee or may require the institution of
separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property or
the borrower's execution of a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimums. 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
protection to the borrower.
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REPOSSESSION WITH RESPECT TO CONTRACTS
GENERAL. Repossession of manufactured housing is governed by state law.
A few states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process
(repossession pursuant to court-issued writ of replevin). The self-help
and/or voluntary repossession methods are more commonly employed, and
are accomplished simply by retaking possession of the manufactured
home. In cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate state
court, and the manufactured home must then be repossessed in accordance
with that order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the manufactured
home to a secure location for refurbishment and resale or by removing
the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the
manufactured home is physically removed or left on location, such as
the nature and term of the lease of the site on which it is located and
the condition of the unit. In many cases, leaving the manufactured home
on location is preferable, in the event that the home is already set
up, because the expenses of retaking and redelivery will be saved.
However, in those cases where the home is left on location, expenses
for site rentals will usually be incurred.
(ii) Once repossession has been achieved, preparation for
the subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
(iii) Sale proceeds are to be applied first to repossession
expenses (expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the
full amount of the indebtedness, the remainder may be sought from the
debtor in the form of a deficiency judgement in those states that do
not prohibit or limit such judgments. The deficiency judgment is a
personal judgment against the debtor for the shortfall. Occasionally,
after resale of a manufactured home and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC
requires the party suing for the deficiency judgment to remit the
surplus to the debtor. Because the defaulting owner of a manufactured
home generally has very little capital or income available following
repossession, a deficiency judgment may not be sought in many cases or,
if obtained, will be settled at a significant discount in light of the
defaulting owner's strained financial condition.
LOUISIANA LAW. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration
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laws if the obligor executes and files various documents in the appropriate real
estate records and all mortgagees under real estate mortgages on the property
and the land to which it was affixed file releases with the motor vehicle
commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION
SINGLE FAMILY PROPERTIES AND MULTIFAMILY PROPERTIES. The purposes of a
foreclosure action in respect of a Single Family Property or Multifamily
Property are to enable the lender to realize upon its security and to bar the
borrower, and all persons who have interests in the property that are
subordinate to that of the foreclosing lender, from exercise of their "equity of
redemption". The doctrine of equity of redemption provides that, until the
property encumbered by a mortgage has been sold in accordance with a properly
conducted foreclosure and foreclosure sale, those having interests that are
subordinate to that of the foreclosing lender have an equity of redemption and
may redeem the property by paying the entire debt with interest. Those having an
equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from postsale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchase through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
MANUFACTURED HOMES. While state laws do not usually require notice to
be given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of the
UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS. Certain states have imposed
statutory prohibitions which limit the remedies of a beneficiary under a deed of
trust or a mortgagee under a mortgage. In some states including California,
statutes limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure. A deficiency judgment is a
personal judgment against the former borrower equal in most cases to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. In the case of a Mortgage Loan
secured by a property owned by a trust where the Mortgage Note is executed on
behalf of the trust, a deficiency judgment against the trust following
foreclosure or sale under a deed of trust, even if obtainable under applicable
law, may be of little value to the mortgagee or beneficiary if there are no
trust assets against which such deficiency judgment may be executed. In the case
of a Mortgage Loan secured by a property owned by a trust where the Mortgage
Note is executed on behalf of the trust, a deficiency judgment against the trust
following foreclosure or sale under a deed of trust, even if obtainable under
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applicable law, may be of little value to the mortgagee or beneficiary if there
are no trust assets against which such deficiency judgment may be executed.
Other statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security; however
in some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that lenders
will usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the former borrower following a
foreclosure to the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, under the federal Bankruptcy
Code, as amended from time to time (Title 11 of the United States Code) (the
"Bankruptcy Code"), virtually all actions (including foreclosure actions and
deficiency judgment proceedings) to collect a debt are automatically stayed upon
the filing of the bankruptcy petition and, often, no interest or principal
payments are made during the course of the bankruptcy case. The delay and the
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in a bankruptcy by or on
behalf of a junior lienor may stay the senior lender from taking action to
foreclose out of such junior lien. Moreover, with respect to federal bankruptcy
law, a court with federal bankruptcy jurisdiction may permit a debtor through
his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on a debtor's residence by paying
arrearage within a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the mortgage loan and
final judgment of foreclosure had been entered in state court (provided no sale
of the residence had yet occurred) prior to the filing of the debtor's petition.
Some courts with federal bankruptcy jurisdiction have approved plans, based on
the particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearage over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
13 except with respect to mortgage payment arrearages, which may be cured within
a reasonable time period.
In the case of income-producing multifamily properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents and
leases related to the mortgaged property. Under Section 362 of the Bankruptcy
Code, the lender will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
single family mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Credit Reporting Act and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
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CONTRACTS. In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including federal bankruptcy
laws and related state laws, may interfere with or affect the ability of a
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the home at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the Trust Fund. The rights of the Securityholders as the holders of a
junior deed of trust or a junior mortgage are subordinate in lien priority and
in payment priority to those of the holder of the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive and apply hazard insurance and condemnation proceeds and, upon default
of the mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale
pursuant to the deed of trust, the junior mortgagee's or junior beneficiary's
lien will be extinguished unless the junior lienholder satisfies the defaulted
senior loan or asserts its subordinate interest in a property in foreclosure
proceedings. See "--Foreclosure on Mortgages" above.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, and related statutes. These laws
can impose specific statutory liabilities upon creditors who fail to comply with
their provisions. In some cases, this liability may affect an assignee's ability
to enforce a contract.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Unless otherwise provided in the related Prospectus Supplement,
under the related Pooling Agreement or Servicing Agreement, late charges will be
retained by the Master Servicer as additional servicing compensation, and any
inability to collect these amounts will not affect payments to Securityholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and
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any assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder. Most of the Contracts in a Trust Fund will be subject to the
requirements of the FTC Rule. Accordingly, the Trust Fund, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related manufactured home may assert against the seller of the manufactured
home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party which
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the Offered Securities of the related series
might realize a loss if such costs were required to be paid by the Trust Fund.
ENFORCEABILITY OF CERTAIN PROVISIONS
TRANSFER OF SINGLE FAMILY PROPERTIES AND MULTIFAMILY PROPERTIES. Unless
the related Prospectus Supplement indicates otherwise, the Single Family Loans
and Multifamily Loans generally contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property. The enforceability of these clauses has been
the subject of legislation or litigation in many states, and in some cases the
enforceability of these clauses was limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain Act") preempts
state constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain Act
does "encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
The Garn-St Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average life
of the Mortgage Loans and the number of Mortgage Loans which may be outstanding
until maturity.
TRANSFER OF MANUFACTURED HOMES. Generally, manufactured housing
contracts contain provisions prohibiting the sale or transfer of the related
manufactured homes without the consent of the obligee on the contract and
permitting the acceleration of the maturity of such contracts by the obligee on
the contract upon any such sale or transfer that is not consented to. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will, to the extent it has knowledge of such conveyance or proposed conveyance,
exercise or cause to be exercised its rights to accelerate the maturity of the
related Contracts through enforcement of due-on-sale clauses, subject to
applicable state law. In certain cases, the transfer may be made by a delinquent
obligor in order to avoid a repossession proceeding with respect to a
Manufactured Home.
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In the case of a transfer of a Manufactured Home as to which the Master
Servicer desires to accelerate the maturity of the related Contract, the Master
Servicer's ability to do so will depend on the enforceability under state law of
the due-on-sale clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of due-on-sale
clauses applicable to the Manufactured Homes. Consequently, in some cases the
Master Servicer may be prohibited from enforcing a due-on-sale clause in respect
of certain Manufactured Homes.
LATE PAYMENT CHARGES AND PREPAYMENT RESTRICTIONS. Notes and mortgages,
as well as manufactured housing conditional sales contracts and installment loan
agreements, may contain provisions that obligate the borrower to pay a late
charge or additional interest if payments are not timely made, and in some
circumstances, may prohibit prepayments for a specified period and/or condition
prepayments upon the borrower's payment of prepayment fees or yield maintenance
penalties. In certain states, there are or may be specific limitations upon the
late charges which a lender may collect from a borrower for delinquent payments.
Certain states also limit the amounts that a lender may collect from a borrower
as an additional charge if the loan is prepaid. In addition, the enforceability
of provisions that provide for prepayment fees or penalties upon an involuntary
prepayment is unclear under the laws of many states.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior 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
mortgagor 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 an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor 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
proceeds by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. In addition, even where Title
V is not so rejected, any state is authorized by the law to adopt a provision
limiting discount points or other charges on mortgage loans covered by Title V.
Certain states have taken action to reimpose interest rate limits or to limit
discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels has been included
in the Trust Fund.
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As indicated above under "The Mortgage Pools--Representations by
Sellers," each Seller of a Mortgage Loan will have represented that such
Mortgage Loan was originated in compliance with then applicable state laws,
including usury laws, in all material respects. However, the Mortgage Rates on
the Mortgage Loans will be subject to applicable usury laws as in effect from
time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subjected to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative mortgage
instruments by national banks, state-chartered credit unions may originate
alternative mortgage instruments in accordance with regulations promulgated by
the National Credit Union Administration with respect to origination of
alternative mortgage instruments by federal credit unions, and all other
non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The Company is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. In the event an obligor
is successful in asserting such a claim, the related Securityholders could
suffer a loss if (i) the related Seller fails or cannot be required to
repurchase the affected Contract for a breach of representation and warranty and
(ii) the Master Servicer or the Trustee were unsuccessful in asserting any claim
of contribution or subrogation on behalf of the Securityholders against the
manufacturer or other persons who were directly liable to the plaintiff for the
damages. Typical products liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities arising from
formaldehyde in manufactured housing, with the result that recoveries from such
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such Mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief
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Act. Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of the Master Servicer to collect full amounts of
interest on certain of the Mortgage Loans. Any shortfall in interest collections
resulting from the application of the Relief Act or similar legislation or
regulations, which would not be recoverable from the related Mortgage Loans,
would result in a reduction of the amounts distributable to the holders of the
related Securities, and would not be covered by advances or, unless otherwise
specified in the related Prospectus Supplement, by any Letter of Credit or any
other form of credit enhancement provided in connection with the related series
of Securities. In addition, the Relief Act imposes limitations that would impair
the ability of the Master Servicer to foreclose on an affected Mortgage Loan or
enforce rights under a Contract during the Mortgagor's period of active duty
status, and, under certain circumstances, during an additional three month
period thereafter. Thus, in the event that the Relief Act or similar legislation
or regulations applies to any Mortgage Loan which goes into default, there may
be delays in payment and losses on the related Securities in connection
therewith. Any other interest shortfalls, deferrals or forgiveness of payments
on the Mortgage Loans resulting from similar legislation or regulations may
result in delays in payments or losses to Securityholders of the related series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Securities offered hereunder. This discussion is directed solely to
Securityholders that hold the Securities as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986 (the "Code") and does not
purport to discuss all federal income tax consequences that may be applicable to
particular categories of investors, some of which (such as banks, insurance
companies and foreign investors) may be subject to special rules. Further, the
authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Taxpayers and preparers of tax returns (including those filed by
any REMIC or other issuer) should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice (i) is given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Securities. See "State and Other Tax Consequences."
Securityholders are advised to consult their own tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Securities offered hereunder.
The following discussion addresses securities of three general types:
(i) certificates ("REMIC Certificates") representing interests in a Trust Fund,
or a portion thereof, that the Trustee, the Master Servicer or another specified
party (the "REMIC Administrator") will elect to have treated as a real estate
mortgage investment conduit ("REMIC") under Sections 860A through 860G (the
"REMIC Provisions") of the Code, (ii) notes representing indebtedness of a trust
fund and (iii) certificates ("Grantor Trust Certificates") representing
interests in a Trust Fund ("Grantor Trust Fund") as to which no such election
will be made. The Prospectus Supplement for each series of Certificates will
indicate whether a REMIC election (or elections) will be made for the related
Trust Fund and, if such an election is to be made, will identify all "regular
interests" and "residual interests" in the REMIC. For purposes of this tax
discussion, references to a "Securityholder" or a "holder" are to the beneficial
owner of a Security.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the Certificates.
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REMICS
CLASSIFICATION OF REMICS. Upon the issuance of each series of REMIC
Certificates, Thacher Proffitt & Wood, counsel to the Company, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling Agreement, the related Trust Fund (or each applicable
portion thereof) will qualify as a REMIC and the REMIC Certificates offered with
respect thereto will be considered to evidence ownership of "regular interests"
("REMIC Regular Certificates") or "residual interests" ("REMIC Residual
Certificates") in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust Fund's income for the period in which the requirements for such status are
not satisfied. The Pooling Agreement with respect to each REMIC will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general, the
REMIC Certificates will be "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code and assets described in Section 7701(a)(19)(C) of the
Code in the same proportion that the assets of the REMIC underlying such
Certificates would be so treated. Moreover, if 95% or more of the assets of the
REMIC qualify for any of the foregoing treatments at all times during a calendar
year, the REMIC Certificates will qualify for the corresponding status in their
entirety for that calendar year. Interest (including original issue discount) on
the REMIC Regular Certificates and income allocated to the class of REMIC
Residual Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Certificates are treated as "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code. In addition, the REMIC
Regular Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code if transferred to another REMIC on its startup day in
exchange for regular or residual interests therein. The determination as to the
percentage of the REMIC's assets that constitute assets described in the
foregoing sections of the Code will be made with respect to each calendar
quarter based on the average adjusted basis of each category of the assets held
by the REMIC during such calendar quarter. The REMIC will report those
determinations to Certificateholders in the manner and at the times required by
applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and property acquired by foreclosure held pending sale, and may include amounts
in reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the Mortgage Loans, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Mortgage Loans for purposes of all of the foregoing sections. In
addition, in some instances Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. If so, the related Prospectus Supplement
will describe the Mortgage Loans that may not be so treated. The REMIC
Regulations do provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for purposes of Section
856(c)(5)(A) of the Code.
TIERED REMIC STRUCTURES. For certain series of REMIC Certificates, two
or more separate elections may be made to treat designated portions of the
related Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes.
Upon the issuance of any such series of REMIC Certificates, Thacher Proffitt &
Wood, counsel to the Company, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the related Pooling Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates issued
by the Tiered REMICs, respectively, will be considered to evidence ownership of
REMIC Regular Certificates or REMIC Residual Certificates in the related REMIC
within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code,
and "loans secured by an interest in real property" under Section
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7701(a)(19)(C) of the Code, and whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code, the Tiered REMICs will
be treated as one REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES.
GENERAL. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT. Certain REMIC Regular Certificates may be
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)(6)
of the Code provides special rules applicable to REMIC Regular Certificates and
certain other debt instruments issued with original issue discount. Regulations
have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Company, the Master Servicer nor the
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.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates will
be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than "qualified stated
interest." "Qualified stated interest" includes interest that is unconditionally
payable at least annually at a single fixed rate, or at a "qualified floating
rate," an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the Internal Revenue Service
(the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this "long
first accrual period," some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest
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on REMIC Regular Certificates must in any event be accounted for under an
accrual method, applying this analysis would result in only a slight difference
in the timing of the inclusion in income of the yield on the REMIC Regular
Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns to the Certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "Taxation
of Owners of REMIC Regular Certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (A) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (B) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate
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amount of original issue discount that accrued with respect to such Certificate
in prior accrual periods, and reduced by the amount of any distributions made on
such REMIC Regular Certificate in prior accrual periods of amounts included in
the stated redemption price. The original issue discount accruing during any
accrual period, computed as described above, will be allocated ratably to each
day during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price," in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
MARKET DISCOUNT. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "Taxation of Owners of REMIC
Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a constant yield
method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate
will be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption price
of such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same
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ratio to the total remaining market discount as the stated interest paid in the
accrual period bears to the total amount of stated interest remaining to be paid
on the REMIC Regular Certificate as of the beginning of the accrual period, or
(iii) in the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining on the REMIC Regular Certificate at
the beginning of the accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is also used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount" above. The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders
of the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or
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reduction in income attributable to previously accrued and included income that
as the result of a realized loss ultimately will not be realized, the law is
unclear with respect to the timing and character of such loss or reduction in
income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be required to
report on its federal income tax return amounts representing its daily share of
the taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts generally will equal the amounts
of taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a
REMIC Residual Certificateholder that purchased such REMIC Residual Certificate
from a prior holder of such Certificate at a price greater than (or less than)
the adjusted basis (as defined below) such REMIC Residual Certificate would have
had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions," residual interests without "significant value" and "noneconomic"
residual interests discussed below. The fact that the tax liability associated
with the income allocated to REMIC Residual Certificateholders may exceed the
cash distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other
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class of REMIC Certificates constituting "regular interests" in the REMIC not
offered hereby), amortization of any premium on the Mortgage Loans, bad debt
losses with respect to the Mortgage Loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount."
The issue price of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may 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.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original
issue discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount," except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account.
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See "--Prohibited Transactions Tax and Other Taxes" below. Further, the
limitation on miscellaneous itemized deductions imposed on individuals by
Section 67 of the Code (which allows such deductions only to the extent they
exceed in the aggregate two percent of the taxpayer's adjusted gross income)
will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS. The adjusted basis of a
REMIC Residual Certificate will be equal to the amount paid for such REMIC
Residual Certificate, increased by amounts included in the income of the REMIC
Residual Certificateholder and decreased (but not below zero) by distributions
made, and by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue
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price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS. Although it has not done so,
the Treasury income accruing on a REMIC Residual Certificate as an excess
inclusion if the REMIC Residual Certificates are considered to have "significant
value."
For REMIC Residual Certificateholders, an excess inclusion (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates," below. Furthermore, for purposes of the
alternative minimum tax, excess inclusions will not be permitted to be offset by
the alternative tax net operating loss deduction and alternative minimum taxable
income may not be less than the taxpayer's excess inclusions. The latter rule
has the effect of preventing nonrefundable tax credits from reducing the
taxpayer's income tax to an amount lower than the tentative minimum tax on
excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax." If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions,
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and the Company will make no representation that a REMIC Residual Certificate
will not be considered "noneconomic" for purposes of the above-described rules.
See "--Foreign Investors in REMIC Certificates--REMIC Residual Certificates"
below for additional restrictions applicable to transfers of certain REMIC
Residual Certificates to foreign persons.
MARK-TO-MARKET RULES. Prospective purchasers of a REMIC Residual
Certificate should be aware that on January 3, 1995, the IRS released proposed
regulations (the "Proposed Mark-to-Market Regulations") relating to the
requirement that a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all securities owned by a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark-to-Market Regulations provide
that for purposes of this mark-to-market requirement, a REMIC Residual
Certificate is not treated as a security and thus may not be marked to market.
The Proposed Mark-to-Market Regulations apply to all REMIC Residual Certificates
acquired on or after January 4, 1995.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a miscellaneous
itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate two percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates may
not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should carefully consult with their own tax
advisors prior to making an investment in such Certificates.
SALES OF REMIC CERTIFICATES. If a REMIC Certificate is sold, the
selling Certificateholder will recognize gain or loss equal to the difference
between the amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate generally will
equal the cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with respect to such
REMIC Regular Certificate (including original issue discount and market discount
income) and reduced (but not below zero) by distributions on such REMIC Regular
Certificate received by such Certificateholder and by any amortized premium. The
adjusted basis of a REMIC Residual Certificate will be determined as described
under "--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net
Losses and Distributions." Except as provided in the following two paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
Prospectus provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the distinction between
a capital gain or loss and ordinary income or loss remains relevant for other
purposes.
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Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the Certificate
based on the application of the Prepayment Assumption to such Certificate, which
rate is computed and published monthly by the IRS), determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount of ordinary
income actually includible in the seller's income prior to such sale. In
addition, gain recognized on the sale of a REMIC Regular Certificate by a seller
who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium."
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) 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 Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. The Code
imposes a tax on REMICs equal to 100% of the net income derived from "prohibited
transactions" (a "Prohibited Transactions Tax"). In general, subject to certain
specified exceptions a prohibited transaction means the disposition of a
Mortgage Loan, the receipt of income from a source other than a Mortgage Loan or
certain other permitted investments, the receipt of compensation for services,
or gain from the disposition of an asset purchased with the payments on the
Mortgage Loans for temporary investment pending distribution on the REMIC
Certificates. It is not anticipated that any REMIC will engage in any prohibited
transactions in which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. "Net income
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from foreclosure property" generally means gain from the sale of a foreclosure
property that is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a real estate
investment trust. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize "net income from
foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is
not anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to
the extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by the Master Servicer
or the Trustee will be charged against the related Trust Fund resulting in a
reduction in amounts payable to holders of the related REMIC Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO
CERTAIN ORGANIZATIONS. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) of the total anticipated excess
inclusions with respect to such REMIC Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. Such a tax generally would
be imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to a
transfer if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in the
Pooling Agreement, and will be discussed more fully in any Prospectus Supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity"
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means any regulated investment company, real estate investment trust, trust,
partnership or certain other entities described in Section 860E(e)(6) of the
Code. In addition, a person holding an interest in a pass-through entity as a
nominee for another person will, with respect to such interest, be treated as a
pass-through entity.
TERMINATION. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage 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 REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and under the terms of the related Agreement, will either (i) be
irrevocably appointed by the holders of the largest percentage interest in the
related REMIC Residual Certificates as their agent to perform all of the duties
of the "tax matters person" with respect to the REMIC in all respects or (ii)
will be designated as and will act as the "tax matters person" with respect to
the related REMIC in all respects and will hold at least a nominal amount of
REMIC Residual Certificates.
As the tax matters person or as agent for the tax matters person, the
REMIC Administrator, subject to certain notice requirements and various
restrictions and limitations, generally will have the authority to act on behalf
of the REMIC and the REMIC 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. REMIC Residual
Certificateholders generally will be required to report such REMIC items
consistently with their treatment on the REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the REMIC
Administrator, as either tax matters person or as agent for the tax matters
person, and the Service concerning any such REMIC item. Adjustments made to the
REMIC tax return may require a REMIC Residual Certificateholder to make
corresponding adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an audit of a
REMIC Residual Certificateholder's return. No REMIC will be registered as a tax
shelter pursuant to Section 6111 of the Code because it is not anticipated that
any REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish 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 REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the Service; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the Service. Reporting with respect to the REMIC Residual Certificates,
including income, excess inclusions, investment expenses and relevant
information regarding qualification of the REMIC's assets will be made as
required under the Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information
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pertaining to the appropriate proportionate method of accruing market discount
be provided. See "--Taxation of Owners of REMIC Regular Certificates--Market
Discount."
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular
Certificateholder that is not a "United States person" (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 REMIC Regular
Certificate will not, unless otherwise disclosed in the related Prospectus
Supplement, be subject to United States federal income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that the
holder complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a United
States person and providing the name and address of such Certificateholder). For
these purposes, "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate whose income is subject to United States federal income tax regardless of
its source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. It is possible that the IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
Unless otherwise stated in the related Prospectus Supplement, transfers
of REMIC Residual Certificates to investors that are not United States persons
will be prohibited under the related Pooling Agreement.
NOTES
Upon the issuance of each series of Notes, Thacher Proffitt & Wood,
counsel to the Company, will deliver its opinion generally to the effect that,
for federal income tax purposes, assuming compliance with all provisions of the
Indenture, Owner Trust Agreement and certain related documents, (i) the Notes
will be treated as indebtedness and (ii) the Issuer, as created pursuant to the
terms and conditions of the Owner Trust Agreement, will not be characterized as
an association (or publicly traded partnership within the meaning of Code
section 7704) taxable as a corporation or as a taxable mortgage pool within the
meaning of Code section 7701(i). The following discussion is based in part upon
the OID Regulations. The OID Regulations do not adequately address certain
issues relevant to, and in some instances provide that they are not applicable
to, securities such as the Notes. For purposes of this tax discussion,
references to a "Noteholder" or a "holder" are to the beneficial owner of a
Note.
STATUS AS REAL PROPERTY LOANS
Notes held by a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (ii) Notes held by a real estate
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investment trust will not constitute "real estate assets" within the meaning of
Code section 856(c)(5)(A) and interest on Notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
ORIGINAL ISSUE DISCOUNT, MARKET DISCOUNT AND PREMIUM
With respect to any series of Notes, the related Notes will be treated
identically with respect to original issue discount, market discount and premium
as REMIC Regular Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount," "-Market Discount" and "-Premium" above.
REALIZED LOSSES
With respect to any series of Notes, the related Notes will be treated
identically with respect to realized losses as REMIC Regular Certificates. See
"-REMICs-Taxation of Owners of REMIC Regular Certificates-Realized Losses"
above.
SALES OF NOTES
With respect to any series of Notes, the related Notes will be treated
identically with respect to realized losses as REMIC Regular Certificates. See
"-REMICs-Sales of REMIC Certificates" above.
BACKUP WITHHOLDING
With respect to any series of Notes, the related Notes will be treated
identically with respect to backup withholding as REMIC Regular Certificates.
See "-REMICs-Backup Withholding With Respect to REMIC Certificates" above.
TAX TREATMENT OF FOREIGN INVESTORS
The tax treatment of foreign investors in any series of Notes will be
identical to such treatment for REMIC Regular Certificates. See "REMICs-Foreign
Investors in REMIC Certificates" above.
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS. With respect to each series of
Grantor Trust Certificates, Thacher Proffitt & Wood, counsel to the Company,
will deliver their opinion to the effect that assuming compliance with all
provisions of the related Pooling Agreement, the related Grantor Trust Fund will
be classified as a grantor trust under subpart E, part I of subchapter J of the
Code and not as a partnership or an association taxable as a corporation.
Accordingly, each holder of a Grantor Trust Certificate generally will be
treated as the owner of an interest in the Mortgage Loans included in the
Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees and any Spread) and interest paid to the holders of Grantor
Trust Fractional Interest Certificates issued with respect to such Grantor Trust
Fund will be referred to as a "Grantor Trust Strip Certificate." A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement and subject to the discussion below with respect
to Buydown Mortgage Loans, counsel to the Company will deliver an opinion that,
in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans . . . secured by an interest in real property"
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within the meaning of Section 7701(a)(19)(C)(v) of the Code; (ii) "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 Section 860G(a)(3) of the Code; and (iii) "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code. In addition, counsel to the
Company will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
The assets constituting certain Grantor Trust Funds may include Buydown
Mortgage Loans. The characterization of an investment in Buydown Mortgage Loans
will depend upon the precise terms of the related Buydown Agreement, but to the
extent that such Buydown Mortgage Loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. No directly applicable precedents exist
with respect to the federal income tax treatment or the characterization of
investments in Buydown Mortgage Loans. Accordingly, holders of Grantor Trust
Certificates should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Grantor Trust Fund that includes Buydown Mortgage Loans.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting of Mortgage
Loans that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
Company will not deliver any opinion on these questions. Prospective purchasers
to which such characterization of an investment in Grantor Trust Strip
Certificates is material should consult their tax advisors regarding whether the
Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized.
The Grantor Trust Strip Certificates will be "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 Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
Holders of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the Mortgage Loans (including amounts used to
pay reasonable servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses. Because
of stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable thereon
representing interest on the Mortgage Loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to the extent
that the aggregate of such holder's miscellaneous itemized deductions exceeds
two percent of such holder's adjusted gross income. In addition, Section 68 of
the Code provides that the amount of itemized deductions otherwise allowable for
an individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by holders of Grantor Trust Fractional Interest Certificates
who are subject to the limitations of either Section 67 or Section 68 of the
Code may be substantial. Further, Certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor Trust Strip
Certificates) are issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of statutory or
administrative clarification as to the method to be used, it currently is
intended to base information returns or reports to the IRS and
Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
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The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Company or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on the Mortgage Loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors." The servicing
fees paid with respect to the Mortgage Loans for certain series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related Prospectus Supplement
will include information regarding servicing fees paid to the Master Servicer,
any subservicer or their respective affiliates necessary to determine whether
the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest," if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest." In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "Sales of Grantor Trust Certificates") and the yield of such Grantor Trust
Fractional Interest Certificate to such holder. Such yield would be computed at
the rate (compounded based on the regular interval between payment dates) that,
if used to discount the holder'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 holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future payments on the
Mortgage Loans will not include any payments made in respect of any ownership
interest in the Mortgage Loans retained by the Company, the Master Servicer, any
subservicer or their respective affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their own tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would
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not have any significant effect on the yield used in calculating accruals of
interest income. In the case, however, of a Grantor Trust Fractional Interest
Certificate acquired at a discount or premium (that is, at a price less than or
greater than such principal amount, respectively), the use of a reasonable
prepayment assumption would increase or decrease such yield, and thus accelerate
or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption is
used, it appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount." It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates. However,
neither the Company, the Master Servicer nor the Trustee will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to such Prepayment Assumption or any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply to a Grantor Trust Fractional Interest Certificate to
the extent it evidences an interest in Mortgage Loans issued with original issue
discount.
The original issue discount, if any, on the Mortgage Loans will equal
the difference between the stated redemption price of such Mortgage Loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on such Mortgage Loan other than
"qualified stated interest." "Qualified stated interest" includes interest that
is unconditionally payable at least annually at a single fixed rate, or at a
"qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such
Mortgage Loan. In general, the issue price
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of a Mortgage Loan will be the amount received by the borrower from the lender
under the terms of the Mortgage Loan, less any "points" paid by the borrower,
and the stated redemption price of a Mortgage Loan will equal its principal
amount, unless the Mortgage Loan provides for an initial below-market rate of
interest or the acceleration or the deferral of interest payments.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee in
preparing information returns to the Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Mortgage Loan. For this purpose, the
weighted average maturity of the Mortgage Loan will be computed as the sum of
the amounts determined, as to each payment included in the stated redemption
price of such Mortgage Loan, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such payment is
expected to be made by (ii) a fraction, the numerator of which is the amount of
the payment and the denominator of which is the stated redemption price of the
Mortgage Loan. Under the OID Regulations, original issue discount of only a de
minimis amount (other than de minimis original issue discount attributable to a
so-called "teaser" rate or initial interest holiday) will be included in income
as each payment of stated principal is made, based on the product of the total
amount of such de minimis original issue discount and a fraction, the numerator
of which is the amount of each such payment and the denominator of which is the
outstanding stated principal amount of the Mortgage Loan. The OID Regulations
also permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Taxation
of Owners of Grantor Trust Fractional Interest Certificates--Market Discount"
below.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
In addition to its regular reports, the Trustee, unless otherwise
provided in the related Prospectus Supplement, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See "Grantor Trust
Reporting" below.
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MARKET DISCOUNT. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount," that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above, or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing.
If made, such election will apply to all market discount bonds acquired by such
Certificateholder during or after the first taxable year to which such election
applies. In addition, the OID Regulations would permit a Certificateholder to
elect to accrue all interest, discount (including de minimis market or original
issue discount) and premium in income as interest, based on a constant yield
method. If such an election were made with respect to a Mortgage Loan with
market discount, the Certificateholder would be deemed to have made an election
to include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election and thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made this election for
a Certificate acquired at a premium would be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Certificateholder owns or acquires. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium" below.
Each of these elections to accrue interest, discount and premium with respect to
a Certificate on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report will apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii) in
the case of a Mortgage Loan issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally will be
considered to be de minimis if it is less than 0.25% of the stated redemption
price of the Mortgage Loans multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the prepayment assumption used,
if any. The effect of using a prepayment assumption could be to accelerate the
reporting of such discount income. If market discount is treated as de minimis
under the foregoing rule, it appears that actual discount would be treated in a
manner similar to original issue discount of a de minimis amount. See
"--Taxation of Owners of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Do Not Apply."
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Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," below, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
PREMIUM. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply," no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their own tax advisors concerning the method
to be used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "Possible Application of Proposed Contingent Payment Rules" and
assumes that the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip
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Certificates. It is unclear whether those provisions would be applicable to the
Grantor Trust Strip Certificates or whether use of a prepayment assumption may
be required or permitted in the absence of such regulations. It is also
uncertain, if a prepayment assumption is used, whether the assumed prepayment
rate would be determined based on conditions at the time of the first sale of
the Grantor Trust Strip Certificate or, with respect to any subsequent holder,
at the time of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Company, 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 and
Certificateholders should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial Certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent payments are not
subject to the same rules as debt instruments providing for noncontingent
payments, but no final regulations have been promulgated with respect to
contingent payment debt instruments. Proposed regulations were promulgated on
December 16, 1994 regarding contingent payment debt instruments. As in the case
of the OID Regulations, such proposed regulations do not specifically address
securities, such as the Grantor Trust Strip Certificates, that are subject to
the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply a "noncontingent bond method." Under that method, the issuer of a Grantor
Trust Strip Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of Grantor Trust Strip
Certificates would be bound by the issuer's projected payment schedule, which
would consist of all noncontingent payments and a projected amount for each
contingent payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each payment would be
determined so that the projected payment schedule reflected the projected yield
reasonably expected to be received by the holder of a Grantor Trust Strip
Certificate. The projected yield referred to above would be a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date,
reflected general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield.
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Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale of a Grantor Trust
Certificate, recognized on the sale or exchange of a Grantor Trust Certificate
by an investor who holds such Grantor Trust Certificate as a capital asset, will
be capital gain or loss, except to the extent of accrued and unrecognized market
discount, which will be treated as ordinary income, and (in the case of banks
and other financial institutions) except as provided under Section 582(c) of the
Code. The adjusted basis of a Grantor Trust Certificate generally will equal its
cost, increased by any income reported by the seller (including original issue
discount and market discount income) and reduced (but not below zero) by any
previously reported losses, any amortized premium and by any distributions with
respect to such Grantor Trust Certificate. The Code as of the date of this
Prospectus provides a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the distinction between
a capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction. Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
GRANTOR TRUST REPORTING. Unless otherwise provided in the related
Prospectus Supplement, the Trustee will furnish to each holder of a Grantor
Trust Fractional Interest 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 Security Interest Rate. In
addition, the Trustee will furnish, within a reasonable time after the end of
each calendar year, to each holder of a Grantor Trust 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-servicer (if any)
and such other customary factual information as the Trustee deems necessary or
desirable to enable holders of Grantor Trust Certificates to prepare their tax
returns and will furnish comparable information to the Service as and when
required by law to do so. Because the rules for accruing discount and amortizing
premium with respect to the Grantor Trust Certificates are uncertain in various
respects, there is no assurance the Service will agree with the Trustee's
information reports of such items of income and expense. Moreover, such
information reports, even if otherwise accepted as accurate by the Service, will
in any event be accurate only as to the initial Certificateholders that bought
their Certificates at the representative initial offering price used in
preparing such reports.
BACKUP WITHHOLDING. In general, the rules described in
"--REMICS--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC
Regular Certificates in "REMICS--Foreign Investors in REMIC Certificates--REMIC
Regular Certificates" applies to Grantor Trust Certificates except that Grantor
Trust Certificates will, unless otherwise disclosed in the related Prospectus
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Supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related Mortgage
Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences", potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the Securities offered hereunder. State tax law may differ
substantially from the corresponding federal tax law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Securities offered hereunder.
ERISA CONSIDERATIONS
Sections 404 and 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), impose certain fiduciary and prohibited transaction
restrictions on employee pension and welfare benefit plans subject to ERISA
("ERISA Plans") and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general and separate accounts
in which such ERISA Plans are invested. Section 4975 of the Code imposes
essentially the same prohibited transaction restrictions on tax-qualified
retirement plans described in Section 401(a) of the Code and on Individual
Retirement Accounts described in Section 408 of the Code (collectively, "Tax
Favored Plans"). ERISA and the Code prohibit a broad range of transactions
involving assets of ERISA Plans and Tax Favored Plans (collectively, "Plans")
and persons who have certain specified relationships to such Plans ("Parties in
Interest" within the meaning of ERISA or "Disqualified Persons" within the
meaning of the Code, collectively "Parties in Interest"), unless a statutory or
administrative exemption is available with respect to any such transaction.
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in the Securities without regard to the ERISA considerations described below,
subject to the provisions of other applicable federal, state and local law. Any
such plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
Certain transactions involving the Trust Fund might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Plan that purchases the Securities, if the Mortgage Loans and other assets
included in a Trust Fund are deemed to be assets of the Plan. The U.S.
Department of Labor (the "DOL") has promulgated regulations at 29 C.F.R.
ss.2510.3-101 (the "DOL Regulations") defining the term "Plan Assets" for
purposes of applying the general fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and the Code. Under the DOL
Regulations, generally, when a Plan acquires an "equity interest" in another
entity (such as the Trust Fund), the underlying assets of that entity may be
considered to be Plan Assets unless certain exceptions apply. Exceptions
contained in the DOL Regulations provide that a Plan's assets will not include
an undivided interest in each asset of an entity in which such Plan makes an
equity investment if: (1) the entity is an operating company; (2) the equity
investment made by the Plan is either a "publicly-offered security" that is
"widely held," both as defined in the DOL Regulations, or a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended; or (3) Benefit Plan Investors do not own 25% or more in value of any
class of equity securities issued by the entity. For this purpose, "Benefit Plan
Investors" include Plans, as well as any "employee benefit plan" (as defined in
Section 3(3) or ERISA) which is not subject to Title I of ERISA, such as
governmental plans (as defined in Section 3(32) of ERISA) and church plans (as
defined in Section 3(33) of ERISA) which have not made an election under Section
410(d) of the Code, and any
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entity whose underlying assets include Plan Assets by reason of a Plan's
investment in the entity. In addition, the DOL Regulations provide that the term
"equity interest" means any interest in an entity other than an instrument which
is treated as indebtedness under applicable local law and which has no
"substantial equity features." Under the DOL Regulations, Plan Assets will be
deemed to include an interest in the instrument evidencing the equity interest
of a Plan (such as a Certificate or a Note with "substantial equity features"),
and, because of the factual nature of certain of the rules set forth in the DOL
Regulations, Plan Assets may be deemed to include an interest in the underlying
assets of the entity in which a Plan acquires an interest (such as the Trust
Fund). Neither Plans nor persons investing Plan Assets should acquire or hold
Securities in reliance upon the availability of any exception under the DOL
Regulations.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Any person who has discretionary authority or control with
respect to the management or disposition of Plan Assets and any person who
provides investment advice with respect to such Plan Assets for a fee is a
fiduciary of the investing Plan. If the Mortgage Loans and other assets included
in the Trust Fund were to constitute Plan Assets, then any party exercising
management or discretionary control with respect to those Plan Assets may be
deemed to be a Plan "fiduciary," and thus subject to the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to any investing Plan. In
addition, the acquisition or holding of Securities by or on behalf of a Plan or
with Plan Assets, as well as the operation of the Trust Fund, may constitute or
involve a prohibited transaction under ERISA and the Code unless a statutory or
administrative exemption is available.
The DOL issued an individual prohibited transactions exemption
("Exemptions"), which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Section 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and operation of
mortgage pools and the initial purchase, holding and subsequent resale of
mortgage pass-through certificates underwritten by an Underwriter (as
hereinafter defined), provided that certain conditions set forth in the
Exemption are satisfied. For purposes of this Section "ERISA Considerations",
the term "Underwriter" shall include (a) the underwriter, (b) any person
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the underwriter and (c) any member of
the underwriting syndicate or selling group of which a person described in (a)
or (b) is a manager or co-manager with respect to a class of Securities.
The Exemption sets forth six general conditions which must be satisfied
for the Exemption to apply. First, the acquisition of Securities by a Plan or
with Plan Assets must be on terms that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. Second,
the Exemption only applies to Securities evidencing rights and interests that
are not subordinated to the rights and interests evidenced by other Securities
of the same trust. Third, the Securities at the time of acquisition by a Plan or
with Plan Assets must be rated in one of the three highest generic rating
categories by Standard & Poor's Ratings Services, a division of McGraw-Hill
Companies, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating
Co. or Fitch Investors Service, L.P. (collectively, the "Exemption Rating
Agencies"). Fourth, the Trustee cannot be an affiliate of any member of the
"Restricted Group" which consists of any Underwriter, the Company, the Trustee,
the Master Servicer, the Special Servicer, any Sub-Servicer and any obligor with
respect to assets included in the Trust Fund constituting more than 5% of the
aggregate unamortized principal balance of the assets in the Trust Fund as of
the date of initial issuance of the Securities. Fifth, the sum of all payments
made to and retained by the Underwriter(s) must represent not more than
reasonable compensation for underwriting the Securities; the sum of all payments
made to and retained by the Company pursuant to the assignment of the assets to
the related Trust Fund must represent not more than the fair market value of
such obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any Sub-Servicer must represent not more than
reasonable compensation for such person's services under the related Agreement
and reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the Exemption states that the investing Plan or Plan Asset investor must
be an accredited investor as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933, as amended.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) Securities evidencing
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interests in such other investment pools must have been rated in one of the
three highest categories of one of the Exemption Rating Agencies for at least
one year prior to the acquisition of Securities by or on behalf of a Plan or
with Plan Assets; and (iii) Securities evidencing interests in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any acquisition of Securities by or on behalf of a Plan
or with Plan Assets.
A fiduciary of a Plan or any person investing Plan Assets to purchase a
Certificate must make its own determination that the conditions set forth above
will be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection
with the direct or indirect sale, exchange, transfer, holding or the direct or
indirect acquisition or disposition in the secondary market of Securities by a
Plan or with Plan Assets. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the
acquisition or holding of a Certificate on behalf of an "Excluded Plan" by any
person who has discretionary authority or renders investment advice with respect
to the assets of such Excluded Plan. For purposes of the Securities, an Excluded
Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of
Securities in the initial issuance of Securities between the Depositor or an
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan Assets in the
Securities is (a) a mortgagor with respect to 5% or less of the fair market
value of the Trust Fund Assets or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
Securities by a Plan and (3) the holding of Securities by a Plan or with Plan
Assets.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
Trust Fund. The Depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the Securities so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA (as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code)
for transactions in connection with the servicing, management and operation of
the Trust Fund, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code if such restrictions are deemed to otherwise apply merely
because a person is deemed to be a Party in Interest with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
the Plan's ownership of Securities.
In addition to the Exemption, a Plan fiduciary or other Plan Asset
investor should consider the availability of certain class exemptions granted by
the DOL ("Class Exemptions"), which may provide relief from certain of the
prohibited transaction provisions of ERISA and the related excise tax provisions
of the Code, including Prohibited Transaction Class Exemption ("PTCE") 83-1,
regarding transactions involving mortgage pool investment trusts; PTCE 84-14,
regarding transactions effected by a "qualified professional asset manager";
PTCE 90-1, regarding transactions by insurance company pooled separate accounts;
PTCE 91-38, regarding investments by bank collective investment funds; PTCE
95-60, regarding transactions by insurance company general accounts; and PTCE
96-23, regarding transactions effected by an "in-house asset manager."
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new
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Section 401(c) to ERISA, which provides certain exemptive relief from the
provisions of Part 4 of Title I of ERISA and Section 4975 of the Code, including
the prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations ("401(c) Regulations") no later than December 31, 1997
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan Assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an insurance
company general account constitute Plan Assets, unless (i) as otherwise provided
by the Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan Assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan Assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the Securities should consult with their legal counsel
with respect to the applicability of Section 401(c) of ERISA, including the
general account's ability to continue to hold the Securities after the date
which is 18 months after the date the 401(c) Regulations become final.
REPRESENTATION FROM PLANS INVESTING IN NOTES WITH "SUBSTANTIAL EQUITY FEATURES"
OR CERTAIN CERTIFICATES
Because the exemptive relief afforded by the Exemption (or any similar
exemption that might be available) will not apply to the purchase, sale or
holding of certain Securities, such as Notes with "substantial equity features,"
Subordinate Securities, REMIC Residual Certificates, any Securities which are
not rated in one of the three highest generic rating categories by the Exemption
Rating Agencies transfers of any such Securities to a Plan, to a trustee or
other person acting on behalf of any Plan, or to any other person investing Plan
Assets to effect such acquisition will not be registered by the Trustee unless
the transferee provides the Company, the Trustees and the Master Servicer with
an opinion of counsel satisfactory to the Company, the Trustee (or Indenture
Trustee in the case of transfer of Notes) and the Master Servicer, which opinion
will not be at the expense of the Company, the Trustee (or the Indenture Trustee
in the case of the transfer of Notes) or the Master Servicer, that the purchase
of such Securities by or on behalf of such Plan is permissible under applicable
law, will not constitute or result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Company, the
Trustee (or the Indenture Trustee in the case of the transfer of Notes) or the
Master Servicer to any obligation in addition to those undertaken in the related
Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of Securities by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Code and will not subject the Company, the Trustees or the Master
Servicer to any obligation in addition to those undertaken in the Agreement and
the following statements are correct: (i) the transferee is an insurance
company, (ii) the source of funds used to purchase such Securities is an
"insurance company general account" (as such term is defined in PTCE 95-60),
(iii) the conditions set forth in PTCE 95-60 have been satisfied and (iv) there
is no Plan with respect to which the amount of such general account's reserves
and liabilities for contracts held by or on behalf of such Plan and all other
Plans maintained by the same employer (or any "affiliate" thereof, as defined in
PTCE 95-60) or by the same employee organization exceed 10% of the total of all
reserves and liabilities of such general account (as determined under PTCE
95-60) as of the date of the acquisition of such Securities.
An opinion of counsel or certification will not be required with
respect to the purchase of DTC registered Securities. Any purchaser of a DTC
registered Security will be deemed to have represented by such purchase that
either (a) such purchaser is not a Plan and is not purchasing such Securities on
behalf of, or with Plan Assets of, any Plan or (b) the purchase of any such
Security by or on behalf of, or with Plan Assets of, any Plan is permissible
under applicable law, will not result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Company, the
Trustee or the Master Servicer to any obligation in addition to those undertaken
in the related Agreement.
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TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "TAX-EXEMPT INVESTOR") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusion" of a REMIC allocated to a REMIC Residual Certificate and held by a
Tax-Exempt investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences -- Taxation of Owners
of REMIC Residual Certificates -- Excess Inclusions."
CONSULTATION WITH COUNSEL
There can be no assurance that any DOL exemption will apply with
respect to any particular Plan that acquires the Securities or, even if all the
conditions specified therein were satisfied, that any such exemption would apply
to transactions involving the Trust Fund. Prospective Plan investors should
consult with their legal counsel concerning the impact of ERISA and the Code and
the potential consequences to their specific circumstances prior to making an
investment in the Securities. Neither the Company, the Trustees, the Master
Servicer nor any of their respective affiliates will make any representation to
the effect that the Securities satisfy all legal requirements with respect to
the investment therein by Plans generally or any particular Plan or to the
effect that the Securities are an appropriate investment for Plans generally or
any particular Plan.
BEFORE PURCHASING THE SECURITIES, A FIDUCIARY OF A PLAN OR OTHER PLAN
ASSET INVESTOR SHOULD ITSELF CONFIRM THAT (A) ALL THE SPECIFIC AND GENERAL
CONDITIONS SET FORTH IN THE EXEMPTION, ONE OF THE CLASS EXEMPTIONS OR SECTION
401(C) OF ERISA WOULD BE SATISFIED AND (B) IN THE CASE OF A CERTIFICATE
PURCHASED UNDER THE EXEMPTION, THE CERTIFICATE CONSTITUTES A "CERTIFICATE" FOR
PURPOSES OF THE EXEMPTION. IN ADDITION TO MAKING ITS OWN DETERMINATION AS TO THE
AVAILABILITY OF THE EXEMPTIVE RELIEF PROVIDED IN THE EXEMPTION, ONE OF THE CLASS
EXEMPTIONS OR SECTION 410(C) OF ERISA, THE PLAN FIDUCIARY SHOULD CONSIDER ITS
GENERAL FIDUCIARY OBLIGATIONS UNDER ERISA IN DETERMINING WHETHER TO PURCHASE THE
SECURITIES ON BEHALF OF A PLAN.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Unless otherwise specified in
the related Prospectus Supplement, each such class that is rated in one of the
two highest rating categories by at least one Rating Agency will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal investments for
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including depository institutions, life insurance companies
and pension funds) created pursuant to or existing under the laws of the United
States or of any State whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," such securities will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain States have enacted legislation which overrides the preemption
provisions of SMMEA. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities," or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
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The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security. According
to the Policy Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on analysis
and documentation obtained from a securities dealer or other outside party
without internal analysis by the institution would be unacceptable. There can be
no assurance as to which classes of Offered Certificates will be treated as
high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Offered Certificates. In addition, the National Credit Union Administration has
issued regulations governing federal credit union investments which prohibit
investment in certain specified types of securities, which may include certain
classes of Offered Certificates. Similar policy statements have been issued by
regulators having jurisdiction over other types of depository institutions.
Certain classes of Certificates offered hereby, including any class
that is not rated in one of the two highest rating categories by at least one
Rating Agency, will not constitute "mortgage related securities" for purposes of
SMMEA. Any such class of Certificates will be identified in the related
Prospectus Supplement. Prospective investors in such classes of Certificates, in
particular, should consider the matters discussed in the following paragraph.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Offered Certificates or to purchase any
class of Offered Certificates representing more than a specified percentage of
the investors' assets. The Company will make no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of
Certificates will be applied by the Company to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Mortgage Loans
and/or Mortgage Securities in the respective Mortgage Pools or will be used by
the Company for general corporate purposes. The Company expects that it will
make additional sales of securities similar to the Offered Certificates from
time to time, but the timing and amount of any such additional offerings will be
dependent upon a number of factors, including the volume of mortgage loans
purchased by the Company, prevailing interest rates, availability of funds and
general market conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Company from such sale.
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<PAGE>
The Company intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination of
two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
2. By placements by the Company with institutional investors
through dealers; and
3. By direct placements by the Company with institutional
investors.
In addition, if specified in the related Prospectus Supplement, the
Offered Certificates of any series may be offered in whole or in part in
exchange for the Mortgage Loans (and other assets, if applicable) that would
comprise the Mortgage Pool in respect of such Certificates.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Company whose identities
and relationships to the Company will be as set forth in the related Prospectus
Supplement. The managing underwriter or underwriters with respect to the offer
and sale of the Offered Certificates of a particular series will be set forth on
the cover of the Prospectus Supplement relating to such series and the members
of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Offered Certificates, underwriters
may receive compensation from the Company or from purchasers of such
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Company and any profit on the
resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Securities Act").
It is anticipated that the underwriting agreement pertaining to the
sale of Offered Certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Company and
purchasers of Offered Certificates of such series.
The Company anticipates that the Certificates offered hereby will be
sold primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Offered 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 reoffers and sales
by them of such Certificates. Holders of Offered Certificates should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Certificates of each series will be
passed upon for the Company by Thacher Proffitt & Wood, New York, New York.
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FINANCIAL INFORMATION
A new Trust fund will be formed with respect to each series of
Securities, and no Trust Fund will engage in any business activities or have any
assets or obligations prior to the issuance of the related series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Securities
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates and mortgage-backed notes
address the likelihood of receipt by the holders thereof of all collections on
the underlying mortgage assets to which such holders are entitled. These ratings
address the structural, legal and issuer-related aspects associated with such
certificates and notes, the nature of the underlying mortgage assets and the
credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and mortgage-backed notes do not represent any assessment of the
likelihood of principal prepayments by borrowers or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
Securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped interest securities in extreme cases might fail to recoup
their initial investments.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
PAGE
401(c) Regulations...........................................................102
Accrual Certificates...................................................6, 32, 40
Accrued Certificate Interest..................................................40
Affiliated Sellers............................................................15
Agreement ............................................................31
ARM Loans ............................................................16
Available Distribution Amount.................................................39
Balloon Loans ............................................................17
Balloon Payment ............................................................17
Bankruptcy Code ............................................................70
Bankruptcy Loss ............................................................43
Beneficial Owner ............................................................33
Buydown Account ............................................................19
Buydown Agreement ............................................................37
Buydown Funds ............................................................19
Buydown Mortgage Loans........................................................19
Buydown Period ............................................................19
CERCLA ............................................................21
Certificate Account...........................................................35
Certificate Registrar.........................................................33
Certificates .............................................................1
Class Exemptions ...........................................................101
Closing Date ............................................................77
Code .........................................................6, 75
Commission .............................................................3
Committee Report ............................................................77
Company ..........................................................1, 4
Contracts ............................................................15
Contributions Tax ............................................................86
Convertible Mortgage Loan.....................................................19
Debt Service Coverage Ratio...................................................20
Debt Service Reduction........................................................47
Defaulted Mortgage Loss.......................................................43
Deferred Interest ............................................................17
Deficient Valuation...........................................................47
Deleted Mortgage Loan.........................................................23
Designated Seller Transaction.................................................16
Determination Date............................................................39
Distribution Date .............................................................8
DOL ............................................................99
DOL Regulations ............................................................99
DTC ............................................................33
DTC Registered Securities.....................................................33
Due Period ............................................................41
Equity Certificates............................................................5
Equity Participation..........................................................18
ERISA ........................................................11, 99
ERISA Plans ............................................................99
Event of Default ............................................................57
Exchange Act .............................................................3
Excluded Plan ...........................................................101
Exemption Rating Agencies....................................................100
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Extraordinary Losses..........................................................43
FDIC ............................................................15
FHA ............................................................15
FHA Loans ............................................................15
FHLMC ............................................................21
FIRREA ............................................................21
FNMA ............................................................21
Fraud Loss ............................................................43
FTC Rule ............................................................71
Garn-St Germain Act...........................................................72
Grantor Trust Certificates................................................11, 75
Grantor Trust Fractional Interest Certificate.................................90
Grantor Trust Fund............................................................75
Grantor Trust Strip Certificate...............................................90
Holder ............................................................33
Housing Act ............................................................22
HUD ............................................................53
Indenture .......................................................1, 4, 5
Index ............................................................16
Insurance Proceeds............................................................36
Intermediaries ............................................................33
IRS ............................................................77
Issue Premium ............................................................82
Issuer .............................................................4
Letter of Credit ............................................................44
Letter of Credit Bank.........................................................44
Liquidated Mortgage Loan......................................................29
Liquidation Proceeds..........................................................36
Loan-to-Value Ratio...........................................................18
Lock-out Expiration Date......................................................18
Lock-out Period ............................................................18
Loss ............................................................51
Manufactured Homes............................................................15
Manufacturer's Invoice Price..................................................18
Master Servicer ......................................................1, 4, 25
Mortgage Loans .......................................................1, 5, 7
Mortgage Notes ............................................................15
Mortgage Pool ..........................................................1, 7
Mortgage Rate ............................................................16
Mortgage Securities........................................................7, 16
Mortgaged Property.............................................................7
Mortgages ............................................................15
Mortgagor ............................................................13
Multifamily Loans ............................................................15
Multifamily Properties........................................................15
Multifamily Property...........................................................7
Net Mortgage Rate ............................................................61
Net Operating Income..........................................................20
Nonrecoverable Advance........................................................41
Note Interest Rate.............................................................5
Note Margin ............................................................16
Note Registrar ............................................................33
Notes .............................................................1
Offered Certificates.......................................................4, 32
Offered Notes .............................................................4
Offered Securities..........................................................1, 4
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OID Regulations ............................................................75
OTS ...........................................................104
Owner Trust .............................................................4
Owner Trustee ..........................................................4, 5
Participants ............................................................33
Parties in Interest...........................................................99
Pass-Through Rate .............................................................5
Permitted Investments.........................................................36
Plan ............................................................11
Plan Assets ............................................................99
Plans ............................................................99
Policy Statement ...........................................................104
Pool Insurer ............................................................37
Pooling Agreement ......................................................1, 5, 54
Pre-Funding Account...........................................................32
Prepayment Assumption.....................................................77, 93
Prepayment Interest Shortfall.................................................62
Prepayment Penalty............................................................18
Primary Insurance Policy......................................................51
Primary Insurer ............................................................51
Prohibited Transactions Tax...................................................86
Proposed Mark-to-Market Regulations...........................................85
Prospectus Supplement..........................................................1
PTCE ...........................................................101
PTCE 83-1 ...........................................................101
Purchase Obligation...........................................................50
Purchase Price ............................................................23
Qualified Substitute Mortgage Loan............................................23
Rating Agency ............................................................11
Realized Losses ............................................................43
Record Date ............................................................39
Related Proceeds ............................................................41
Relief Act ............................................................74
REMIC ......................................................1, 6, 75
REMIC Administrator...........................................................75
REMIC Certificates............................................................75
REMIC Provisions ............................................................75
REMIC Regular Certificates................................................11, 76
REMIC Regulations ............................................................75
REMIC Residual Certificates...............................................11, 76
REO Mortgage Loan ............................................................29
REO Property ............................................................27
Reserve Fund ............................................................47
RTC ............................................................15
Securities ..........................................................1, 4
Securities Act ........................................................3, 105
Security ............................................................54
Security Interest Rate.........................................................5
Security Register ............................................................33
Security Registrar............................................................33
Securityholder ............................................................33
Securityholders .............................................................1
Seller .............................................................8
Sellers .........................................................1, 15
Senior Certificates........................................................6, 32
Senior Liens ............................................................17
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Senior/Subordinate Series.....................................................32
Servicing Default ............................................................57
Servicing Standard............................................................25
Single Family Loans...........................................................15
Single Family Property........................................................15
SMMEA .......................................................11, 103
Special Hazard Instrument.....................................................43
Special Hazard Insurance Policy...............................................46
Special Hazard Insurer........................................................47
Special Hazard Loss...........................................................43
Special Hazard Losses.........................................................46
Special Servicer .........................................................4, 27
SPFC .........................................................4, 54
Spread .............................................................5
Strip Certificates.........................................................6, 32
Subordinate Certificates...................................................6, 32
Subservicer ............................................................27
Subservicers ............................................................20
Tax Favored Plans ............................................................99
Tax-Exempt Investor..........................................................103
Tiered REMICs ............................................................76
Title V ............................................................73
Title VIII ............................................................74
Trust Agreement .............................................................4
Trust Fund ..........................................................1, 5
Trustee .............................................................5
UBTI ...........................................................103
Unaffiliated Sellers..........................................................15
Underwriter ...........................................................100
United States person..........................................................89
Value ............................................................18
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
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 filing fee, are estimated.
Filing Fee for Registration Statement...................... $ 303,030
Legal Fees and Expenses.................................... 390,000
Accounting Fees and Expenses............................... 312,500
Trustee's Fees and Expenses
(including counsel fees)............................ 150,000
Printing and Engraving Fees................................ 187,500
Rating Agency Fees......................................... 375,000
Miscellaneous.............................................. 25,000
----------
Total .................................................... $1,743,030
==========
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling and Servicing Agreements with respect to each series of
Certificates and the Servicing Agreements, Indentures and Owner Trust Agreements
with respect to each series of Notes will provide that no director, officer,
employee or agent of the Registrant is liable to the Trust Fund or the
Securityholders, except for such person's own willful misfeasance, bad faith or
gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements with respect to
each series of Certificates and the Servicing Agreements, Indentures and Owner
Trust Agreements with respect to each series of Notes will further provide that,
with the exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Agreements and related
Securities other than such expenses related to particular Mortgage Loans.
Any underwriters who execute an Underwriting Agreement in the form
filed as Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Section 317 of the California Corporations Code allows for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VI of the Registrant's
Amended and Restated Articles of Incorporation (Exhibit 3.1 hereto) and Article
XI of the Registrants Restated Bylaws (Exhibit 3.2 hereto) provide for
indemnification of the
<PAGE>
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Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the California Corporations Code. The
Registrant has also entered into agreements with its directs and executive
officers that would require the Registrant, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by law.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
* 1.1 -- Form of Underwriting Agreement.
* 3.1 -- Amended and Restated Articles of Incorporation.
* 3.2 -- Restated By-Laws.
* 4.1 -- Form of Pooling and Servicing Agreement for an offering of
Mortgage Pass-Through Certificates consisting of senior and
subordinate certificate classes.
* 4.2 -- Form of Pooling and Servicing Agreement for alternate forms
of credit support (single class).
4.3 -- Form of Servicing Agreement for an offering of Mortgage-
Backed Notes.
4.4 -- Form of Trust Agreement for an offering of Mortgage-Backed
Notes.
4.5 -- Form of Indenture for an offering of Mortgage-Backed Notes.
5.1 -- Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to certain
tax matters (included with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1 and Exhibit 8.1).
24.1 -- Power of Attorney.
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* Incorporated by reference from the Registration Statement on Form
S-3 (File No. 33-91756).
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(a)(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
<PAGE>
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fundamental change in the information set forth in the registration statement,
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement; PROVIDED,
HOWEVER, that subparts (i) and (ii) do not apply if the information required to
be included in the post-effective amendment by those subparts is contained in
periodic reports filed by the Registrant pursuant to Section 13 or 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.
(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.
(b) That, for the 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 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
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.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. 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 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southern
Pacific Secured Assets Corp. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, reasonably
believes that the security rating requirement contained in Transaction
Requirement B.5 of Form S-3 will be met by the time of the sale of the
securities registered hereunder, and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Lake Oswego, State of Oregon, on the 30th day of April, 1997.
SOUTHERN PACIFIC SECURED
ASSETS CORP.
By: /s/ Bernard Guy
-------------------------------
Bernard Guy
Director and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Robert W. Howard Director, Chairman April 30, 1997
- -------------------------- of the Board (Principal
Robert W. Howard Executive Officer)
/s/ Jim Smith Director and Secretary April 30, 1997
- --------------------------
Jim Smith
/s/ Bernard Guy Director and Chief April 30, 1997
- -------------------------- Operating Officer
Bernard Guy
/s/ Frank Frazzitta Director and Chief April 30, 1997
- -------------------------- Financial Officer (Principal
Frank Frazzitta Financial Officer and
Principal Accounting Officer)
EXHIBIT 4.3
-----------
================================================================================
[NAME OF SERVICER],
as Servicer,
and
SOUTHERN PACIFIC SECURED ASSETS CORP.
as Company
----------------------
SERVICING AGREEMENT
Dated as of _______________
----------------------
Adjustable-Rate Mortgage Loans
Southern Pacific MBN Trust Series 19__-__
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
Section 1.01. DEFINITIONS............................................... 1
Section 1.02. OTHER DEFINITIONAL PROVISIONS............................. 2
Section 1.03. INTEREST CALCULATIONS..................................... 2
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER..... 3
Representations and Warranties of the Company.............................. 4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES............. 4
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER............................................... 6
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS............... 7
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT.................... 9
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES........................................................... 11
Section 3.05. MODIFICATION AGREEMENTS.................................... 11
Section 3.06. ........................................................... 12
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS.................. 13
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE................. 14
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER........................................................... 15
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE.......................... 15
Section 3.11. ANNUAL SERVICING REPORT.................................... 16
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS....................................... 16
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES........ 16
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED
PROPERTY........................................................... 17
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS............ 17
ARTICLE IV
i
<PAGE>
Page
----
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS............................... 18
ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT........................................ 20
Section 5.02. PAYMENT ACCOUNT............................................. 20
ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER................................... 22
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER....................................... 22
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.......... 22
Section 6.04. SERVICER NOT TO RESIGN...................................... 23
Section 6.05. DELEGATION OF DUTIES........................................ 23
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION................................. 24
ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT........................................... 26
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR.......... 28
Section 7.03. NOTIFICATION TO SECURITYHOLDERS............................. 29
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT................................................... 30
Section 8.02. GOVERNING LAW............................................... 30
Section 8.03. NOTICES..................................................... 30
Section 8.04. SEVERABILITY OF PROVISIONS.................................. 30
Section 8.05. THIRD-PARTY BENEFICIARIES................................... 30
ii
<PAGE>
Page
----
Section 8.06. COUNTERPARTS................................................ 31
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS.................... 31
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS............................................... 31
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE............. 31
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR.............................. 32
EXHIBIT A - MORTGAGE LOAN SCHEDULE...........................................A-1
EXHIBIT B - POWER OF ATTORNEY................................................B-1
EXHIBIT C - CERTIFICATE PURSUANT TO SECTION 3.08.............................C-1
EXHIBIT D - FORM OF REQUEST FOR RELEASE......................................D-1
Schedule 1 - Mortgage Insurance Component Schedule...........................S-1
iii
<PAGE>
This Servicing Agreement, dated as of _______________, between
[Name of Servicer], as Servicer (the "Servicer") and Southern Pacific Secured
Assets Corp., as Company (the "Company"),
W I T N E S S E T H T H A T:
----------------------------
WHEREAS, Southern Pacific Secured Assets Corp., will create
Southern Pacific MBN Trust Series 19__-__, an owner trust (the "Issuer") under
Delaware law, and will transfer the Mortgage Loans and all of its rights under
the Mortgage Loan Purchase Agreement to the Issuer,;
WHEREAS, pursuant to the terms of a Trust Agreement dated as
of _______________ (the "Owner Trust Agreement") between the Company, as
depositor, and ______________________, as owner trustee (the "Owner Trustee"),
the Company will sell the Mortgage Collateral to Issuer in exchange for the cash
proceeds of the Securities;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Mortgage-Backed Certificates, Series 199_-__
(the "Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
_______________ (the "Indenture") between the Issuer and the Indenture Trustee,
the Issuer will issue and transfer to or at the direction of the Purchaser the
Mortgage-Backed Notes, Series 199_-__ (the "Notes"), consisting of the Notes and
secured by the Mortgage Collateral;
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Company will acquire the Initial Loans; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms
defined in this Servicing Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365-day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
2
<PAGE>
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to Company, the Issuer and for the benefit
of the Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, [the date of the Servicing Agreement],
the Closing Date [and any Deposit Date], that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
[_______] and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Servicing Agreement. When executed and delivered,
this Servicing Agreement will constitute the legal, valid and binding
obligation of the Servicer enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally and by the availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement or
the Notes or the Certificates which in the opinion of the Servicer has
a reasonable likelihood of resulting in a material adverse effect on
the transactions contemplated by this Servicing Agreement.
3
<PAGE>
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Servicer for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, the Closing Date and any Deposit Date,
that:
(i) The Company is a corporation in good standing under
the laws of the State of California;
(ii) The Company has full power, authority and legal
right to execute and deliver this Servicing Agreement and to perform
its obligations under this Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Servicing Agreement; and
(iii) The execution and delivery by the Company of this
Servicing Agreement and the performance by the Company of its
obligations under this Servicing Agreement will not violate any
provision of any law or regulation governing the Company or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Company or any of its assets.
Such execution, delivery, authentication and performance will not
require the authorization, consent or approval of, the giving of notice
to, the filing or registration with, or the taking of any other action
with respect to, any governmental authority or agency regulating the
activities of limited liability companies. Such execution, delivery,
authentication and performance will not conflict with, or result in a
breach or violation of, any mortgage, deed of trust, lease or other
agreement or instrument to which the Company is bound.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Collateral, or the Credit Enhancer, shall enforce the
representations and warranties of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Credit Enhancer, the Company or any Custodian of a breach
of any of the representations and warranties made in the Mortgage Loan Purchase
Agreement, in respect of any Mortgage Loan which materially and adversely
affects the interests of the Securityholders or the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
(any Custodian being so obligated under a Custodial Agreement). The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Mortgage Loan Purchase Agreement, the Seller either (i) cure
such breach in all material respects within 45 days (with respect to a breach of
the representations and warranties contained in Section 3.1(a) of the Mortgage
Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Mortgage Loan
Purchase Agreement) from the date the Seller was notified of such breach or (ii)
purchase such Mortgage Loan from the Company at the price and in the manner set
forth in Section 3.1(b) of the Mortgage Loan Purchase Agreement; PROVIDED that
the Seller shall, subject to the conditions set forth in the Mortgage Loan
Purchase Agreement, have the option to substitute an Eligible Substitute
Mortgage Loan or Loans for such Mortgage Loan. In the event that the Seller
elects
4
<PAGE>
to substitute one or more Eligible Substitute Mortgage Loans pursuant to Section
3.1(b) of the Mortgage Loan Purchase Agreement, the Seller shall deliver to the
Company with respect to such Eligible Substitute Mortgage Loans, the original
Mortgage Note, the Mortgage, and such other documents and agreements as are
required by the Mortgage Loan Purchase Agreement. No substitution will be made
in any calendar month after the Determination Date for such month. Payments due
with respect to Eligible Substitute Mortgage Loans in the month of substitution
shall not be transferred to the Company and will be retained by the Servicer and
remitted by the Servicer to the Seller on the next succeeding Payment Date
provided a payment has been received by the Company for such month in respect of
the Mortgage Loan to be removed. The Servicer shall amend or cause to be amended
the Mortgage Loan Schedule to reflect the removal of such Mortgage Loan and the
substitution of the Eligible Substitute Mortgage Loans and the Servicer shall
promptly deliver the amended Mortgage Loan Schedule to the Owner Trustee and
Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Company and the Indenture Trustee, as
pledgee of the Mortgage Collateral, against the Seller. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the
Company shall assign to the Seller all of the right, title and interest in
respect of the Mortgage Loan Purchase Agreement applicable to such Mortgage
Loan. Upon receipt of the Repurchase Price, or upon completion of such
substitution, the applicable Custodian shall deliver the Mortgage Files to the
Servicer, together with all relevant endorsements and assignments.
5
<PAGE>
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER. (a) The Servicer shall service and
administer the Mortgage Loans in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related MOrtgaged Properties are located and in a
manner consistent with the terms of this Servicing Agreement and which shall be
normal and usual in its general mortgage servicing activities and shall have
full power and authority, acting alone or through a subservicer, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable, it being understood, however, that the Servicer
shall at all times remain responsible to the Company, the Indenture Trustee, as
pledgee of the Mortgage Collateral, and the Securityholders for the performance
of its duties and obligations hereunder in accordance with the terms hereof and
the servicing standard set forth above. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Company and the Indenture Trustee, as pledgee of the Mortgage Collateral,
to execute and deliver, on behalf of itself, the Company, the Securityholders
and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Company, the Indenture Trustee and the
Custodian, as applicable, shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. On the Closing Date, the
Company shall deliver to the Servicer a power of attorney substantially in the
form of Exhibit B hereto.
If the Mortgage relating to a Mortgage Loan did not have a lien senior
on the related Mortgaged Property as of the Cut-Off Date, then the Servicer, in
such capacity, may not consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property. If the Mortgage relating to a
Mortgage Loan had a lien senior to the Mortgage Loan on the related Mortgaged
Property as of the Cut-Off Date, then the Servicer, in such capacity, may
consent to the refinancing of such senior lien; PROVIDED that (i) the resulting
Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the
Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Servicing Agreement) to the Company under this Servicing
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer has entered into Initial Subservicing Agreements with
the Initial Subservicers for the servicing and administration of the Mortgage
Loans and may enter into additional Subservicing Agreements with Subservicers
for the servicing and administration of certain of the Mortgage Loans.
References in this Servicing Agreement to actions taken or to be taken by the
Servicer in servicing the Mortgage Loans include actions taken or to be taken
6
<PAGE>
by a Subservicer on behalf of the Servicer and any amount received by such
Subservicer in respect of a Mortgage Loan shall be deemed to have been received
by the Servicer whether or not actually received by the Servicer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Servicing Agreement and as the Servicer and the
Subservicer have agreed. With the approval of the Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but such
Subservicers will remain obligated under the related Subservicing Agreements.
The Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements; PROVIDED, HOWEVER, that any such amendments shall be
consistent with and not violate the provisions of this Servicing Agreement. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions thereof and without any limitation by virtue of
this Servicing Agreement; PROVIDED, HOWEVER, that in the event of termination of
any Subservicing Agreement by the Servicer or the Subservicer, the Servicer
shall either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
and nothing contained in this Servicing Agreement shall be deemed to limit or
modify such indemnification.
In the event that the rights, duties and obligations of the Servicer
are terminated hereunder, any successor to the Servicer in its sole discretion
may, to the extent permitted by applicable law, terminate the existing
Subservicing Agreement with any Subservicer in accordance with the terms of the
applicable Subservicing Agreement or assume the terminated Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Servicer, for the
benefit of the Company, shall use reasonable efforts to enforce the obligations
of each Subservicer under the related Subservicing Agreement, to the extent that
the non-performance of any such obligation would have material and adverse
effect on a Mortgage Loan. Such enforcement, including, without limitation, the
legal prosecution of claims, termination of Subservicing Agreements and the
pursuit of other appropriate remedies, shall be in such form and carried out to
such an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mortgage Loans, and shall, to the extent such
procedures shall be consistent with this Servicing Agreement, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the foregoing, the Servicer may in its discretion (i) waive any
late payment charge, penalty interest or other fees which may be collected in
the ordinary course of servicing such Mortgage Loan and (ii) arrange with a
Mortgagor a schedule for the payment of principal and interest due and unpaid;
PROVIDED such arrangement is consistent with the Servicer's policies with
respect to
7
<PAGE>
home equity mortgage loans; PROVIDED, FURTHER, that notwithstanding such
arrangement such Mortgage Loans will be included in the information regarding
delinquent Mortgage Loans set forth in the Servicing Certificate. The Servicer
may also extend the Due Date for payment due on a Mortgage Loan, PROVIDED,
HOWEVER, that the Servicer shall first determine that any such waiver or
extension will not adversely affect the lien of the related Mortgage. Consistent
with the terms of this Servicing Agreement, the Servicer may also waive, modify
or vary any term of any Mortgage Loan or consent to the postponement of strict
compliance with any such term or in any manner grant indulgence to any Mortgagor
if in the Servicer's determination such waiver, modification, postponement or
indulgence is not materially adverse to the interests of the Securityholders or
the Credit Enhancer, PROVIDED, HOWEVER, that the Servicer may not modify or
permit any Subservicer to modify any Mortgage Loan (including without limitation
any modification that would change the Mortgage Rate, forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan) or extend the final maturity date of such Mortgage Loan) unless
such Mortgage Loan is in default or, in the judgment of the Servicer, such
default is reasonably foreseeable.
(b) The Servicer shall establish an account (the "Collection Account")
in which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it subsequent to the Cut-Off Date as to any Initial Loan or the
related Deposit Date as to any Additional Loan (other than in respect of the
payments referred to in the following paragraph) within __ Business Day[s]
following receipt thereof (or otherwise on or prior to the Closing Date),
including the following payments and collections received or made by it (without
duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a
Mortgaged Property; and
(vi) amounts required to be paid by the Servicer
pursuant to Section 8.08.
PROVIDED, HOWEVER, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account
8
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are exclusive, it being understood that, without limiting the generality of the
foregoing, the Servicer need not deposit in the Collection Account amounts
representing Foreclosure Profits, fees (including annual fees) or late charge
penalties, payable by Mortgagors, or amounts received by the Servicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items. In the event any amount not required to
be deposited in the Collection Account is so deposited, the Servicer may at any
time withdraw such amount from the Collection Account, any provision herein to
the contrary notwithstanding. The Collection Account may contain funds that
belong to one or more trust funds created for the notes or certificates of other
series and may contain other funds respecting payments on mortgage loans
belonging to the Servicer or serviced or serviced by it on behalf of others.
Notwithstanding such commingling of funds, the Servicer shall keep records that
accurately reflect the funds on deposit in the Collection Account that have been
identified by it as being attributable to the Mortgage Loans and shall hold all
collections in the Collection Account to the extent they represent collections
on the Mortgage Loans for the benefit of the Company, the Indenture Trustee, the
Securityholders and the Credit Enhancer, as their interests may appear. The
Servicer shall remit all Foreclosure Profits to itself as additional servicing
compensation.
The Servicer may cause the institution maintaining the Collection
Account to invest any funds in the Collection Account in Eligible Investments
(including obligations of the Servicer or any of its Affiliates, if such
obligations otherwise qualify as Eligible Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
(c) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Eligible Investments, unless, all such collections are
remitted on a daily basis to the Servicer for deposit into the Collection
Account.
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT. The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.02 that
are attributable to the Mortgage Loans for the following purposes:
(i) to deposit in the Distribution Account, on the
Business Day prior to each Payment Date, an amount equal to the
Security Collections required to be distributed on such Payment Date;
(ii) to the extent deposited to the Collection Account,
to reimburse itself or the related Subservicer for previously
unreimbursed expenses incurred in maintaining individual insurance
policies pursuant to Section 3.04, or Liquidation Expenses, paid
pursuant to Section 3.07 or otherwise reimbursable pursuant to the
terms of this Servicing Agreement (to the extent not payable pursuant
to Section 3.09), such
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withdrawal right being limited to amounts received on particular
Mortgage Loans (other than any Repurchase Price in respect thereof)
which represent late recoveries of the payments for which such advances
were made, or from related Liquidation Proceeds or the proceeds of the
purchase of such Mortgage Loan;
(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.09,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.02), and to pay to any Subservicer any
Subservicing Fees not previously withheld by the Subservicer;
(iv) to the extent deposited in the Collection Account
to pay to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Collection Account
and Payment Account that it is entitled to withdraw pursuant to
Sections 3.02(b) and 5.01;
(v) to the extent deposited in the Collection Account,
to pay to itself as additional servicing compensation any Foreclosure
Profits;
(vi) to pay to itself or the Seller, with respect to any
Mortgage Loan or property acquired in respect thereof that has been
purchased or otherwise transferred to the Seller, the Servicer or other
entity, all amounts received thereon and not required to be distributed
to Securityholders as of the date on which the related Purchase Price
or Repurchase Price is determined;
(vii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.02;
(viii) to pay to the Seller the amount, if any, deposited
in the Collection Account by the Indenture Trustee upon release thereof
from the Funding Account representing payments for Additional Loans;
and
(ix) after the occurrence of an Amortization Event, to
pay to the Seller, the Excluded Amount.
Since, in connection with withdrawals pursuant to clauses (iii), (iv), (vi) and
(vii), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, the Servicer shall keep and maintain
separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose
of justifying any withdrawal from the Collection Account pursuant to such
clauses. Notwithstanding any other provision of this Servicing Agreement, the
Servicer shall be entitled to reimburse itself for any previously unreimbursed
expenses incurred pursuant to Section 3.07 or otherwise reimbursable pursuant to
the terms of this Servicing Agreement that the Servicer determines to be
otherwise nonrecoverable (except with respect to any Mortgage Loan as to which
the Repurchase Price has been paid), by withdrawal from the Collection Account
of amounts on deposit therein attributable to the Mortgage Loans on any Business
Day prior to the Payment Date succeeding the date of such determination.
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Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or related Subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. Amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or property thus acquired or amounts released
to the Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Collection Account to the extent called for by Section
3.02. In cases in which any Mortgaged Property is located at any time during the
life of a Mortgage Loan in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance (to the extent available). All such flood insurance shall be in
amounts equal to the lesser of (i) the amount required to compensate for any
loss or damage to the Mortgaged Property on a replacement cost basis and (ii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program). The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence of
this Section 3.04 and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause. Any such
deposit by the Servicer shall be made on the last Business Day of the Collection
Period in the month in which payments under any such policy would have been
deposited in the Collection Account. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Company, the Issuer, the Indenture Trustee and
the Securityholders, claims under any such blanket policy.
Section 3.05. MODIFICATION AGREEMENTS. The Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Mortgage Loans and with respect to the Mortgaged Properties
subject to the Mortgages (and the Company shall promptly execute any such
documents on request of the Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any
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alteration or demolition of the related Mortgaged Property or other similar
matters, if it has determined, exercising its good faith business judgment in
the same manner as it would if it were the owner of the related Mortgage Loan,
that the security for, and the timely and full collectability of, such Mortgage
Loan would not be adversely affected thereby. A partial release pursuant to this
Section 3.05 shall be permitted only if the Combined Loan-to-Value Ratio for
such Mortgage Loan after such partial release does not exceed the Combined
Loan-to-Value Ratio for such Mortgage Loan as of the Cut-Off Date. Any fee
collected by the Servicer or the related Subservicer for processing such request
will be retained by the Servicer or such Subservicer as additional servicing
compensation.
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS. (a) When required by the
provisions of this Servicing Agreement, the Company shall execute instruments to
release property from the terms of this Servicing Agreement, or convey the
Company's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Servicing Agreement. No party
relying upon an instrument executed by the Company as provided in this Article
III shall be bound to ascertain the Company's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) If from time to time the Servicer shall deliver to the Company or
the related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05, the
Company or the related Custodian shall check that each of such documents
purports to be an original executed copy (or a copy of the original executed
document if the original executed copy has been submitted for recording and has
not yet been returned) and, if so, shall file such documents, and upon receipt
of the original executed copy from the applicable recording office or receipt of
a copy thereof certified by the applicable recording office shall file such
originals or certified copies with the Related Documents. If any such documents
submitted by the Servicer do not meet the above qualifications, such documents
shall promptly be returned by the Company or the related Custodian to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Company Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 3.09 of this Servicing Agreement to the effect that
a Mortgage Loan has been the subject of a final payment or a prepayment in full
and the related Mortgage Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the Servicer in its
reasonable judgment to be finally recoverable have been recovered, and upon
deposit to the Collection Account of such final monthly payment, prepayment in
full together with accrued and unpaid interest to the date of such payment with
respect to such Mortgage Loan or, if applicable, Liquidation Proceeds, the
Company shall promptly release the Related Documents to the Servicer, along with
such documents as the Servicer or the Mortgagor may request as contemplated by
the Servicing Agreement to evidence satisfaction and discharge of such Mortgage
Loan. If from time to time and as appropriate for the servicing or foreclosure
of any Mortgage Loan, the Servicer requests the Company or the related Custodian
to release the Related Documents and delivers to the Company or the related
Custodian a trust receipt reasonably satisfactory to the Company or the related
Custodian and signed by a Responsible Officer of the Servicer, the Company or
the related Custodian shall release the Related Documents to the Servicer. If
such Mortgage Loans shall be liquidated and the Company or the
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related Custodian receives a certificate from the Servicer as provided above,
then, upon request of the Company or the related Custodian shall release the
trust receipt to the Servicer.
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS. With respect
to such of the Mortgage Loans as come into and continue in default, the Servicer
will decide whether to foreclose upon the Mortgaged Properties securing such
Mortgage Loans or write off the unpaid principal balance of the Mortgage Loans
as bad debt; PROVIDED that if the Servicer has actual knowledge that any
Mortgaged Property is affected by hazardous or toxic wastes or substances and
that the acquisition of such Mortgaged Property would not be commercially
reasonable, then the Servicer will not cause the Company to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities; PROVIDED that the Servicer shall not be liable in
any respect hereunder if the Servicer is acting in connection with any such
foreclosure or attempted foreclosure which is not completed or other conversion
in a manner that is consistent with the provisions of this Servicing Agreement.
The foregoing is subject to the proviso that the Servicer shall not be required
to expend its own funds in connection with any foreclosure or attempted
foreclosure which is not completed or towards the correction of any default on a
related senior mortgage loan or restoration of any property unless it shall
determine that such expenditure will increase Net Liquidation Proceeds. In the
event of a determination by the Servicer that any such expenditure previously
made pursuant to this Section 3.07 will not be reimbursable from Net Liquidation
Proceeds, the Servicer shall be entitled to reimbursement of its funds so
expended pursuant to Section 3.03.
Notwithstanding any provision of this Servicing Agreement, a Mortgage
Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Servicer to be received in connection with the related defaulted
Mortgage Loan have been received; PROVIDED, HOWEVER, any subsequent collections
with respect to any such Mortgage Loan shall be deposited to the Collection
Account. For purposes of determining the amount of any Liquidation Proceeds or
Insurance Proceeds, or other unscheduled collections, the Servicer may take into
account minimal amounts of additional receipts expected to be received or any
estimated additional liquidation expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Company and the Indenture Trustee as their interests may
appear, or to their respective nominee on behalf of Securityholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Company until such time as such property shall be sold. Consistent
with the foregoing for purposes of all calculations hereunder, so long as such
Mortgaged Property shall be considered to be an outstanding Mortgage Loan it
shall be assumed that, notwithstanding that the indebtedness evidenced by the
related Mortgage Note shall have been discharged, such Mortgage Note in effect
at the time of any such acquisition of title before any adjustment thereto by
reason of any
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bankruptcy or similar proceeding or any moratorium or similar waiver or grace
period will remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Mortgage Loan pursuant to the terms of this Servicing Agreement, as well
as any recovery resulting from a collection of Liquidation Proceeds or Insurance
Proceeds, will be applied in the following order of priority: first, to
reimburse the Servicer or the related Subservicer in accordance with Section
3.07; second, to all Servicing Fees payable therefrom; third, to the extent of
accrued and unpaid interest on the related Mortgage Loan, at the Net Mortgage
Rate to the Due Date prior to the Payment Date on which such amounts are to be
deposited in the Payment Account; fourth, as a recovery of principal on the
Mortgage Loan; and fifth, to Foreclosure Profits.
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE. On or before
each Payment Date, the Servicer will notify the Indenture Trustee or the
relevant Custodian, with a copy to the Company, of the termination of or the
payment in full and the termination of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification in
substantially the form attached hereto as Exhibit C (which certification shall
include a statement to the effect that all amounts received in connection with
such payment which are required to be deposited in the Collection Account
pursuant to Section 3.02 have been so deposited or credited) of a Servicing
Officer. Upon receipt of payment in full, the Servicer is authorized to execute,
pursuant to the authorization contained in Section 3.01, if the assignments of
Mortgage have been recorded as required under the Mortgage Loan Purchase
Agreement, an instrument of satisfaction regarding the related Mortgage, which
instrument of satisfaction shall be recorded by the Servicer if required by
applicable law and be delivered to the Person entitled thereto. It is understood
and agreed that any expenses incurred in connection with such instrument of
satisfaction or transfer shall be reimbursed from amounts deposited in the
Collection Account. From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Indenture Trustee or the relevant
Custodian shall, upon request of the Servicer and delivery to the Indenture
Trustee or relevant Custodian, with a copy to the Company, of a Request for
Release, in the form annexed hereto as Exhibit D, signed by a Servicing Officer,
release or cause to be released the related Mortgage File to the Servicer and
the Company and Indenture Trustee shall promptly execute such documents, in the
forms provided by the Servicer, as shall be necessary for the prosecution of any
such proceedings or the taking of other servicing actions. Such trust receipt
shall obligate the Servicer to return the Mortgage File to the Indenture Trustee
or the related Custodian (as specified in such receipt) when the need therefor
by the Servicer no longer exists unless the Mortgage Loan shall be liquidated,
in which case, upon receipt of a certificate of a Servicing Officer similar to
that hereinabove specified, the trust receipt shall be released to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions of the Mortgage Loan Purchase
Agreement, the Company shall, if so requested in writing by the Servicer,
promptly execute an appropriate assignment in the form provided by the Servicer
to assign such Mortgage Loan for the purpose of collection to the Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required
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actions in its own name and otherwise enforce the terms of the Mortgage Loan and
deposit or credit the Net Liquidation Proceeds, exclusive of Foreclosure
Profits, received with respect thereto in the Collection Account. In the event
that all delinquent payments due under any such Mortgage Loan are paid by the
Mortgagor and any other defaults are cured then the assignee for collection
shall promptly reassign such Mortgage Loan to the Company and return all Related
Documents to the place where the related Mortgage File was being maintained.
In connection with the Company's obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Company to authorize or permit any actions to be taken with respect to the
Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Collateral in
the Company, expressly agrees, on behalf of the Company, to take all such
actions on behalf of the Company and to promptly execute and return all
instruments reasonably required by the Servicer in connection therewith;
PROVIDED that if the Servicer shall request a signature of the Indenture
Trustee, on behalf of the Company, the Servicer will deliver to the Indenture
Trustee an Officer's Certificate stating that such signature is necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Servicing Agreement.
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. The Servicer shall be entitled to receive the Servicing Fee in
accordance with Section 3.03 as compensation for its services in connection with
servicing the Mortgage Loans. Moreover, additional servicing compensation in the
form of late payment charges and certain other receipts not required to be
deposited in the Collection Account as specified in Section 3.02 shall be
retained by the Servicer. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
all other fees and expenses not expressly stated hereunder to be for the account
of the Securityholders, including, without limitation, the fees and expenses of
the Administrator, Owner Trustee, Indenture Trustee and any Custodian) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. (a) The Servicer will
deliver to the Company, the Issuer and the Indenture Trustee, with a copy to the
Credit Enhancer, on or before ________ of each year, beginning ________, ____,
an Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material obligations under this Servicing Agreement in all
material respects throughout such fiscal year, or, if there has been a material
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof and (iii) to the best of
such officer's knowledge, based on consultation with counsel, any continuation
Uniform Commercial Code financing statement or other Uniform Commercial Code
financing statement during the preceding fiscal year which the Servicer
determined was necessary to be filed was filed in order to continue protection
of the interest of the Company in the Mortgage Loans. In addition, the Servicer
shall deliver or cause each Subservicer to deliver to the Indenture Trustee, the
Company, the Issuer, the Depositor and the Credit Enhancer a copy of each
certification, accountant's report or other document upon which the foregoing
Officer's Certificate is based with respect to such Subservicer's performance.
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(b) The Servicer shall deliver to the Company, the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicer of Default.
Section 3.11. ANNUAL SERVICING REPORT. On or before ________ of each
year, beginning ________, ____, the Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Company, the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans by the Servicer during the most recent
calendar year then ended under servicing agreements (including this Servicing
Agreement) substantially similar to this Servicing Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Servicing Agreement which, in the
opinion of such firm, are material, except for such items of noncompliance as
shall be set forth in such report. In rendering such statement, such firm may
rely, as to matters relating to direct servicing of mortgage loans by
Subservicers, upon comparable statements for examinations conducted
substantially in the manner described above (rendered within one year of such
statement) of independent public accountants with respect to the related
Subservicer. For purposes of such statement, such firm may conclusively assume
that all servicing agreements among the Company and the Servicer relating to
home equity mortgage loans are substantially similar one to another except for
any such servicing agreement which, by its terms, specifically states otherwise.
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. Whenever required by statute or regulation, the Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator for a Securityholder) or the Indenture Trustee, reasonable
access to the documentation regarding the Mortgage Loans such access being
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer. Nothing in this Section 3.12
shall derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.12 as a result
of such obligation shall not constitute a breach of this Section 3.12.
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall be at least equal to the coverage that would be required by FNMA or
FHLMC, whichever is greater, for Persons performing servicing for mortgage loans
purchased by such entity.
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Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any mortgaged property for each year beginning in ____, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) on behalf of the
Company, acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Mortgage Loan,
or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Servicer or Subservicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section 6050J
and Section 6050H (reports relating to mortgage interest received) of the Code.
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.
Notwithstanding any provision in Section 3.07 to the contrary, the Servicer may
repurchase any Mortgage Loan delinquent in payment for a period of 60 days or
longer for a price equal to the Repurchase Price.
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ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS. (a) With respect to each
Payment Date, the Servicer shall forward to the Indenture Trustee and the
Indenture Trustee pursuant to Section 3.26 of the Indenture shall forward or
cause to be forwarded by mail to each Certificateholder, Noteholder, the Credit
Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and
each Rating Agency, a statement setting forth the following information as to
the Notes and Certificates, to the extent applicable:
(i) the aggregate amount of (a) Security Interest
Collections with respect to the Notes and the Certificates, (b)
aggregate Security Principal Collections with respect to the Notes and
the Certificates and (c) Security Collections for the related
Collection Period with respect to the Notes and the Certificates;
(ii) the amount of such distribution to the
Securityholders of the Notes and the Certificates applied to reduce the
principal balance thereof and separately stating the portion thereof in
respect of the Accelerated Principal Distribution Amount and the amount
to be deposited in the Funding Account on such Payment Date;
(iii) the amount of such distribution to the
Securityholders of the Notes and the Certificates allocable to interest
and separately stating the portion thereof in respect of overdue
accrued interest;
(iv) the Credit Enhancement Draw Amount, if any, for such
Payment Date and the aggregate amount of prior draws thereunder not yet
reimbursed;
(v) the aggregate Principal Balance of (a) the ________
Loans, (b) the ______ Loans, (c) the _________ Loans, as of the end of
the preceding Collection Period and (d) all of the Mortgage Loans;
(vi) the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days, 90- 179 days and 180 or more
days, respectively and (b) that have become REO, in each case as of the
end of the preceding Collection Period; PROVIDED, HOWEVER, that such
information will not be provided on the statements relating to the
first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the
related Collection Period and the Weighted Average Net Mortgage Rate
for (a) the ________ Loans, (b) the _______Loans and (c) the _________
Loans for the related Collection Period;
(viii) the Special Capital Distribution Amount and the
Required Special Capital Distribution Amount, in each case as the end
of the related Collection Period; and
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(ix) the aggregate amount of Additional Loans acquired
during the previous Collection Period with amounts in respect of Net
Principal Collections from the Funding Account;
(x) the aggregate Liquidation Loss Amounts with respect
to the related Collection Period, the amount of any remaining Carryover
Loss Amount with respect to the Notes and Certificates, respectively,
and the aggregate of the Liquidation Loss Amounts from all Collection
Periods to date expressed as a percentage of the sum of (a) the Cut-Off
Date Pool Balance and (b) the amount by which the Pool Balance as of
the latest date that the Additional Loans have been transferred to the
Company exceeds the Cut-Off Date Pool Balance;
(xi) any unpaid interest on the Notes and Certificates,
respectively, after such Distribution Date;
(xii) the aggregate Principal Balance of each Class of
Notes and of the Certificates after giving effect to the distribution
of principal on such Payment Date;
(xiii) the respective Security Percentage applicable to the
Notes and Certificates, after application of payments made on such
Payment Date; and
(xiv) the amount distributed pursuant to Section
3.05(a)(xi) of the Indenture on such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate with a $1,000 denomination.
Prior to the close of business on the Business Day next succeeding each
Determination Date, the Servicer shall furnish a written statement to the
Company, the Owner Trustee, the Depositor, the Certificate Paying Agent and the
Indenture Trustee setting forth (i) all the foregoing information, (ii) the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account on the Business Day preceding the Payment
Date pursuant to Section 3.03 and (iii) the amounts (A) withdrawn from the
Payment Account and deposited to the Funding Account pursuant to Section 8.02(b)
of the Indenture and (B) withdrawn from the Funding Account and deposited to the
Collection Account pursuant to Section 8.02(c)(i) of the Indenture. The
determination by the Servicer of such amounts shall, in the absence of obvious
error, be presumptively deemed to be correct for all purposes hereunder and the
Owner Trustee and Indenture Trustee shall be protected in relying upon the same
without any independent check or verification. In addition, upon the Company's
written request, the Servicer shall promptly furnish information reasonably
requested by the Company that is reasonably available to the Servicer to enable
the Company to perform its federal and state income tax reporting obligations.
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ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT. The Servicer shall establish and
maintain a separate trust account (the "Distribution Account") titled "Southern
Pacific MBN Trust Series 199_-_, [for the benefit of the Noteholders, the
Certificateholders and the Credit Enhancer pursuant to the Indenture, dated as
of _______________, between Southern Pacific MBN Trust Series 199_- _ and [Name
of Indenture Trustee]. The Distribution Account shall be an Eligible Account. On
the Business Day prior to each Payment Date, (i) amounts deposited into the
Distribution Account pursuant to Section 3.03(i) hereof will be distributed by
the Servicer in accordance with Section ____ of the [Trust] Agreement, and (ii)
the portion of such amounts then distributable with respect to the Mortgage
Collateral shall be deposited into the Payment Account. [The Servicer shall
invest or cause the institution maintaining the Distribution Account to invest
the funds in the Distribution Account in Eligible Investments designated in the
name of the [Servicer], which shall mature not later than the Business Day next
preceding the Payment Date next following the date of such investment (except
that (i) any investment in the institution with which the Distribution Account
is maintained may mature on such Payment Date and (ii) any other investment may
mature on such Payment Date if the Servicer shall advance funds on such Payment
Date to the Payment Account in the amount payable on such investment on such
Payment Date, pending receipt thereof to the extent necessary to make
distributions on the Securities) and shall not be sold or disposed of prior to
maturity. All income and gain realized from any such investment shall be for the
benefit of the Servicer and shall be subject to its withdrawal or order from
time to time. The amount of any losses incurred in respect of any such
investments shall be deposited in the Distribution Account by the Servicer out
of its own funds immediately as realized.]
Section 5.02. PAYMENT ACCOUNT. The Indenture Trustee shall establish
and maintain a separate trust account (the "Payment Account") titled
"__________________________________, as Indenture Trustee, for the benefit of
the Noteholders, the Certificate Paying Agent and the Credit Enhancer pursuant
to the Indenture, dated as of _______________, between Southern Pacific MBN
Trust Series 199_-__ and __________________________________". The Payment
Account shall be an Eligible Account. On each Payment Date, amounts on deposit
in the Payment Account will be distributed by the Indenture Trustee in
accordance with Section 3.05 of the Indenture. The Indenture Trustee shall, upon
written request from the Servicer, invest or cause the institution maintaining
the Payment Account to invest the funds in the Payment Account in Eligible
Investments designated in the name of the Indenture Trustee, which shall mature
not later than the Business Day next preceding the Payment Date next following
the date of such investment (except that (i) any investment in the institution
with which the Payment Account is maintained may mature on such Payment Date and
(ii) any other investment may mature on such Payment Date if the Indenture
Trustee shall advance funds on such Payment Date to the Payment Account in the
amount payable on such investment on such Payment Date, pending receipt thereof
to the extent necessary to make distributions on the Securities) and shall not
be sold or disposed of prior to maturity. All income and gain realized from any
such investment shall be for the benefit of the Servicer and shall be subject to
its withdrawal or order from time to time. The amount of any losses incurred in
respect of any such investments shall
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be deposited in the Payment Account by the Servicer out of its own funds
immediately as realized.
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ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER. Any corporation into which the Servicer may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer
shall be a party, or any corporation succeeding to the business of the Servicer,
shall be the successor of the Servicer, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
The Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
mortgage loans on behalf of FNMA or FHLMC, is reasonably satisfactory to the
Indenture Trustee (as pledgee of the Mortgage Collateral), the Company and the
Credit Enhancer, is willing to service the Mortgage Loans and executes and
delivers to the Indenture Trustee and the Company an agreement, in form and
substance reasonably satisfactory to the Credit Enhancer, the Indenture Trustee
and the Company, which contains an assumption by such Person of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED
further that each Rating Agency's rating of the Securities in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) or considered to be below
investment grade without taking into account the Credit Enhancement Instrument.
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Company, the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or by reason of its reckless disregard
of its obligations and duties hereunder. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Servicing Agreement or the Securities,
including any amount paid to the Owner Trustee or the Indenture Trustee pursuant
to Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or
expense shall
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be otherwise reimbursable pursuant to this Servicing Agreement) and any loss,
liability or expense incurred by reason of its willful misfeasance, bad faith or
gross negligence in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Servicer shall
not be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties to service the Mortgage Loans in
accordance with this Servicing Agreement, and which in its opinion may involve
it in any expense or liability; PROVIDED, HOWEVER, that the Servicer may in its
sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Servicing Agreement, and the rights and duties of
the parties hereto and the interests of the Securityholders hereunder. In such
event, the reasonable legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Company, and
the Servicer shall be entitled to be reimbursed therefor. The Servicer's right
to indemnity or reimbursement pursuant to this Section 6.03 shall survive any
resignation or termination of the Servicer pursuant to Section 6.04 or 7.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination).
Section 6.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Servicing Agreement or (ii) upon satisfaction of the following conditions: (a)
the Servicer has proposed a successor servicer to the Company, the Administrator
and the Indenture Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Company, the Administrator, the Indenture Trustee
and the Credit Enhancer; (b) each Rating Agency shall have delivered a letter to
the Company, the Credit Enhancer and the Indenture Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Securities; and (c) such
proposed successor servicer is reasonably acceptable to the Credit Enhancer, as
evidenced by a letter to the Company and the Indenture Trustee; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Collateral, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Collateral, shall have designated a successor servicer in
accordance with Section 7.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 7.01
and 7.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Securityholder or the Credit Enhancer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Credit Enhancer.
Section 6.05. DELEGATION OF DUTIES. In the ordinary course of
business, the Servicer at any time may delegate any of its duties hereunder to
any Person, including any of its Affiliates,
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who agrees to conduct such duties in accordance with standards comparable to
those with which the Servicer complies pursuant to Section 3.01. Such delegation
shall not relieve the Servicer of its liabilities and responsibilities with
respect to such duties and shall not constitute a resignation within the meaning
of Section 6.04.
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION. (a) The Servicer covenants and agrees to pay
to the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by each of them in the execution of
the trusts created under the Trust Agreement and the Indenture and in the
exercise and performance of any of the powers and duties under the Trust
Agreement or the Indenture, as the case may be, of the Owner Trustee, the
Indenture Trustee and any co-trustee, and the Servicer will pay or reimburse the
Indenture Trustee and any co-trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee or any
co-trustee in accordance with any of the provisions of this Servicing Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the
Owner Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as
the case may be, harmless against, any loss, liability or expense incurred
without negligence or willful misconduct on its part, arising out of, or in
connection with, the acceptance and administration of the Company and the assets
thereof, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture
Trustee or Owner Trustee, as the case may be, shall have given the
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Company, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Servicer in preparing such
defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Servicer shall not be liable for
settlement of any claim by the Indenture Trustee or the Owner Trustee,
as the case may be, entered into without the prior consent of the
Servicer, which consent shall not be unreasonably withheld.
No termination of this Servicing Agreement shall affect the obligations created
by this Section 6.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the conditions and to the extent set forth herein.
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 6.06(b) shall not pertain to any loss, liability or
expense of the Indenture Trustee or the
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Owner Trustee, including the costs and expenses of defending itself against any
claim, incurred in connection with any actions taken by the Indenture Trustee or
the Owner Trustee at the direction of the Noteholders or Certificateholders, as
the case may be, pursuant to the terms of this Servicing Agreement.
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ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default")shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account, the Funding Account or Payment Account any deposit
required to be made under the terms of this Servicing Agreement which
continues unremedied for a period of five Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the
Credit Enhancer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in the Securities or in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Securityholders or the Credit Enhancer and
which continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Company, the
Issuer or the Indenture Trustee or to the Servicer, the Company, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Servicer and such decree or order shall have
remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(v) Any failure by the Seller (so long as the Seller is
the Servicer) or the Servicer, as the case may be, to pay when due any
amount payable by it under the
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terms of the Insurance Agreement which continues unremedied for a
period of three (3) Business Days after the date upon which written
notice of such failure shall have been given to the Seller (so long as
the Seller is the Servicer) or the Servicer, as the case may be; or
(vi) Failure on the part of the Seller or the Servicer
to duly perform in any material respect any covenant or agreement set
forth in the Insurance Agreement, which failure in each case materially
and adversely affects the interests of the Credit Enhancer and
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Depositor, the Indenture Trustee, the
Seller or the Servicer, as the case may be, by the Credit Enhancer.
then, and in every such case, other than that set forth in (vi) hereof, so long
as a Servicing Default shall not have been remedied by the Servicer, either the
Company, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Collateral, with the consent of the Credit Enhancer, or the Credit
Enhancer, by notice then given in writing to the Servicer (and to the Company
and the Issuer if given by the Credit Enhancer) and in the case of the event set
forth in (vi) hereof, the Credit Enhancer with the consent of Securityholders at
least 51% of the aggregate Principal Balance of the Notes and the Certificates
may terminate all of the rights and obligations of the Servicer as servicer
under this Servicing Agreement other than its right to receive servicing
compensation and expenses for servicing the Mortgage Loans hereunder during any
period prior to the date of such termination and the Company, subject to the
direction of the Indenture Trustee as pledgee of the Mortgage Collateral, with
the consent of the Credit Enhancer, or the Credit Enhancer may exercise any and
all other remedies available at law or equity. Any such notice to the Servicer
shall also be given to each Rating Agency, the Credit Enhancer, the Company and
the Issuer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Servicing Agreement, whether with
respect to the Securities or the Mortgage Loans or otherwise, shall pass to and
be vested in the Company, subject to the direction of the Indenture Trustee as
pledgee of the Mortgage Collateral, pursuant to and under this Section 7.01;
and, without limitation, the Company is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of each
Mortgage Loan and related documents, or otherwise. The Servicer agrees to
cooperate with the Company in effecting the termination of the responsibilities
and rights of the Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans that shall at the time be held by the
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or if
the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon
presentation of reasonable documentation of such costs and expenses.
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Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.03 and 3.09 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(i) or under Section 7.01(ii) after the applicable grace
periods specified in such Sections, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes. The preceding sentence shall not relieve
the Servicer from using reasonable efforts to perform its respective obligations
in a timely manner in accordance with the terms of this Servicing Agreement and
the Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee, the Credit Enhancer and the Owner
Trustee in writing of any Servicer Default.
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee
on behalf of the Noteholders shall be the successor in all respects to the
Servicer in its capacity as servicer under this Servicing Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof. Nothing in this Servicing Agreement or in
the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Servicer in its capacity as Seller under the Mortgage Loan Purchase
Agreement, (ii) be responsible or accountable for any act or omission of the
Servicer prior to the issuance of a notice of termination hereunder, (iii)
require or obligate the Indenture Trustee, in its capacity as successor
Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any
losses on any Eligible Investment directed by any other Servicer, or (v) be
responsible for the representations and warranties of the Servicer. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee on behalf
of the Mortgage Collateral holders may (in the situation described in clause
(i)) or shall (in the situation described in clause (ii)) appoint or petition a
court of competent jurisdiction to appoint any established housing and home
finance institution, bank or other mortgage loan or home equity loan servicer
having a net worth of not less than $10,000,000 as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder; PROVIDED that any such successor
Servicer shall be acceptable to the Credit Enhancer, as evidenced by the Credit
Enhancer's prior written consent which consent shall not be unreasonably
withheld and provided further that the appointment of any such successor
Servicer will not result in the qualification,
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reduction or withdrawal of the ratings assigned to the Securities by the Rating
Agencies. Pending appointment of a successor to the Servicer hereunder, unless
the Indenture Trustee is prohibited by law from so acting, the Indenture Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Mortgage Loans in an amount equal to the
compensation which the Servicer would otherwise have received pursuant to
Section 3.09 (or such lesser compensation as the Indenture Trustee and such
successor shall agree). The appointment of a successor Servicer shall not affect
any liability of the predecessor Servicer which may have arisen under this
Servicing Agreement prior to its termination as Servicer (including, without
limitation, the obligation to purchase Mortgage Loans pursuant to Section 3.01,
to pay any deductible under an insurance policy pursuant to Section 3.04 or to
indemnify the Indenture Trustee pursuant to Section 6.06), nor shall any
successor Servicer be liable for any acts or omissions of the predecessor
Servicer or for any breach by such Servicer of any of its representations or
warranties contained herein or in any related document or agreement. The
Indenture Trustee and such successor shall take such action, consistent with
this Servicing Agreement, as shall be necessary to effectuate any such
succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Noteholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Securityholders, (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Servicer is so required pursuant to Section
3.13.
(c) Any successor Servicer, including the Indenture Trustee on behalf
of the Mortgage Collateral holders, shall not be deemed in default or to have
breached its duties hereunder if the predecessor Servicer shall fail to deliver
any required deposit to the Collection Account or otherwise cooperate with any
required servicing transfer or succession hereunder.
Section 7.03. NOTIFICATION TO SECURITYHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII or
Section 6.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders, the Credit Enhancer, the Company, the Issuer and each
Rating Agency.
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ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities and the
consent of the Credit Enhancer and the Indenture Trustee.
Section 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 8.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Servicer, [Name and Address of Servicer], (b) in the
case of the Credit Enhancer, ________________, ________, ______________,
Attention: _________________, ___________________________, (c) in the case of
[Moody's, ___________, 4th Floor, 99 Church Street, New York, New York 10007],
(d) in the case of [Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance Group], (e) in the case
of the Owner Trustee, the Corporate Trust Office, and (f) in the case of the
Issuer, to Southern Pacific MBN Trust Series 199_-__, c/o
______________________, __________________, __________, ______________,
Attention: __________________________, with a copy to the Administrator at
______________ or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party. [Any notice
required or permitted to be mailed to a Securityholder shall be given by first
class mail, postage prepaid, at the address of such Securityholder as shown in
the Register. Any notice so mailed within the time prescribed in this Servicing
Agreement shall be conclusively presumed to have been duly given, whether or not
the Securityholder receives such notice. Any notice or other document required
to be delivered or mailed by the Indenture Trustee to any Rating Agency shall be
given on a reasonable efforts basis and only as a matter of courtesy and
accommodation and the Indenture Trustee shall have no liability for failure to
delivery such notice or document to any Rating Agency.]
Section 8.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.
Section 8.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee, the Indenture Trustee
and their respective successors and permitted assigns.
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Except as otherwise provided in this Servicing Agreement, no other Person will
have any right or obligation hereunder.
Section 8.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS. The respective obligations and responsibilities of the
Servicer and the Company created hereby shall terminate upon the last action
required to be taken by the Issuer pursuant to the Trust Agreement and by the
Indenture Trustee pursuant to the Indenture following the earlier of:
(i) the date on or before which the Indenture or Trust
Agreement is terminated, or
(ii) the purchase by the Servicer from the Company of all Mortgage
Loans and all property acquired in respect of any Mortgage Loan at a
price equal to the greater of (a) 100% of the unpaid Principal Balance
of each Mortgage Loan, plus accrued and unpaid interest thereon at the
Weighted Average Net Mortgage Rate up to the day preceding the Payment
Date on which such amounts are to be distributed to Securityholders,
plus any amounts due and owing to the Credit Enhancer under the
Insurance Agreement and (b) the fair market value of the Mortgage Loans
as determined by two bids from competitive participants in the
adjustable home equity loan market.
The right of the Servicer to purchase the assets of the Company pursuant to
clause (ii) above is conditioned upon the Pool Balance as of the Final Scheduled
Payment Date being less than ten percent of the aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans. If such right is exercised by the
Servicer, the Servicer shall deposit the amount calculated pursuant to clause
(ii) above with the Indenture Trustee pursuant to Section 4.10 of the Indenture
and, upon the receipt of such deposit, the Indenture Trustee or relevant
Custodian shall release to the Servicer, the files pertaining to the Mortgage
Loans being purchased.
The Servicer, at its expense, shall prepare and deliver to the
Indenture Trustee and the Owner Trustee for execution, at the time the Mortgage
Loans are to be released to the Servicer, appropriate documents assigning each
such Mortgage Loan from the Company to the Servicer or the appropriate party.
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
31
<PAGE>
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Agreement acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.]
32
<PAGE>
IN WITNESS WHEREOF, the Servicer and the Company have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
[NAME OF SERVICER],
as Servicer
----------------------------------
By
Title:
SOUTHERN PACIFIC SECURED ASSETS CORP.
as Company
By_________________________________
Title:
<PAGE>
EXHIBIT D
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Collateral, we request
the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: / / Promissory Note
/ / Primary Insurance Policy
/ / Mortgage or Deed of Trust
/ / Assignment(s) of Mortgage or
Deed of Trust
/ / Title Insurance Policy
/ / Other: ___________________________
___________________________
Name
___________________________
Title
___________________________
Date
EXHIBIT 4.4
-----------
================================================================================
SOUTHERN PACIFIC SECURED ASSETS CORP.
as Depositor
and
______________________,
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of ________________
------------------------------------------
$_________ Mortgage-Backed Certificates,
Series 199_-__
<PAGE>
Table of Contents
Section Page
ARTICLE I
DEFINITIONS
............................................................................. 1
1.01. DEFINITIONS .................................................... 1
1.02. OTHER DEFINITIONAL PROVISIONS .................................. 1
ARTICLE II
ORGANIZATION
.............................................................................. 3
2.01. NAME ........................................................... 3
2.02. OFFICE ......................................................... 3
2.03. PURPOSES AND POWERS ............................................ 3
2.04. APPOINTMENT OF OWNER TRUSTEE ................................... 3
2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE ............. 4
2.06. DECLARATION OF TRUST ........................................... 4
2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES .................... 4
2.08. TITLE TO TRUST PROPERTY ........................................ 4
2.09. SITUS OF TRUST ................................................. 5
2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR ................ 5
2.11. PAYMENT OF TRUST FEES .......................................... 6
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
.............................................................................. 7
3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL .......................... 7
3.02. INITIAL OWNERSHIP .............................................. 7
3.03. THE CERTIFICATES ............................................... 7
3.04. AUTHENTICATION OF CERTIFICATES ................................. 7
3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF
CERTIFICATES ................................................... 8
3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES .............. 9
3.07. PERSONS DEEMED CERTIFICATEHOLDERS .............................. 10
3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES ...... 10
3.09. MAINTENANCE OF OFFICE OR AGENCY ................................ 10
3.10. CERTIFICATE PAYING AGENT ....................................... 10
3.11. OWNERSHIP ...................................................... 12
ARTICLE IV
i
<PAGE>
Section Page
AUTHORITY AND DUTIES OF OWNER TRUSTEE
............................................................................. 13
4.01. GENERAL AUTHORITY .............................................. 13
4.02. GENERAL DUTIES ................................................. 13
4.03. ACTION UPON INSTRUCTION ........................................ 13
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN
INSTRUCTIONS ................................................... 14
4.05. RESTRICTIONS ................................................... 14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS ........................................................ 14
4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS ... 15
4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY ........ 15
4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER ...................... 15
4.10. MAJORITY CONTROL ............................................... 16
ARTICLE V
APPLICATION OF TRUST FUNDS
............................................................................. 17
5.01. DISTRIBUTIONS .................................................. 17
5.02. METHOD OF PAYMENT .............................................. 17
5.03. SIGNATURE ON RETURNS ........................................... 17
5.04. STATEMENTS TO CERTIFICATEHOLDERS ............................... 18
5.05. TAX REPORTING; TAX ELECTIONS ................................... 18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
............................................................................. 19
6.01. ACCEPTANCE OF TRUSTS AND DUTIES ................................ 19
6.02. FURNISHING OF DOCUMENTS ........................................ 20
6.03. REPRESENTATIONS AND WARRANTIES ................................. 20
6.04. RELIANCE; ADVICE OF COUNSEL .................................... 21
6.05. NOT ACTING IN INDIVIDUAL CAPACITY .............................. 21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED DOCUMENTS . 21
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES ................... 22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
............................................................................. 23
7.01. OWNER TRUSTEE'S FEES AND EXPENSES .............................. 23
7.02. INDEMNIFICATION ................................................ 23
ARTICLE VIII
ii
<PAGE>
TERMINATION OF TRUST AGREEMENT
............................................................................. 25
8.01. TERMINATION OF TRUST AGREEMENT ................................. 25
8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE DESIGNATED
CERTIFICATE .................................................... 26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
............................................................................. 27
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE ..................... 27
9.02. REPLACEMENT OF OWNER TRUSTEE ................................... 27
9.03. SUCCESSOR OWNER TRUSTEE ........................................ 28
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE ....................... 28
9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE .................. 28
ARTICLE X
MISCELLANEOUS
............................................................................. 30
10.01. AMENDMENTS ..................................................... 30
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE ........................... 31
10.03. LIMITATIONS ON RIGHTS OF OTHERS ................................ 31
10.04. NOTICES ........................................................ 31
10.05. SEVERABILITY ................................................... 32
10.06. SEPARATE COUNTERPARTS .......................................... 32
10.07. SUCCESSORS AND ASSIGNS ......................................... 32
10.08. NO PETITION .................................................... 32
10.9. NO RECOURSE .................................................... 32
10.10. HEADINGS ....................................................... 33
10.11. GOVERNING LAW .................................................. 33
10.12. INTEGRATION .................................................... 33
Signatures .............................................................. 40
EXHIBIT
Exhibit A - Form of Certificate..........................................A-1
Exhibit B - Certificate of Trust of Southern Pacific MBN Trust ..........B-1
Exhibit C - Form of Certificate of Non-Foreign Status....................C-1
Exhibit D - Form of Investment Letter....................................D-1
Exhibit E - Form of Investment Letter
iii
<PAGE>
for Certificates.........................................................E-1
iv
<PAGE>
This Trust Agreement, dated as of ________________ (as amended from
time to time, this "Trust Agreement"), between Southern Pacific Secured Assets
Corp., a Delaware corporation, as Depositor (the "Depositor") and
______________________, a Delaware ___________________, as Owner Trustee (the
"Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Depositor and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture. All other capitalized terms used herein
shall have the meanings specified herein.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation".
(d) The definitions contained in this Trust Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
<PAGE>
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
2
<PAGE>
ARTICLE II
ORGANIZATION
Section 2.01. NAME. The trust created hereby (the "Trust") shall be
known as "Southern Pacific MBN Trust Series 199_-_," in which name the Owner
Trustee may conduct the business of the Trust, make and execute contracts and
other instruments on behalf of the Trust and sue and be sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Notes and
the Certificates;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge and convey the
Mortgage Collateral pursuant to the Indenture and to hold, manage and
distribute to the Certificateholders pursuant to Section 5.01 any
portion of the Mortgage Collateral released from the Lien of, and
remitted to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith,
including, without limitation, to accept additional contributions of
equity that are not subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents [while any Note is outstanding and without regard to the Notes
and] [without the consent of __% of the Certificateholders].
Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
3
<PAGE>
Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the trust receipt of the Mortgage Collateral and a
Surety Note assigned to the Trust pursuant to Section 3.01, which shall
constitute the Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Trust Agreement constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for income and franchise tax purposes, the Trust shall be treated
as a corporation, with the assets of the corporation being the Owner Trust
Estate, the [equity interest in the corporation] being the Certificates and the
Notes being debt of the corporation and the provisions of this Agreement shall
be interpreted to further this intention. Except as otherwise provided in this
Trust Agreement, the rights of the Certificateholders will be those of [equity
owners of the Trust] formed under the Delaware [corporation law]. The parties
agree that, unless otherwise required by appropriate tax authorities, the Trust
will file or cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a corporation
for such tax purposes. Effective as of the date hereof, the Owner Trustee shall
have all rights, powers and duties set forth herein and in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES. (a) The
Holders of the Certificates shall be liable directly to and shall indemnify any
injured party for all losses, claims, damages, liabilities and expenses of the
Trust (including Expenses, to the extent not paid out of the Owner Trust Estate)
to the extent that the Holders of the Certificates would be liable if the Trust
were a corporation under [Delaware corporate law]; provided, however, that the
Holders of the Certificates shall not be liable for payments required to be made
on the Notes or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a
Noteholder in the capacity of an investor in the Notes. The Holders of the
Certificates shall be liable for any entity level taxes imposed on the Trust. In
addition, any third party creditors of the Trust, including the Credit Enhancer
(other than in connection with the obligations described in the preceding
sentence for which the Holders of the Certificates shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Holders of the Certificates under this paragraph shall be evidenced by the
Certificates.
(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. TITLE TO TRUST PROPERTY. Legal title to the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or
4
<PAGE>
trustees, in which case title shall be deemed to be vested in the Owner Trustee,
a co-trustee and/or a separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of ________. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware
or taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
________, and payments will be made by the Trust only from Delaware, New York or
________. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is duly organized and validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority to own its properties and to conduct
its business as such properties are currently owned and such business
is presently conducted.
(ii) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor.
(iii) The Depositor has the power and authority to execute
and deliver this Trust Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property
to be sold and assigned to and deposited with the Trust as part of the
Trust and the Depositor has duly authorized such sale and assignment
and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Trust Agreement have been
duly authorized by the Depositor by all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Trust Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
5
<PAGE>
Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee shall cause the
Administrator (i) to pay the Trust's fees and expenses incurred with respect to
the performance of the Trust's duties under the Indenture from amounts received
pursuant to Section 3.05(x) under the Indenture and (ii) to notify the
Certificate Paying Agent of such fees and expenses incurred thereunder.
6
<PAGE>
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
Section 3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL. The Depositor,
concurrently with the execution and delivery hereof, does hereby transfer,
convey, sell and assign to the Trust, on behalf of the Holders of the Notes and
the Certificates and the Credit Enhancer, without recourse, all its right, title
and interest in and to the Mortgage Collateral. The Depositor will also provide
the Trust with a Surety Note.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust of all of its right, title and interest in
and to the Mortgage Collateral. In the event that the transaction set forth
herein is not deemed to be a sale, the Depositor hereby grants to the Trust a
security interest in all of its right, title and interest in, to and under the
Owner Trust Estate, all distributions thereon and all proceeds thereof; and this
Trust Agreement shall constitute a security agreement under applicable law.
Section 3.02. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the conveyance
of the Mortgage Collateral pursuant to Section 3.01 and the issuance of the
Certificates, the Depositor shall be the sole Certificateholder.
Section 3.03. THE CERTIFICATES. The Certificates shall be issued in
minimum denominations of $[250,000] and in integral multiples of $10,000 in
excess thereof; except for one Certificate that may not be in an integral
multiple of $10,000; provided, however, that the Designated Certificate issued
pursuant to Section 3.11 may be issued in the amount of $_________. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. Concurrently with the
acquisition of the Mortgage Collateral by the Trust, the Owner Trustee shall
cause the Certificates in an aggregate principal amount equal to the Initial
Principal Balance of the Certificates to be executed on
7
<PAGE>
behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, without further corporate action by the Depositor, in authorized
denominations. No Certificate shall entitle its holder to any benefit under this
Trust Agreement or be valid for any purpose unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A, executed by the Owner Trustee or ____________________, by manual
signature; such authentication shall constitute conclusive evidence that such
Certificate shall have been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.09, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the [Owner
Trustee] shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. _____________________________
shall be the initial Certificate Registrar. If the Certificate Registrar resigns
or is removed, the Owner Trustee shall appoint a successor Certificate
Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Designated Certificate, upon
surrender for registration of transfer of any Certificate at the office or
agency maintained pursuant to Section 3.09, the Owner Trustee shall execute,
authenticate and deliver (or shall cause __________________________________ as
its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of NonForeign Status set forth in Exhibit C hereto.
No transfer of a Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate
8
<PAGE>
Registrar or the Depositor shall prior to such transfer require the transferee
to execute (i) (a) an investment letter (in substantially the form attached
hereto as Exhibit D) in form and substance reasonably satisfactory to the
Certificate Registrar and the Depositor certifying to the Trust, the Owner
Trustee, the Certificate Registrar and the Depositor that such transferee is a
"qualified institutional buyer" under Rule 144A under the Securities Act, or (b)
solely with respect to the Designated Certificate, an investment letter (in
substantially the form attached hereto as Exhibit E), acceptable to and in form
and substance reasonably satisfactory to the Certificate Registrar and the
Depositor, which investment letters shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar, the Servicer or the Depositor and (ii)
the Certificate of NonForeign Status (in substantially the form attached hereto
as Exhibit C) acceptable to and in form and substance reasonably satisfactory to
the Certificate Registrar and the Depositor, which certificate shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor. The Holder of a Certificate desiring to effect such transfer shall,
and does hereby agree to, indemnify the Trust, the Owner Trustee, the
Certificate Registrar, the Servicer and the Depositor against any liability that
may result if the transfer is not so exempt or is not made in accordance with
such federal and state laws.
No transfer of a Certificate shall be made unless the Certificate
Registrar shall have received either (i) a representation letter from the
proposed transferee of such Certificate to the effect that such proposed
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or Section 4975 of the Code, or a Person
acting on behalf of any such plan or using the assets of any such plan, which
representation letter shall not be an expense of the Trust, Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor or (ii) in the case of any
such certificate presented for registration in the name of an employee benefit
plan subject to the fiduciary responsibility provisions of ERISA, or Section
4975 of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan, or any other Person who is using the assets of any
such plan to effect such acquisition, an Opinion of Counsel, in form and
substance reasonably satisfactory to, and addressed and delivered to, the Trust,
the Certificate Registrar and the Depositor, to the effect that the purchase or
holding of such Certificate will not result in the assets of the Owner Trust
Estate being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
the Code, will not constitute or result in a prohibited transaction within the
meaning of Section 406 or Section 407 of ERISA or Section 4975 of the Code, and
will not subject the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor to any obligation or liability (including obligations or liabilities
under ERISA or Section 4975 of the Code) in addition to those explicitly
undertaken in this Trust Agreement which Opinion of Counsel shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or Depositor.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity as
may be required by them to save each of them harmless, then in the absence of
notice to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or ________________, as the Trust's
authenticating agent, shall authenticate and deliver,
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in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and denomination. In connection
with the issuance of any new Certificate under this Section 3.06, the Owner
Trustee or the Certificate Registrar may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this Section 3.06 shall
constitute conclusive evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Certificate Registrar shall furnish or cause to be furnished to
the Depositor or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Depositor or the
Owner Trustee, a list, in such form as the Depositor or the Owner Trustee, as
the case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. Each Holder, by receiving
and holding a Certificate, shall be deemed to have agreed not to hold any of the
Trust, the Depositor, the Holder of the Designated Certificate, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on
behalf of the Trust, shall maintain in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certificates and the
Basic Documents may be served. The Owner Trustee initially designates the
Corporate Trust Office of the Owner Trustee as its office for such purposes. The
Owner Trustee shall give prompt written notice to the Depositor, the Holder of
the Designated Certificate and the Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying
Agent shall make distributions to Certificateholders from the Certificate
Distribution Account on behalf of the Trust in accordance with the provisions of
the Certificates and Section 5.01 hereof from payments remitted to the
Certificate Paying Agent by the Indenture Trustee pursuant to Section 3.05 of
the Indenture. The Trust hereby appoints __________________ as Certificate
Paying Agent and _________________ hereby accepts such appointment and further
agrees that it will be bound by the provisions of this Trust Agreement relating
to the Certificate Paying Agent and shall:
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(i) hold all sums held by it for the payment of amounts
due with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the
Trust of which it has actual knowledge in the making of any payment
required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith pay to
the Owner Trustee on behalf of the Trust all sums so held in Trust by
such Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Trust all sums held
by it in trust for the payment of Certificates if at any time it ceases
to meet the standards required to be met by the Certificate Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any
Certificates of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection
therewith; and
(vi) deliver to the Owner Trustee a copy of the report
to Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
(b) The Trust may revoke such power and remove the Certificate Paying
Agent if the Administrator determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under this
Trust Agreement in any material respect. __________________ shall be permitted
to resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee; provided ________________ is also resigning as Paying Agent under the
Indenture at such time. In the event that ___________________ shall no longer be
the Certificate Paying Agent under this Trust Agreement and Paying Agent under
the Indenture, the Administrator shall appoint a successor to act as Certificate
Paying Agent (which shall be a bank or trust company) and which shall also be
the successor Paying Agent under the Indenture. The Administrator shall cause
such successor Certificate Paying Agent or any additional Certificate Paying
Agent appointed by the Administrator to execute and deliver to the Owner Trustee
an instrument to the effect set forth in this Section 3.10 as it relates to the
Certificate Paying Agent. The Certificate Paying Agent shall return all
unclaimed funds to the Trust and upon removal of a Certificate Paying Agent such
Certificate Paying Agent shall also return all funds in its possession to the
Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01 shall apply to the
Certificate Paying Agent to the extent applicable. Any reference in this
Agreement to the Certificate Paying Agent shall include any co-paying agent
unless the context requires otherwise.
(c) The Certificate Paying Agent shall establish and maintain with
itself a trust account (the "Certificate Distribution Account") in which the
Certificate Paying Agent shall,
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deposit, on the same day as it is received from the Indenture Trustee, each
remittance received by the Certificate Paying Agent with respect to payments
made pursuant to the Indenture. The Certificate Paying Agent shall make all
distributions of principal of and interest on the Certificates, from moneys on
deposit in the Certificate Distribution Account.
[Section 3.11. OWNERSHIP. The Certificates shall, for income and
franchise tax purposes, be treated as the equity interest of the Trust. The
Certificates shall not be transferred unless (a) the transferee shall be an
Affiliate of the Seller, unless the prior written consent of the Credit Enhancer
is obtained, which will not be unreasonably withheld, (b) the applicable
provisions of Section 3.05 are satisfied, (c) the Certificate Registrar receives
an Opinion of Counsel to the effect that the transfer of the Certificates shall
not cause the Trust to be subject to an entity level tax and (d) the Rating
Agencies shall consent to such transfer.]
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Trust hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Document if the Owner
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Credit Enhancer) requesting
instruction as to the course of action to be adopted, and to the extent the
Owner Trustee acts in good faith in accordance with any written instruction of
the
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Certificateholders received, the Owner Trustee shall not be liable on account of
such action to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS
OR IN INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee shall not take any
action (x) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (y) that, to the actual knowledge of the Owner Trustee, would
result in the Trust becoming taxable as a corporation for federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section 4.06.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel to the effect
that such transaction will not have any material adverse tax consequence to the
Trust or any Certificateholder and (b) such conveyance or transfer shall not
violate the provisions of Section 3.16(b) of the Indenture.
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
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Trustee in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of cash distributions due
and owing under the Mortgage Collateral) and the compromise of any action, claim
or lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Collateral);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Note Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, and with the consent of the Credit Enhancer, to (a)
remove the Administrator under the Administration Agreement pursuant to Section
8 thereof, (b) appoint a successor Administrator pursuant to Section 8 of the
Administration Agreement, (c) remove the Servicer under the Servicing Agreement
pursuant to Sections 7.01 and 8.05 thereof or (d) except as expressly provided
in the Basic Documents, sell the Mortgage Collateral after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Credit Enhancer.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Credit Enhancer and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction
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would be contrary to any obligation of the Trust or the Owner Trustee under this
Trust Agreement or any of the Basic Documents or would be contrary to Section
2.03, nor shall the Owner Trustee be obligated to follow any such direction, if
given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the outstanding Principal Balance of the Certificates. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Principal Balance of the Certificates at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture), as principal and the Certificate Distribution
Amount for such Payment Date. All distributions made pursuant to this Section
shall be made on a pro rata basis to the Certificateholders based on the
Certificate Principal Balances thereof; provided however that any amount on
deposit in the Certificate Distribution Account relating to a payment to the
Certificate Paying Agent pursuant to Section 3.05(xi) of the Indenture shall be
distributed solely to the Designated Certificate.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with this Section 5.01. The Certificate Paying Agent is hereby authorized and
directed to retain or cause to be retained from amounts otherwise distributable
to the Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Distribution Amount on the
Certificates shall be made on the basis of the actual number of days in an
Interest Period and a year assumed to consist of 360 days.
(d) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Noteholders.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
Certificates having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
Section 5.03. SIGNATURE ON RETURNS. The Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust.
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Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date,
the Certificate Paying Agent shall send to each Certificateholder the statement
or statements provided to the Owner Trustee and the Certificate Paying Agent by
the Servicer pursuant to Section 4.01 of the Servicing Agreement with respect to
such Distribution Date.
Section 5.05. TAX REPORTING; TAX ELECTIONS. The Holder of the
Certificate shall cause the Trust to file federal and state income tax returns
and information statements as a corporation for each of its taxable years.
Within 90 days after the end of each calendar year, the Holder of the Designated
Certificate shall cause the Trust to provide to each Certificateholder an
Internal Revenue Service "K-1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns. The Holder of the Designated Certificate
may from time to time make and revoke such tax elections with respect to the
Trust as it deems necessary or desirable in its sole discretion to carry out the
business of the Trust or the purposes of this Trust Agreement if permitted by
applicable law. Notwithstanding the foregoing, an election under Section 754 of
the Code shall not be made without the written consent of a majority in interest
of the Holders of the Certificates. The Holder of the Designated Certificate
shall serve as tax matters partner for the Trust.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct, negligence or bad
faith or negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Certificateholders;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, the Notes, the Certificates, other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Noteholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of
this Trust Agreement will not require the authorization, consent or approval of,
the giving of notice to, the filing or registration with, or the taking of any
other action with respect to, any governmental authority or agency;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Holder of the Designated Certificate, the Depositor,
Indenture Trustee or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Trust Agreement or the
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Basic Documents that are required to be performed by the Administrator under the
Administration Agreement, the Indenture Trustee under the Indenture or the
Seller under the Mortgage Loan Purchase Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner Trustee, 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;
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(e) The Owner Trustee 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 Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder;
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement;
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys , custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created ______________________
acts solely as Owner Trustee hereunder and not in its individual capacity, and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Trust Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the
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Notes, or of any Related Documents. The Owner Trustee shall at no time have any
responsibility or liability with respect to the sufficiency of the Owner Trust
Estate or its ability to generate the payments to be distributed to
Certificateholders under this Trust Agreement or the Noteholders under the
Indenture, including, the compliance by the Depositor or the Seller with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, or any action
of the Administrator, the Certificate Paying Agent, the Certificate Registrar or
the Indenture Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Depositor, the Seller, the
Certificate Paying Agent, the Certificate Registrar, the Administrator and the
Indenture Trustee in transactions with the same rights as it would have if it
were not Owner Trustee.
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents pursuant to Section 3.08 of the
Servicing Agreement.
Section 7.02. INDEMNIFICATION. The Holder of the Designated Certificate
shall indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Holder of the Designated Certificate shall not
be liable for or required to indemnify an Indemnified Party from and
against Expenses arising or resulting from the Owner Trustee's willful
misconduct, negligence or bad faith or as a result of any inaccuracy of
a representation or warranty contained in Section 6.03 expressly made
by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified
Party shall have given the Holder of the Designated Certificate written
notice thereof promptly after the Indemnified Party shall have actual
knowledge thereof;
(iii) while maintaining control over its own defense, the
Holder of the Designated Certificate shall consult with the Indemnified
Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Holder of the Designated Certificate shall not be liable
for settlement of any claim by an Indemnified Party entered into
without the prior consent of the Holder of the Designated Certificate
which consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Trust Agreement.
In the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection with
the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Holder of the Designated Certificate, which approval shall not
be unreasonably withheld.
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In addition, upon written notice to the Owner Trustee and with the consent of
the Owner Trustee which consent shall not be unreasonably withheld, the Holder
of the Designated Certificate has the right to assume the defense of any claim,
action or proceeding against the Owner Trustee.
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
Section 8.01. TERMINATION OF TRUST AGREEMENT. (a) This Trust Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in ____________, (iii) at the time provided in Section 8.02 or (iv) purchase by
the Servicer of all Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate as
described in Section 8.02, shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), none of the Depositor, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Credit Enhancer mailed within five Business Days of receipt of notice of
such termination from the Administrator, stating (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Certificate
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Payment Agent therein specified.
The Certificate Paying Agent shall give such notice to the Owner Trustee and the
Certificate Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Certificate Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certificates, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Trust Agreement. Any
funds remaining in the Certificate Distribution Account
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after exhaustion of such remedies shall be distributed by the Certificate Paying
Agent to the Holder of the Designated Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
Section 8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE
DESIGNATED CERTIFICATE. In the event that an Insolvency Event shall occur with
respect to the Holder of the Designated Certificate, this Trust Agreement and
the Trust shall be terminated in accordance with Section 8.01, 90 days after the
date of such Insolvency Event, unless, before the end of such 90- day period,
the Owner Trustee shall have received written instructions from (a) if no Credit
Enhancer Default shall have occurred and be continuing, Holders of Certificates
(other than the Holder of the Designated Certificate) representing more than 50%
of the Principal Balance of the Certificates (not including the Principal
Balance of the Designated Certificate), to the effect that such Holders
disapprove of the termination of the Trust or (b) if a Credit Enhancer Default
shall have occurred and be continuing, (i) each of the Holders of Certificates
and (ii) each of the Holders of the Notes, to the effect that such Holders
disapprove of the termination of the Trust. Promptly after the occurrence of any
Insolvency Event with respect to the Holder of the Designated Certificate (A)
the Holder of the Designated Certificate shall give the Indenture Trustee, the
Credit Enhancer and the Owner Trustee written notice of such Insolvency Event,
(B) the Owner Trustee shall, upon the receipt of such written notice from the
Holder of the Designated Certificate, give prompt written notice to the
Certificateholders of the occurrence of such event and (C) the Indenture Trustee
shall give prompt written notice of such event to the Noteholders; provided,
however, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a termination of the Trust pursuant to the
first sentence of this Section 8.02. Upon a termination pursuant to this
Section, the Owner Trustee shall direct the Indenture Trustee promptly to sell
the assets of the Trust (other than the Payment Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of any such
sale of the assets of the Trust shall be deposited to the Payment Account for
distribution in accordance with Section 5.04(b) of the Indenture.
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least Baa3 by [Moody's]. If
such corporation shall publish reports of condition at least annually pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section 9.01, the Owner Trustee shall resign immediately
in the manner and with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving 30
days prior written notice thereof to the Administrator, the Credit Enhancer and
the Depositor. Upon receiving such notice of resignation, the Administrator
shall promptly appoint a successor Owner Trustee with the consent of the Credit
Enhancer which will not be unreasonably withheld, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and to the successor Owner Trustee. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
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Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor Owner Trustee an instrument accepting such
appointment under this Trust Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Trust Agreement, with like effect as if originally named as Owner
Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Trust Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties and
obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator and
the Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or trustees, of all or any part of the Owner
Trust Estate, and to vest in such Person, in such capacity, such title to the
Trust or any part thereof and, subject to the other provisions of this Section,
such powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee
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under this Trust Agreement shall be required to meet the terms of eligibility as
a successor Owner Trustee pursuant to Section 9.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 9.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
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ARTICLE X
MISCELLANEOUS
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section [, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel to the Owner Trustee to the effect that such amendment (i)
complies with the provisions of this Section and (ii) will not cause the Trust
to be subject to an entity level tax].
(b) If the purpose of the amendment (as detailed therein) is to correct
any mistake, eliminate any inconsistency, cure any ambiguity or deal with any
matter not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Security and (B) an
Opinion of Counsel to the effect that such action will not adversely affect in
any material respect the interests of any Holders, and the consent of the Credit
Enhancer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding (i.e.
technical in nature), it shall not be necessary to obtain the consent of any
Holder, but the Owner Trustee shall be furnished with an Opinion of Counsel that
such amendment is necessary or helpful to prevent the imposition of such taxes
and is not materially adverse to any Holder and the consent of the Credit
Enhancer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change
any provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel to the effect that
such action will not adversely affect in any material respect the interests of
any Holders and (B) either (a) a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any security or (b) the consent of Holders of Certificates
evidencing a majority of the Principal Balance of the Certificates and the
Indenture Trustee; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Credit Enhancer, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates then
outstanding.
(e) If the purpose of the amendment is to provide for the holding of
any of the Certificates in book-entry form, it shall require the consent of
Holders of all such Certificates then outstanding; provided, that the Opinion of
Counsel specified in subparagraph (a) above shall not be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of any Holder, but the Owner Trustee shall be
furnished with (A) an Opinion of Counsel to the
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effect that such action will not adversely affect in any material respect the
interests of any Holders and (B) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security and the consent of the Credit Enhancer shall be
obtained.
(g) Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Credit Enhancer and each of the Rating Agencies. It shall not be necessary for
the consent of Certificateholders or the Indenture Trustee pursuant to this
Section 10.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Trust Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement
to which the Trust is a party, other than this Trust Agreement, the Owner
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
documents subject to such amendment and that all conditions precedent in the
Basic Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided beneficial interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Trust Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Depositor, the Holder of the Designated Certificate, the
Certificateholders, the Administrator, the Credit Enhancer and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Trust Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt , if
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to the Owner Trustee, addressed to the Corporate Trust Office; if to the
Depositor, addressed to Southern Pacific Secured Assets Corp., 20371 Irvine
Avenue, Suite 200, Santa Ana Heights, California 92707; Attention:
_________________; if to the Credit Enhancer, addressed to ___________,
Attention: _________________, if to the Rating Agencies, addressed to
________________________ Attention: __________or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust
shall also be delivered to the Depositor and the Administrator.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Credit Enhancer. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder.
[Section 10.08. NO PETITION. The Owner Trustee, by entering into this
Trust Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Notes, this Trust Agreement or any of the Basic Documents.]
Section 10.9. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Holder of the Designated Certificate, the
Seller, the Administrator, the Owner Trustee, the Indenture Trustee or any
Affiliate thereof and no recourse may be had against such parties or their
assets, except
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as may be expressly set forth or contemplated in this Trust Agreement, the
Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
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IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
Southern Pacific BROTHERS MORTGAGE
SECURITIES VII, INC.
By:______________________________________
Name:
Title:
______________________, not in its individual
capacity but solely as Owner
Trustee,
By:______________________________________
Name:
Title:
Acknowledged and Agreed:
_____________________________________
__________, as Certificate
Registrar and Certificate
Paying Agent
By:______________________________________
Name:
Title:
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EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI-
CATE REGISTRAR SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN
STATUS CERTIFYING AS TO THE TRANSFEREE'S STATUS AS A U.S. PERSON OR
CORPORATION UNDER U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE SELLER, THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE,
<PAGE>
OR THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT
AS EXPRESSLY PROVIDED IN THE TRUST AGREEMENT OR THE BASIC
DOCUMENTS.
A-2
<PAGE>
Certificate No.
Original principal amount ("Denomination") of this Certificate:
$___________
Aggregate Denominations of all Certificates: $
Pass-Through Rate: Floating
Cut-Off Date:
First Payment Date
___________, ____
CUSIP NO. __________
Southern Pacific MBN Trust Series 199_-_
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Collateral in
_________________________, a corporation sold by
Southern Pacific Secured Assets Corp., AS DEPOSITOR
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the Southern Pacific MBN Trust Series
199_-_ (the "Trust").
The Trust was created pursuant to an Trust Agreement dated as of
________________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ______________________, as owner trustee
(as amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder is bound.
This Certificate is one of a duly authorized issue of Mortgage-Backed
Certificates, Series 199_-__ (herein called the "Certificates") issued under the
Trust Agreement to which reference is hereby made for a statement of the
respective rights thereunder of the Depositor, the Owner Trustee and the Holders
of the Certificates and the terms upon which the Certificates are executed and
delivered. All terms used in this Certificate which are defined in the Trust
Agreement shall have the meanings assigned to them in the Trust Agreement. The
Owner Trust Estate consists of the Mortgage Collateral in the Southern Pacific
MBN Trust Series 199_-____ and a Surety Note. The rights of the Holders of the
Certificates are subordinated to the rights of the Holders of the Notes, as set
forth in the [Indenture].
A-3
<PAGE>
There will be distributed on the [twentieth] day of each month or, if
such [twentieth] day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in _____________, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Indenture, dated as of _________,
____, between the Trust and __________________________________, as Indenture
Trustee (the "Indenture").
It is the intent of the Depositor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a corporation. The
Depositor and each Certificateholder, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a corporation.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-4
<PAGE>
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
SOUTHERN PACIFIC MBN TRUST
SERIES 19__-_
by _____________________, not in its
individual capacity but solely as Owner
Trustee
Dated: ___________________________
Authorized Signatory
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
______________________,
not in its individual capacity
but solely as Owner Trustee
By:______________________________
Authorized Signatory
or __________________________________,
as Authenticating Agent of the Trust
By:______________________________
Authorized Signatory
A-6
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Collateral, all as more specifically set forth herein. A copy of the
Trust Agreement may be examined by any Certificateholder upon written request
during normal business hours at the principal office of the Depositor and at
such other places, if any, designated by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Credit Enhancer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and will not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Security. If the purpose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Security is outstanding, it shall not be necessary to obtain the
consent of the any Holder, but the Owner Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Holder. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require either (a) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security or (b) the consent of Holders of the Certificates
evidencing a majority of the Percentage Interests of the Certificates and the
Indenture Trustee; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of, or delay the time of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment without the
consent of the Holders of all such Certificates then outstanding.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is __________________________________.
A-7
<PAGE>
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $10,000 and in integral multiples of
$10,000 in excess thereof, except for one Certificate that may not be in an
integral multiple of $10,000. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ____________, or (iii) upon the bankruptcy or insolvency of the Holder of the
Designated Certificate and the satisfaction of other conditions specified in
Section 8.02 of the Trust Agreement.
A-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-9
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to ______________________________________________
_________________________________________________________________ for the
account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
______________________________
Signature of assignee or agent
(for authorization of wire
transfer only)
A-10
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
SOUTHERN PACIFIC MBN TRUST SERIES 199_-_
THIS Certificate of Trust of Southern Pacific MBN Trust Series
199_-_ (the "Trust"), dated ___________, ____, is being duly executed and filed
by ______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 DEL. CODE, ss. 3801 ET
SEQ.).
1. NAME. The name of the business trust formed hereby is
Southern Pacific MBN Trust Series 199_-_.
2. DELAWARE TRUSTEE. The name and business address of the
trustee of the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
______________________,
not in its individual capacity but solely as
owner trustee under a Trust Agreement
dated as of _________, ____,
By:
_________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of _________, ____ between Southern Pacific Secured
Assets Corp., as Depositor and ______________________, as Owner Trustee pursuant
to Section 3.05 of the Agreement and __________________________________ as
indenture trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
C-1
<PAGE>
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
C-2
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
_________________________________ ___________________________________
Print Name of Seller Print Name of Buyer
By:______________________________ By:_________________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No.______________________________ No._________________________
Date:____________________________ Date:_______________________
C-3
<PAGE>
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
C-4
<PAGE>
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained
by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
C-5
<PAGE>
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
____________________________________
Print Name of Buyer
By:_________________________________
Name:
Title:
Date:_______________________________
C-6
<PAGE>
ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than
the excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $______________ in securities (other
than the excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements
C-7
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made herein because one or more sales to the Buyer will be in reliance on Rule
144A. In addition, the Buyer will only purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
________________________________
Print Name of Buyer
By:_____________________________
Name:_______________________
Title:______________________
IF AN ADVISER:
________________________________
Print Name of Buyer
Date:___________________________
C-8
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EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________, ____
(the "Trust Agreement"), between Southern Pacific Secured Assets Corp., as
depositor and ______________________, as Owner Trustee, in connection with the
acquisition of, transfer to or possession by the undersigned, whether as
beneficial owner (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the Mortgage-Backed Certificates, Series 199_-__ (the
"Certificate"). Capitalized terms used but not defined in this certificate have
the respective meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a non-resident alien for
purposes of U.S. income taxation;
2. My (The Beneficial Owner's) name and home address are:
___________________________
___________________________
___________________________; and
3. My (The Beneficial Owner's) U.S. taxpayer identification
number (Social Security Number) is ____________________.
B. Corporate, Partnership or Other Entity as Beneficial Owner
1. ___________________ (Name of the Beneficial Owner) is not a
foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the Code and
Treasury Regulations;
2. The Beneficial Owner's office address and place of
incorporation (if applicable) is
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___________________________; and
3. The Beneficial Owner's U.S. employer identification number is
__________________.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
____an IRS Form W-9
____a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
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Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
____________________________
Name
____________________________
Title (if applicable)
____________________________
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
C-11
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EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: Southern Pacific MBN Trust Series 199_-_
Mortgage-Backed Certificates,
Series 199_-__, (The "Certificates")
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (e) we are acquiring the
Certificates for investment for our own account and not with a view to any
distribution of such Certificates (but without prejudice to our right at all
times to sell or otherwise dispose of the Certificates in accordance with clause
(g) below), (f) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise approached or
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement.
Very truly yours,
F-1
<PAGE>
[TRANSFEREE]
By:__________________________
Authorized Officer
F-2
Exhibit 4.5
-----------
SOUTHERN PACIFIC MBN TRUST SERIES 199_ - __
Issuer
AND
[Name of Indenture Trustee]
INDENTURE TRUSTEE
-----------------------------------------
INDENTURE
Dated as of _____ __, 199_
------------------------------------------
MORTGAGE-BACKED NOTES
-------------
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- -------
ARTICLE I
Definitions
1.01. DEFINITIONS........................................................ 2
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.................. 2
1.03. RULES OF CONSTRUCTION.............................................. 2
ARTICLE II
Original Issuance of Notes
2.01. FORM............................................................... 4
2.02. EXECUTION, AUTHENTICATION AND DELIVERY............................. 4
ARTICLE III
Covenants
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE LOANS.......... 5
3.02. MAINTENANCE OF OFFICE OR AGENCY.................................... 5
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT............... 5
3.04. EXISTENCE.......................................................... 6
3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.............. 6
3.06. PROTECTION OF TRUST ESTATE......................................... 8
3.07. OPINIONS AS TO TRUST ESTATE........................................ 9
3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT.................... 10
3.09. NEGATIVE COVENANTS................................................. 10
3.10. ANNUAL STATEMENT AS TO COMPLIANCE.................................. 11
3.11. RECORDING OF ASSIGNMENTS........................................... 11
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS....... 11
3.13. AMENDMENTS TO SERVICING AGREEMENT.................................. 11
3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS HOLDER... 12
3.15. INVESTMENT COMPANY ACT............................................. 12
3.16. ISSUER MAY CONSOLIDATE, ETC........................................ 12
3.17. SUCCESSOR OR TRANSFEREE............................................ 14
3.18. NO OTHER BUSINESS.................................................. 14
3.19. NO BORROWING....................................................... 14
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.................. 14
3.21. CAPITAL EXPENDITURES............................................... 14
3.22. [Reserved]......................................................... 14
3.23. RESTRICTED PAYMENTS................................................ 14
3.24. NOTICE OF EVENTS OF DEFAULT........................................ 15
3.25. FURTHER INSTRUMENTS AND ACTS....................................... 15
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3.26. STATEMENTS TO NOTEHOLDERS.......................................... 15
3.27. DETERMINATION OF NOTE INTEREST RATE................................ 15
3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT................... 15
3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT.......................... 16
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. THE NOTES.......................................................... 17
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF NOTES;
APPOINTMENT OF CERTIFICATE REGISTRAR............................... 17
4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES......................... 18
4.04. PERSONS DEEMED OWNERS.............................................. 19
4.05. CANCELLATION....................................................... 19
4.06. BOOK-ENTRY NOTES................................................... 19
4.07. NOTICES TO DEPOSITORY.............................................. 20
4.08. DEFINITIVE NOTES................................................... 20
4.09. TAX TREATMENT...................................................... 21
4.10. SATISFACTION AND DISCHARGE OF INDENTURE............................ 21
4.11. APPLICATION OF TRUST MONEY......................................... 22
4.12. SUBROGATION AND COOPERATION........................................ 22
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT........................... 23
4.14. TEMPORARY NOTES.................................................... 23
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT.................................................. 24
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT................. 24
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE
TRUSTEE............................................................ 25
5.04. REMEDIES; PRIORITIES............................................... 27
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE.......................... 28
5.06. LIMITATION OF SUITS................................................ 29
5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST........................................................... 29
5.08. RESTORATION OF RIGHTS AND REMEDIES................................. 29
5.09. RIGHTS AND REMEDIES CUMULATIVE..................................... 30
5.10. DELAY OR OMISSION NOT A WAIVER..................................... 30
5.11. CONTROL BY NOTEHOLDERS............................................. 30
5.12. WAIVER OF PAST DEFAULTS............................................ 31
5.13. UNDERTAKING FOR COSTS.............................................. 31
5.14. WAIVER OF STAY OR EXTENSION LAWS................................... 31
5.15. SALE OF TRUST ESTATE............................................... 31
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5.16. ACTION ON NOTES.................................................... 33
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE........................................ 35
6.02. RIGHTS OF INDENTURE TRUSTEE........................................ 36
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE............................. 36
6.04. INDENTURE TRUSTEE'S DISCLAIMER..................................... 36
6.05. NOTICE OF EVENT OF DEFAULT......................................... 37
6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS............................ 37
6.07. COMPENSATION AND INDEMNITY......................................... 37
6.08. REPLACEMENT OF INDENTURE TRUSTEE................................... 37
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER.............................. 38
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE.. 39
6.11. ELIGIBILITY; DISQUALIFICATION...................................... 40
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER................... 40
6.13. REPRESENTATION AND WARRANTY........................................ 40
6.14. DIRECTIONS TO INDENTURE TRUSTEE.................................... 41
6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR............................ 41
6.16. INDENTURE TRUSTEE MAY OWN SECURITIES............................... 41
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF
NOTEHOLDERS........................................................ 42
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS......... 42
7.03. REPORTS BY ISSUER.................................................. 42
7.04. REPORTS BY INDENTURE TRUSTEE....................................... 43
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY................................................ 44
8.02. TRUST ACCOUNTS..................................................... 44
8.03. OFFICER'S CERTIFICATE.............................................. 45
8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS....................... 45
8.05. RELEASE OF TRUST ESTATE............................................ 45
8.06. SURRENDER OF NOTES UPON FINAL PAYMENT.............................. 46
ARTICLE IX
SUPPLEMENTAL INDENTURES
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9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS............. 47
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS................ 48
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES............................... 49
9.04. EFFECT OF SUPPLEMENTAL INDENTURE................................... 50
9.05. CONFORMITY WITH TRUST INDENTURE ACT................................ 50
9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES...................... 50
ARTICLE X
MISCELLANEOUS
-------------
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC.......................... 51
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE................... 52
10.03. ACTS OF NOTEHOLDERS................................................ 53
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT
ENHANCER AND RATING AGENCIES....................................... 54
10.05. NOTICES TO NOTEHOLDERS; WAIVER..................................... 54
10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS............................ 55
10.07. CONFLICT WITH TRUST INDENTURE ACT.................................. 55
10.08. EFFECT OF HEADINGS................................................. 55
10.09. SUCCESSORS AND ASSIGNS............................................. 55
10.10. SEPARABILITY....................................................... 55
10.11. BENEFITS OF INDENTURE.............................................. 56
10.12. LEGAL HOLIDAYS..................................................... 56
10.13. GOVERNING LAW...................................................... 56
10.14. COUNTERPARTS....................................................... 56
10.15. RECORDING OF INDENTURE............................................. 56
10.16. ISSUER OBLIGATION.................................................. 56
10.17. NO PETITION........................................................ 57
10.18. INSPECTION......................................................... 57
10.19. AUTHORITY OF THE ADMINISTRATOR..................................... 57
Signatures and Seals ....................................................... 81
Acknowledgments ............................................................ 82
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EXHIBITS
Exhibit A - Form of Notes
Appendix A Definitions
v
<PAGE>
This Indenture, dated as of _______________, between Southern
Pacific MBN Trust Series 199_ -__, a Delaware business trust, as Issuer (the
"Issuer"), and ____________________________, a ____________________________, as
Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
Series 199_-_ Mortgage-Backed Notes (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans and the proceeds thereof, (b) all funds on
deposit in the Funding Account, including all income from the investment and
reinvestment of funds therein, (c) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof; (e) the Policy and (f) all present
and future claims, demands, causes and chooses in action in respect of any or
all of the foregoing and all payments on or under, and all proceeds of every
kind and nature whatsoever in respect of, any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
<PAGE>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words
in the plural include the singular; and
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(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as from
time to time amended, modified or supplemented and includes (in the
case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
3
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ARTICLE II
Original Issuance of Notes
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$___________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
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ARTICLE III
Covenants
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain with itself a trust
account (the "Payment Account") in which the Indenture Trustee shall, subject to
the terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with respect
to the Mortgage Loans. The Indenture Trustee shall make all payments of
principal of and interest on the Notes, subject to Section 3.03 as provided in
Section 3.05 herein from monies on deposit in the Payment Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in the [Borough of Manhattan, The City of New York,] an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
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(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit
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to the Funding Account pursuant to Section 8.02(b) and (y) any deposits to the
Payment Account pursuant to Section 8.02(c)(ii) and Section 8.02(c)(i)(2), the
Indenture Trustee shall pay to the Noteholders, the Certificate Paying Agent, on
behalf of the Certificateholders, and to other Persons the amounts to which they
are entitled as set forth below:
(i) To the Noteholders the sum of (a) one month's
interest at the Note Interest Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued
and unpaid interest for prior Payment Dates;
(ii) if such Payment Date is after the Funding Period,
to the Noteholders, as principal on the Notes, the applicable Security
Percentage of the Principal Collection Distribution Amount and if such
Payment Date is the first Payment Date following the end of the Funding
Period (if ending due to an Amortization Event) or the Payment Date on
which the Funding Period ends, to the Noteholders as principal on the
Notes the applicable Security Percentage of the amount deposited from
the Funding Account in respect of Security Principal Collections;
(iii) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Liquidation Loss Amounts for the
related Collection Period;
(iv) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Carryover Loss Amounts;
(v) to the Credit Enhancer, in the amount of the
premium for the Credit Enhancement Instrument and for any Additional
Credit Enhancement Instrument;
(vi) to the Credit Enhancer, to reimburse it for prior
draws made on the Credit Enhancement Instrument and on any Additional
Credit Enhancement Instrument (with interest thereon as provided in the
Insurance Agreement);
(vii) to the Noteholders, as principal on the Notes based
on the Security Balances from Security Interest Collections, up to the
Special Capital Distribution Amount for such Payment Date;
(viii) to the Credit Enhancer, any other amounts owed to
the Credit Enhancer pursuant to the Insurance Agreement;
(ix [Reserved];
(x) to reimburse the Administrator for expenditures
made on behalf of the Issuer with respect to the performance of its
duties under the Indenture; and
(xi) any remaining amount, to the Certificate Paying
Agent, on behalf of the Certificates.
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PROVIDED, HOWEVER, in the event that on a Payment Date a Credit Enhancer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i), (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and PROVIDED, FURTHER, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year assumed to consist of
360 days.
[Any installment of interest or principal, if any, payable on any Note
or Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $1,000,000, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; PROVIDED, HOWEVER, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the form of Note set
forth in Exhibit A. All principal payments on each Class of Notes shall be made
to the Noteholders of such Class entitled thereto in accordance with the
Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date. Such notice shall
be mailed no later than five Business Days prior to such Final Scheduled Payment
Date or other final Payment Date and shall specify that payment of the principal
amount and any interest due with respect to such Note at the Final Scheduled
Payment Date or other final Payment Date will be payable only upon presentation
and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for such final payment.
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will from
time to time execute and deliver all such supplements and amendments hereto and
all such financing statements,
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continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer to enforce any of the Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 (or from the jurisdiction in which it
was held as described in the Opinion of Counsel delivered at the Closing Date
pursuant to Section 3.07(a), if no Opinion of Counsel has yet been delivered
pursuant to Section 3.07(b) unless the Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in the Mortgage Loans and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before ___________ in each calendar year, beginning in ____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and security interest in the Mortgage Loans and reciting the details of
such action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and refiling of this
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Indenture, any indentures supplemental hereto and any other requisite documents
and the execution and filing of any financing statements and continuation
statements that will, in the opinion of such counsel, be required to maintain
the lien and security interest in the Mortgage Loans until December 31 in the
following calendar year.
Section 3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT. (a)
The Issuer will punctually perform and observe all of its obligations and
agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, shall be able to exercise
the rights Issuer and the Mortgage Loans holder, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
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permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Company's or
the Issuer's interest in the Mortgage Loans, the Mortgage Loan Purchase
Agreement or in any Basic Document, if any such action would materially
and adversely affect the interests of the Noteholders.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ____), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. RECORDING OF ASSIGNMENTS. The Company shall cause the to
exercise its right under the Mortgage Loan Purchase Agreement with respect to
the obligation of the Seller to submit or cause to be submitted for recording
all Assignments of Mortgages on or prior to ______________ with respect to the
Initial Loans and within 60 days following the related Deposit Date with respect
to any Additional Loans.
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in Section [____] and
Section [____] of the Mortgage Loan Purchase Agreement concerning the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Section [____] or Section [____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
Section 3.13. AMENDMENTS TO SERVICING AGREEMENT. The Issuer covenants
with the Indenture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8.01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee.
The Indenture Trustee, as pledgee of the Mortgage Loans, may, in its discretion,
decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
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Section 3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS
HOLDER. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Mortgage Loans holder in holding amounts on deposit in the Collection
Account pursuant to Section 3.02 of the Servicing Agreement, as well as its
agent and bailee in holding any Related Documents released to the Master
Servicer pursuant to Section 3.06(c) of the Servicing Agreement, and any other
items constituting a part of the Trust Estate which from time to time come into
the possession of the Master Servicer. It is intended that, by the Master
Servicer's acceptance of such agency pursuant to Section 3.02 of the Servicing
Agreement, the Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Master Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and to
the Certificate Paying Agent, on behalf of the Certificateholders and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will
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not have any material adverse tax consequence to the Issuer, any
Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes,
(D) unless otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer against and
from any loss, liability or expense arising under or related to this
Indenture and the Notes and (E) expressly agrees by means of such
supplemental indenture that such Person (or if a group of Persons, then
one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
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(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made,
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(x) distributions to the Owner Trustee and the Certificateholders as
contemplated by, and to the extent funds are available for such purpose under
the Trust Agreement, (y) payments to the Master Servicer pursuant to the terms
of the Servicing Agreement and (z) payments to the Indenture Trustee pursuant to
Section 1(a)(ii) of the Administration Agreement. The Issuer will not, directly
or indirectly, make payments to or distributions from the Collection Account
except in accordance with this Indenture and the Basic Documents.
Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. STATEMENTS TO NOTEHOLDERS. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Statement delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.27. DETERMINATION OF NOTE INTEREST RATE. On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Interest Rate for such
Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture Trustee
in writing thereof.
Section 3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT. (a) On
any Payment Date, other than a Dissolution Payment Date, the Indenture Trustee
on behalf of the Noteholders, and in its capacity as Certificate Paying Agent on
behalf of the Certificateholders shall make a draw on the Credit Enhancement
Instrument in an amount if any equal to the sum of (x) the amount by which the
interest accrued at the Note Interest Rate on the Security Balance of the Notes
exceeds the amount on deposit in the Payment Account available to be distributed
therefor on such Payment Date and (y) the Guaranteed Principal Payment Amount
(the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Servicing Agreement, the Notice for Payment (as
defined in the Credit Enhancement Instrument) in the amount of the Credit
Enhancement Draw Amount to the Credit Enhancer no later than 2:00 P.M., New York
City time, on the second Business Day prior to the applicable Payment Date. Upon
receipt of such Credit Enhancement Draw Amount in accordance with the terms of
the Credit Enhancement Instrument, the Indenture Trustee shall deposit such
Credit Enhancement Draw Amount in the Payment Account for distribution to
Holders (and the Certificate Paying Agent on behalf of the Certificates)
pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Credit
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Enhancement Instrument) and the Indenture Trustee shall submit a Notice for
Payment with respect thereto together with the other documents required to be
delivered to the Credit Enhancer pursuant to the Credit Enhancement Instrument
in connection with a draw in respect of any Avoided Payment.
(c) In the event that any Additional Credit Enhancement Instruments are
issued pursuant to Section 4.01 and Section 2.02(B) of the Insurance Agreement,
the Indenture Trustee shall be authorized to make draws thereon subject to the
terms and conditions therein.
Section 3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT. In the event
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may, but
shall not be required to, substitute a new surety bond or surety bonds for the
existing Credit Enhancement Instrument or may arrange for any other form of
credit enhancement; PROVIDED, HOWEVER, that in each case the Notes shall be
rated no lower than the rating assigned by each Rating Agency to the Notes
immediately prior to such Replacement Event and the timing and mechanism for
drawing on such new credit enhancement shall be reasonably acceptable to the
Indenture Trustee and provided further that the premiums under the proposed
credit enhancement shall not exceed such premiums under the existing Credit
Enhancement Instrument. It shall be a condition to substitution of any new
credit enhancement that there be delivered to the Indenture Trustee (i) an
Opinion of Counsel, acceptable in form to the Indenture Trustee, from counsel to
the provider of such new credit enhancement with respect to the enforceability
thereof and such other matters as the Indenture Trustee may require and (ii) an
Opinion of Counsel to the effect that such substitution would not (a) adversely
affect in any material respect the tax status of the Notes or (b) cause the
Issuer to be subject to a tax at the entity level. Upon receipt of the items
referred to above and payment of all amounts owing to the Credit Enhancer and
the taking of physical possession of the new credit enhancement, the Indenture
Trustee shall, within five Business Days following receipt of such items and
such taking of physical possession, deliver the replaced Credit Enhancement
Instrument to the Credit Enhancer. In the event of any such replacement the
Issuer shall give written notice thereof to the Rating Agencies.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. THE NOTES. The Notes shall be registered in the name of a
nominee designated by the Depository. Beneficial Owners will hold interests in
the Notes through the book-entry facilities of the Depository in minimum initial
Principal Balances of $1,000 and integral multiples of $1,000 in excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF CERTIFICATE REGISTRAR. The Issuer shall cause to be
kept at its Corporate Trust Office a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes as herein
provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
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Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company located or having a correspondent located in the city of New York.
Notes delivered upon any such transfer or exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints __________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges
thereof pursuant to Section 3.05 of the Trust Agreement.
__________________________________ hereby accepts such appointment.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen
Note when so due or payable without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original
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Note, the Issuer and the Indenture Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided however, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.
Section 4.06. BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the
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initial Depository, and no Beneficial Owner will receive a Definitive Note
representing such Beneficial Owner's interest in such Note, except as provided
in Section 4.08. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Beneficial Owners pursuant to Section
4.08:
(i) the provisions of this Section 4.06 shall be in
full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Owners of
Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Owners of Notes representing beneficial
interests aggregating at least a majority of the Security Balances of the Notes
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Beneficial
Owners, then the Depository shall notify all Beneficial Owners and the Indenture
Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Beneficial Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Notes
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representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.11) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final
Scheduled Payment Date within one year, or
c. have been called for early redemption
pursuant to Section 5.02.
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and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and
each meeting the applicable requirements of Section 10.01 each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with
and, if the Opinion of Counsel relates to a deposit made in connection
with Section 4.10(A)(2)b. above, such opinion shall further be to the
effect that such deposit will not have any material adverse tax
consequences to the Issuer, any Noteholders or any Certificateholders.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
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(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Credit Enhancer
hereunder.
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Administrator other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized denominations and of like tenor and aggregate
principal amount. Until so exchanged, such temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as Definitive Notes.
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ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. "Event of Default," wherever used
herein, shall have the meaning provided in Article I; provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the definition of
"Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after learning of the occurrence of an Event of
Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii) of the definition of "Event of Default", its status
and what action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing or if the Master Servicer shall
purchase all of the Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement, then and in every such case the Indenture Trustee or the Holders of
Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Class of
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable. Unless the prior written
consent of the Credit Enhancer shall have been obtained by the Indenture
Trustee, the Payment Date upon which such accelerated payment is due and payable
shall not be a Payment Date under the Credit Enhancement Instrument and the
Indenture Trustee shall not be authorized under Section 3.29 to make a draw
therefor.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
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(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issue shall, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Credit
Enhancer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 10.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
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(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
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(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 10.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect thereto,
whether by declaration or otherwise, and all amounts payable under the
Insurance Agreement, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
and the Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Credit Enhancer, which consent will not
be unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Credit Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under the Insurance Agreement or
(C) the Indenture Trustee determines that the Mortgage Loans will not continue
to provide sufficient funds for the payment of principal of and interest on the
Notes as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Credit Enhancer,
which consent will not be unreasonably withheld, and of the Holders of a
majority of the aggregate Principal Balances of the Notes. In determining such
sufficiency or insufficiency with respect to clause (B) and (C), the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose. Notwithstanding the foregoing, so long as an Event of
Servicer Termination has not occurred, any Sale of the Trust Estate shall be
made subject to the continued Servicing of the Mortgage Loans by the Master
Servicer as provided in the Servicing Agreement.
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(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under
Section 6.07;
SECOND: to each Class of Noteholders for amounts due and
unpaid on the related Class Notes for interest and to each
Noteholder of such Class in each case, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Class of Notes for interest from
amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from
amounts available in the Trust Estate for such Noteholders,
and to each Noteholder of such Class in each case ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Class of Notes for principal,
until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed
to the Certificateholders in respect of interest and
principal pursuant to the Trust Agreement;
FIFTH: To the payment of all amounts due and owing to the
Credit Enhancer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article VIII of
the Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the
Issuer or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and the amount to be paid.
Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to take and maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes and other obligations of the Issuer
including payment to the Credit Enhancer, and the Indenture Trustee shall take
such desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
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of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Trust Estate for such purpose.
Section 5.06. LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Security Balances of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined
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adversely to the Indenture Trustee or to such Noteholder, then and in every such
case the Issuer, the Indenture Trustee and the Noteholders shall, subject to any
determination in such Proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Indenture Trustee and the Noteholders shall continue as though no such
Proceeding had been instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. CONTROL BY NOTEHOLDERS. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not less than 100% of
the Security Balances of Notes;
(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the Indenture
Trustee by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
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Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would materially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale
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by public announcement made at the time and place of such Sale. The Indenture
Trustee hereby expressly waives its right to any amount fixed by law as
compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Holders of all Notes and the Credit Enhancer consent
to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement, in full payment thereof in accordance with Section 5.02, on the
Payment Date next succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05), and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld and the Holders
representing at least 66-2/3% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and with the
consent of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the
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purchase price by crediting the gross Sale price against the sum of (A) the
amount which would be distributable to the Holders of the Notes and Holders of
Certificates and amounts owing to the Credit Enhancer as a result of such Sale
in accordance with Section 5.04(b) on the Payment Date next succeeding the date
of such Sale and (B) the expenses of the Sale and of any Proceedings in
connection therewith which are reimbursable to it, without being required to
produce the Notes in order to complete any such Sale or in order for the net
Sale price to be credited against such Notes, and any property so acquired by
the Indenture Trustee shall be held and dealt with by it in accordance with the
provisions of this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer in its capacity as holder of the Mortgage
Loans, shall take all such lawful action as the Indenture Trustee may request to
cause the Issuer to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Mortgage Loan Purchase Agreement and
the Servicing Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, as pledgee of the Mortgage
Loans, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Mortgage Loans, subject to the rights of
the Credit Enhancer under the Servicing Agreement may, and at the direction
(which direction shall be in writing or by telephone
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(confirmed in writing promptly thereafter)) of the Holders of 66-2/3% of the
Security Balances of the Notes shall, exercise all rights, remedies, powers,
privileges and claims of the Issuer against the Seller or the Master Servicer
under or in connection with the Mortgage Loan Purchase Agreement and the
Servicing Agreement, including the right or power to take any action to compel
or secure performance or observance by the Seller or the Master Servicer, as the
case may be, of each of their obligations to the Issuer thereunder and to give
any consent, request, notice, direction, approval, extension or waiver under the
Mortgage Loan Purchase Agreement and the Servicing Agreement, as the case may
be, and any right of the Issuer to take such action shall not be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Section 5.11
or (B) from the Credit Enhancer, which it is entitled to give under any
of the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds
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to believe that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Indenture Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
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Section 6.05. NOTICE OF EVENT OF DEFAULT. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Credit Enhancer.
The Trustee shall mail to each Noteholder notice of the Event of Default within
90 days after it occurs. Except in the case of an Event of Default in payment of
principal of or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
Section 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Credit Enhancer. The
Holders of a majority of Security Balances of the Notes may remove the
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Indenture Trustee by so notifying the Indenture Trustee and the Credit Enhancer
and may appoint a successor Indenture Trustee. The Issuer shall remove the
Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
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In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
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its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATION AND WARRANTY. The Indenture Trustee hereby
represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State
of ___________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default
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under, the articles of incorporation or bylaws of the Indenture Trustee
or any agreement or other instrument to which the Indenture Trustee is
a party or by which it is bound
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee
is hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
[Section 6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [_________] of the Depositor's Restated Certificate of
Incorporation.]
Section 6.16. INDENTURE TRUSTEE MAY OWN SECURITIES. The Indenture
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. REPORTS BY ISSUER. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission
in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to
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clauses (i) and (ii) of this Section 7.03(a) and by rules and
regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, 199_, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss. 313(c)
and to the Credit Enhancer a brief report dated as of such date that complies
with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA ss.
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the Certificate
Paying Agent, on behalf of the Certificateholders and the Credit Enhancer, the
Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture Trustee to invest any funds in the
Funding Account in Eligible Investments maturing
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no later than the Business Day preceding each Payment Date and shall not be sold
or disposed of prior to the maturity. Unless otherwise instructed by the Master
Servicer, the Indenture Trustee shall invest all funds in the Payment Account in
its Corporate Trust Short Term Investment Fund so long as it is an Eligible
Investment. During the Funding Period, any amounts received by the Indenture
Trustee in respect of Net Principal Collections for deposit in the Funding
Account, together with any Eligible Investments in which such monies are or will
be invested or reinvested during the term of the Notes, shall be held by the
Indenture Trustee in the Funding Account as part of the Trust Estate, subject to
disbursement and withdrawal as herein provided: Amounts on deposit in the
Funding Account in respect of Net Principal Collections may be withdrawn on each
Deposit Date and (1) paid to the Issuer in payment for Additional Loans by the
deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article VIII hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any monies.
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(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the Credit Enhancer have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of an request from the
Issuer accompanied by an [Officers' Certificate], [an Opinion of Counsel,] and a
letter from the Credit Enhancer, stating that the Credit Enhancer has no
objection to such request from the Issuer.]
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or
power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture
(vi) to make any other provisions with respect to matters
or questions arising under this Indenture or in any supplemental
indenture; provided, that such action shall not materially and
adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes affected thereby, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception
in the definition of the term "Holder";
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(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the Issuer
to sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
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Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
MISCELLANEOUS
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (i) above, the Issuer
shall also deliver to the Indenture Trustee an Independent Certificate as to the
same matters, if the fair value to the Issuer of the securities to
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be so deposited and of all other such securities made the basis of any such
withdrawal or release since the commencement of the then-current fiscal year of
the Issuer, as set forth in the certificates delivered pursuant to clause (i)
above and this clause (ii), is 10% or more of the Security Balances of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set forth in
the related Officer's Certificate is less than $25,000 or less than one percent
of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Security Balances of
the Notes, but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 10.01, (A) collect, sell or otherwise dispose of the Mortgage Loans
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate
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or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Seller, the Issuer or the Administrator, stating that
the information with respect to such factual matters is in the possession of the
Seller, the Issuer or the Administrator, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
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Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT
ENHANCER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: Southern Pacific MBN Trust Series 199_ - ______, in care of [Name
of Owner Trustee] _________________, __________, ______________,
Attention of _________________________________________ with a copy to
the Administrator at ________________ Attention: __________
__________________________, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [Name of Credit Enhancer],
________________, ________, _______________, Attention:
_________________, ___________________________, Telephone
______________. Telecopier ______________. The Credit Enhancer shall
promptly transmit any notice received by it from the Issuer, the
Indenture Trustee or the Noteholders to the Issuer or Indenture
Trustee, as the case may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
Section 10.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Person's as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the
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manner herein provided shall conclusively be presumed to have been duly given
regardless of whether such notice is in fact actually received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Administrator to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee shall cause payments to be made
and notices to be given in accordance with such agreements.
Section 10.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 10.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 10.10. SEPARABILITY. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
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Section 10.11. BENEFITS OF INDENTURE. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 10.12. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.16. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
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Section 10.17. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 10.18. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 10.19. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
Southern Pacific MBN Trust Series 199_ - _____,
as Issuer
By:---------------------------------------
not in its individual capacity
but solely as Owner Trustee
By:---------------------------------------
Name:----------------------------------
Title:---------------------------------
--------------------------------------------,
as Indenture Trustee, as Certificate Paying
Agent and as Note Registrar
By:--------------------------------------
Name:---------------------------------
Title:--------------------------------
- ---------------------------------
hereby accepts the appointment as
Certificate Paying Agent pursuant
to Section 3.03 hereof and as
Certificate Registrar pursuant
to Section 4.02 hereof.
- ---------------------------------
By:------------------------------
Title:---------------------------
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at __________- _______, __________________ _____, that he is the
of the Owner Trustee, one of the corporations described in and which executed
the above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared , to me
known, who being by me duly sworn, did depose and say, that he resides at
, that he is the ______________ of
________________, as Indenture Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared , to me
known, who being by me duly sworn, did depose and say, that he resides at
, that he is an ________________ of
_______________, as Indenture Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
APPENDIX A
DEFINITIONS
ADJUSTABLE RATE MORTGAGE LOAN: A Mortgage Loan with a Mortgage
Rate that is subject to periodic adjustment calculated on the basis of the
Index, plus an applicable Gross Margin. Each Adjustable Rate Mortgage Loan is
secured by a first lien on the related Mortgaged Property.
ADJUSTMENT DATE: As to each Adjustable Rate Mortgage Loan,
each date set forth in the related Mortgage Note on which an adjustment to the
interest rate on such Mortgage Loan becomes effective.
ADMINISTRATIVE FEE: The amount of the fee payable to the Owner
Trustee together with the amount of the premium payable to the Note Insurer,
which will accrue at ______% per annum based on the Note Principal Balance of
the Notes.
ADVANCE: As to any Mortgage Loan, any advance made by the
Master Servicer, pursuant to Section 4.04 of the Servicing Agreement.
AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
APPRAISED VALUE: The appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property
at such time of origination. With respect to a Mortgage Loan the proceeds of
which were used to refinance an existing mortgage loan, the appraised value of
the Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
<PAGE>
AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter).
AVAILABLE FUNDS: As to any Payment Date, an amount equal to
the amount on deposit in the Payment Account on such Payment Date and available
for distribution to the Noteholders (minus, if the Notes have been declared due
and payable following an Event of Default on such Payment Date, any amounts owed
to the Indenture Trustee by the Issuer pursuant to Section 6.07 of the
Indenture).
AVAILABLE FUNDS CAP CARRY-FORWARD AMOUNT: With respect to the
Notes and any Payment Date, an amount equal to the sum of (x) the amount, if
any, by which (a) the lesser of (1) the amount payable if clause (i) of the
definition of Note Interest Rate is used to calculate interest and (2) the
amount payable if the Maximum Note Interest Rate is used to calculate interest
exceeds (b) the amount payable if clause (ii) of the definition of Note Interest
Rate is used to calculate interest and (y) the interest accrued during the prior
Interest Period on the amount of any Available Funds Cap Carry-Forward Amount
immediately prior to such Payment Date, calculated on the basis of a 360-day
year and the actual number of days elapsed and using the Note Interest Rate
applicable to such Payment Date minus (z) the aggregate of all amounts
distributed to the Noteholders on all prior Payment Dates pursuant to Section
3.05(v) of the Indenture.
AVAILABLE FUNDS INTEREST RATE: As to any Payment Date, a per
annum rate equal to the lesser of (x) the fraction, expressed as a percentage,
the numerator of which is (i) an amount equal to (A) 1/12 of the aggregate
Principal Balance of the then outstanding Mortgage Loans times the weighted
average of the Expense Adjusted Mortgage Rates on the then outstanding Mortgage
Loans minus (B) the Administrative Fee for such Payment Date, and the
denominator of which is (ii) an amount equal to (A) the then outstanding
aggregate Note Principal Balance of the Notes multiplied by (B) the actual
number of days elapsed in the related Interest Period divided by 360 and (y) the
Maximum Note Interest Rate.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Mortgage Loan Purchase Agreement, the Insurance
Agreement, the Servicing Agreement, and the other documents and certificates
delivered in connection with any of the above.
BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
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BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
California or in the city in which the corporate trust offices of the Indenture
Trustee or the Note Insurer are located, are required or authorized by law to be
closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from time to
time.
CASH LIQUIDATION: As to any defaulted Mortgage Loan other than
a Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Master Servicer that it has received all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(d) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.
CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.
CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest on the face thereof.
CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.
CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES: The Southern Pacific Secured Assets Corp.,
Mortgage-Backed Certificates, Series 199_-_, evidencing the beneficial ownership
interest in the Issuer and executed by the Owner Trustee in substantially the
form set forth in Exhibit A to the Trust Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Owners of Certificates that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee, as the case may
be, the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
3
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CLOSING DATE: ______ __, 199_.
CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to Section 3.06(d) of the Servicing Agreement. The
Collection Account shall be an Eligible Account.
COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan and any date, the percentage equivalent of a fraction, the numerator of
which is the Cut-Off Date Principal Balance of such Mortgage Loan and the
denominator of which is the outstanding principal balance as of the date of the
origination of such Mortgage Loan of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
COMPENSATING INTEREST: With respect to any Determination Date,
an amount equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfall for the related Prepayment Period and (ii) the Servicing Fee for such
Determination Date.
CONVERTED MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the interest rate borne by such Mortgage Loan has been
converted from an adjustable interest rate to a fixed interest rate.
CONVERTIBLE MORTGAGE LOAN: Any Adjustable Rate Mortgage Loan
which by its terms grants to the related Mortgagor the option to convert the
interest rate borne by such Mortgage Loan from an adjustable interest rate to a
fixed interest rate.
CONVERTING MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
____________, __________, ______, __________ _____, Attention: ________ ___
______, except that for purposes of Section 4.02 of the Indenture and Section
3.09 of the Trust Agreement, such term shall include the Indenture Trustee's
office or agency at _______________, ________, ________ _____, Attention:
___________ _________. With respect to the Owner Trustee, the principal
corporate trust office of the Owner Trustee at which at any particular time its
corporate trust business shall be administered, which office at the date of the
execution of this Trust Agreement is located at ________________________, ______
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____________, ________________________, __________, ________ _____, Attention:
________________________________.
CUT-OFF DATE: With respect to the Mortgage Loans, ______ 1,
199_.
CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Mortgage
Loan, the unpaid principal balance thereof as of the opening of business on the
last day of the related Due Period immediately prior to the Cut-Off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
DEFAULT: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
DEFICIENCY AMOUNT: The meaning provided in the Note Insurance
Policy.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DEFINITIVE NOTES: The meaning specified in Section 4.06 of the
Indenture.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
DEPOSITOR: Southern Pacific Secured Assets Corp., a California
corporation, or its successor in interest.
DEPOSITORY OR DEPOSITORY AGENCY: The Depository Trust Company
or a successor appointed by the Indenture Trustee with the approval of the
Depositor. Any successor to the Depository shall be an organization registered
as a "clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
DETERMINATION DATE: With respect to any Payment Date, the 15th
of the related month, or if the 15th day of such month is not a Business Day,
the immediately preceding Business Day.
DUE DATE: The first day of the month of the related Payment
Date.
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DUE PERIOD: With respect to any Mortgage Loan and Due Date,
the period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-Off Date) and ending on the related Due Date.
ELIGIBLE ACCOUNT: An account that is any of the following: (i)
maintained with a depository institution the short term deposits of which have
been rated by each Rating Agency in its highest rating available, or (ii) an
account or accounts in a depository institution in which such accounts are fully
insured to the limits established by the FDIC, PROVIDED that any deposits not so
insured shall, to the extent acceptable to the Note Insurer and each Rating
Agency, as evidenced in writing, be maintained such that (as evidenced by an
Opinion of Counsel delivered to the Indenture Trustee, the Note Insurer and each
Rating Agency) the Indenture Trustee have a claim with respect to the funds in
such account or a perfected first security interest against any collateral
(which shall be limited to Eligible Investments) securing such funds that is
superior to claims of any other depositors or creditors of the depository
institution with which such account is maintained, or (iii) in the case of the
Collection Account, either (A) a trust account or accounts maintained at the
Corporate Trust Department of the Indenture Trustee or (B) an account or
accounts maintained at the Corporate Trust Department of the Indenture Trustee,
as long as its short term debt obligations are rated P-1 by Moody's and A-1 by
Standard & Poor's or better and its long term debt obligations are rated A2 by
Moody's and A by Standard & Poor's or better, or (iv) in the case of the
Collection Account and the Payment Account, a trust account or accounts
maintained in the corporate trust division of the Indenture Trustee, or (v) an
account or accounts of a depository institution acceptable to each Rating Agency
as evidenced in writing by each Rating Agency that use of any such account as
the Collection Account or the Payment Account will not reduce the rating
assigned to any of the Securities by such Rating Agency below investment grade
without taking into account the Note Insurance Policy and acceptable to the Note
Insurer as evidenced in writing.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, the Federal Home Mortgage
Corporation, the Federal National Mortgage Association, the Federal
Home Loan Banks or any agency or instrumentality of the United States
of America the obligations of which are backed by the full faith and
credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies
and provided that each such investment has an original maturity of no
more than 365 days,
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and (B) any other demand or time deposit or deposit which is fully
insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by S&P and A2 or higher by Moody's;
provided, however, that collateral transferred pursuant to such
repurchase obligation must (A) be valued weekly at current market price
plus accrued interest, (B) pursuant to such valuation, equal, at all
times, 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (C) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the Indenture Trustee, in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities.
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(v) commercial paper having an original maturity of
less than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each
of the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each of the Rating Agencies
at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
PROVIDED, HOWEVER, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations;
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PROVIDED FURTHER, HOWEVER, that each such instrument acquired shall not be
acquired at a price in excess of par.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted
by the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in the
Collection Account in the month of substitution); (ii) comply with each
representation and warranty set forth in clauses (ii) through (lxxvii) of
Section 3.1(b) of the Mortgage Loan Purchase Agreement other than clauses (ii),
(iii), (v)-(xi), (xiii)-(xiv), (l), (lxvi), (lxviii), (lxxi)-(lxxiii); (iii)
have a Mortgage Rate and Gross Margin no lower than and not more than 1% per
annum higher than the Mortgage Rate and Gross Margin, respectively, of the
Deleted Mortgage Loan as of the date of substitution; (iv) have a Combined
Loan-toValue Ratio at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution; (v) have a remaining term to
stated maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan and (vi) not be 30 days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in (a) the payment of the Interest
Payment Amount or the Principal Payment Amount with respect to a
Payment Date on such Payment Date or (b) the Subordination Increase
Amount or the Available Funds Cap Carry-Forward Amount, but only, with
respect to clause (b), to the extent funds are available to make such
payment as provided in the Indenture; or
(ii) the failure by the Issuer on the Final Scheduled
Payment Date to reduce the Note Principal Balance to zero; or
(iii) there occurs a default in the observance or
performance of any covenant or agreement of the Issuer made in the
Indenture, or any representation or warranty of the Issuer made in the
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such representation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee or to the Issuer
and the Indenture Trustee by
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the Note Insurer, or if a Note Insurer Default exists the Holders of at
least 25% of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of
default hereunder; or
(iv) there occurs the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the
Issuer or any substantial part of the Trust Estate in an involuntary
case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Trust Estate,
or ordering the winding-up or liquidation of the Issuer's affairs, and
such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(v) there occurs the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the
consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the assets of the Trust Estate,
or the making by the Issuer of any general assignment for the benefit
of creditors, or the failure by the Issuer generally to pay its debts
as such debts become due, or the taking of any action by the Issuer in
furtherance of any of the foregoing.
EVENT OF SERVICER TERMINATION: With respect to the Servicing
Agreement, a Servicing Default as defined in Section 6.01 of the Servicing
Agreement.
EXCESS SUBORDINATION AMOUNT: With respect to any Payment Date,
the excess, if any, of (a) the Subordination Amount that would apply on such
Payment Date after taking into account all distributions to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts on such Payment Date) over (b) the Required Subordination
Amount for such Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
EXPENSE ADJUSTED MORTGAGE RATE: For any Mortgage Loan, the
rate equal to the then applicable Mortgage Rate thereon minus the sum of (i) the
Minimum Spread and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee
Fee Rate.
EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
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FINAL SCHEDULED PAYMENT DATE: The Payment Date occurring in
_________ 202_.
FIXED RATE MORTGAGE LOAN: Any Mortgage Loan with a fixed rate
of interest.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FORECLOSURE PROFIT: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of such collateral or other agreement or
instrument and all other moneys payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the granting party or
otherwise, and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.
GROSS MARGIN: With respect to any Adjustable Rate Mortgage
Loan, the percentage set forth as the "Gross Margin" for such Mortgage Loan on
the Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.
INDENTURE: The indenture dated as of ______ 1, 199_, between
the Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
INDENTURE TRUSTEE: _________________________________________,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDENTURE TRUSTEE FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Indenture Trustee Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
INDENTURE TRUSTEE FEE RATE: _____% per annum.
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INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Issuer, the Depositor and any Affiliate of any of the
foregoing Persons, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons and (iii) is not connected with the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and approved by the Indenture Trustee in the exercise of reasonable
care, and such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is Independent
within the meaning thereof.
INDEX: With respect to any Adjustable Rate Mortgage Loan,
index for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
INITIAL NOTE PRINCIPAL BALANCE: With respect to the Notes,
$______________.
INITIAL SUBSERVICER: _____________, a __________ corporation.
INSOLVENCY EVENT: With respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts generally, or the adoption by the Board of
Directors or managing member of such Person of a resolution which authorizes
action by such Person in furtherance of any of the foregoing.
INSURANCE AGREEMENT: The insurance and reimbursement agreement
dated as of _____ 1, 199_, among the Master Servicer, the Seller, the Depositor,
the Issuer, Indenture Trustee and the Note Insurer, including any amendments and
supplements thereto.
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INSURANCE PROCEEDS: Proceeds paid by any insurer (other than
the Note Insurer) pursuant to any insurance policy covering a Mortgage Loan
which are required to be remitted to the Master Servicer, or amounts required to
be paid by the Master Servicer pursuant to the Servicing Agreement, net of any
component thereof (i) covering any expenses incurred by or on behalf of the
Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
INSURED PAYMENT: Shall have the meaning set forth in the Note
Insurance Policy.
INTEREST DETERMINATION DATE: With respect to any Interest
Period, the second London Business Day preceding the commencement of such
Interest Period.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to interest accrued during the related Interest Period on the Note
Principal Balance thereof at the then-applicable Note Interest Rate, minus any
Prepayment Interest Shortfalls and Relief Act Shortfalls to the extent not
covered by the Master Servicer by Compensating Interest for such Payment Date.
INTEREST PERIOD: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date and ending on the day
preceding the first Payment Date.
INTEREST RATE ADJUSTMENT DATE: With respect to each Mortgage
Loan, the date or dates on which the Mortgage Rate is adjusted in accordance
with the related Mortgage Note.
ISSUER: The Southern Pacific MBN Trust Series 199_-1, a
Delaware business trust, or its successor in interest.
ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and approved in writing by
the Note Insurer, so long as no Note Insurer Default exists and delivered to the
Indenture Trustee.
LIBOR BUSINESS DAY: Any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the State of New York,
Delaware or California, or in the city of London, England are required or
authorized by law to be closed.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such
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financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the foregoing; PROVIDED, HOWEVER, that any
assignment pursuant to Section 6.02 of the Servicing Agreement shall not be
deemed to constitute a Lien.
LIFETIME RATE CAP: With respect to each Mortgage Loan with
respect to which the related Mortgage Note provides for a lifetime rate cap, the
maximum Mortgage Rate permitted over the life of such Mortgage Loan under the
terms of such Mortgage Note, as set forth on the Mortgage Loan Schedule and
initially as set forth on Exhibit A to the Servicing Agreement.
LIQUIDATED MORTGAGE LOAN: With respect to any Payment Date,
any Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Servicing Agreement,
as of the end of the related Prepayment Period that substantially all
Liquidation Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO Property have been recovered.
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of
overhead) which are incurred by or on behalf of the Master Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy, such expenses including, without limitation, legal fees and
expenses, any unreimbursed amount expended (including, without limitation,
amounts advanced to correct defaults on any mortgage loan which is senior to
such Mortgage Loan and amounts advanced to keep current or pay off a mortgage
loan that is senior to such Mortgage Loan) respecting the related Mortgage Loan
and any related and unreimbursed expenditures for real estate property taxes or
for property restoration, preservation or insurance against casualty loss or
damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds
but not including amounts drawn under the Note Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise.
LOAN YEAR: With respect to any Mortgage Loan, the one year
period commencing on the day succeeding the origination of such Mortgage Loan
and ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
LONDON BUSINESS DAY: Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
LOST NOTE AFFIDAVIT: With respect to any Mortgage Loan as to
which the original Mortgage Note has been permanently lost or destroyed and has
not been replaced, an affidavit from the Seller certifying that the original
Mortgage Note has been lost, misplaced or destroyed (together with a copy of the
related Mortgage Note).
MASTER SERVICER: _______________________, a __________
corporation, and its successors and assigns.
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MASTER SERVICING FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Master Servicing Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
MASTER SERVICING FEE RATE: With respect to each Mortgage
Loan, ____% per annum.
MAXIMUM NOTE INTEREST RATE: With respect to any Payment Date,
the per annum rate equal to the fraction, expressed as a percentage, the
numerator of which is (i) an amount equal to (A) 1/12 of the aggregate Principal
Balance of the then outstanding Mortgage Loans times the weighted average of the
Expense Adjusted Maximum Mortgage Rates on the then outstanding Mortgage Loans
minus (B) the Administrative Fee for such Payment Date, and the denominator of
which is (ii) an amount equal to (A) the aggregate Note Principal Balance of the
Notes multiplied by (B) the actual number of days elapsed in the related
Interest Period divided by 360.
MAXIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the maximum Mortgage Rate.
MINIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the minimum Mortgage Rate.
MINIMUM SPREAD: ____% per annum.
MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).
MOODY'S: Moody's Investors Service, Inc. or its successor in
interest.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Mortgage Loan Purchase
Agreement or the Servicing Agreement.
MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase
Agreement, dated as of the Cut-Off Date, between the Seller, as seller, and the
Purchaser, as purchaser, with respect to the Mortgage Loans, dated as of ______
1, 199_.
MORTGAGE LOAN SCHEDULE: With respect to any date, the
schedule of Mortgage Loans held by the Issuer on such date. The initial schedule
of Mortgage Loans as of the Cut-Off
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Date is the schedule set forth in Exhibit A of the Servicing Agreement, which
schedule sets forth as to each Mortgage Loan
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the Maximum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-Off Date;
(x) the Cut-off Date Principal Balance;
(xi) the occupancy status;
(xii) the purpose of the Mortgage Loan;
(xiii) the Appraised Value of the Mortgaged Property;
(xiv) the original term to maturity;
(xv) the paid-through date of the Mortgage Loan;
(xvi) the Loan-to-Value Ratio; and
(xvii) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all Mortgage Loans
that have been sold to the Depositor under the Mortgage Loan Purchase Agreement
or substituted for pursuant to Section 2.1 and 3.1 of the Mortgage Loan Purchase
Agreement and transferred and conveyed to the Issuer, in each case together with
the Related Documents, and that remain subject to the terms thereof.
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MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NET LIQUIDATION PROCEEDS: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
NET MONTHLY EXCESS CASHFLOW: For any Payment Date, the amount
of Available Funds and any Insured Payment remaining after distributions
pursuant to clauses (i) through (iii) of Section 3.05 of the Indenture (minus
any Insured Payment and any Subordination Reduction Amount).
NET MORTGAGE RATE: With respect to any Mortgage Loan and any
day, the related Mortgage Rate less the sum of the related Servicing Fee Rate,
the Administrative Fee Rate and the Indenture Trustee Fee Rate.
NONRECOVERABLE ADVANCE: Any advance (i) which was previously
made or is proposed to be made by the Master Servicer; and (ii) which, in the
good faith judgment of the Master Servicer, will not or, in the case of a
proposed advance, would not, be ultimately recoverable by the Master Servicer
from Liquidation Proceeds, Insurance Proceeds or future payments on any Mortgage
Loan.
NOTE INSURANCE POLICY: The bond guaranty insurance policy
number 21885, issued by the Note Insurer to the Indenture Trustee for the
benefit of the Noteholders.
NOTE INSURER: MBIA Insurance Corporation, a New York insurance
company, any successor thereto or any replacement bond insurer substituted
pursuant to Section 3.29 of the Indenture.
NOTE INSURER DEFAULT: The existence and continuance of any of
the following: (a) a failure by the Note Insurer to make a payment required
under the Note Insurance Policy in accordance with its terms; or (b)(i) the Note
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the Bankruptcy Code or
any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization which is final and nonappealable;
or (ii) a court of competent jurisdiction, the New York Department of Insurance
or other competent regulatory authority enters a final and nonappealable order,
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judgment or decree (A) appointing a custodian, trustee, agent or receiver for
the Note Insurer or for all or any material portion of its property or (B)
authorizing the taking of possession by a custodian, trustee, agent or receiver
of the Note Insurer (or the taking of possession of all or any material portion
of the property of the Note Insurer).
NOTE INTEREST RATE: With respect to each Payment Date after
the first Payment Date, a floating rate equal to the lesser of (i) with respect
to each Payment Date up to and including the Payment Date in _________ 200_,
One-Month LIBOR plus ____%, and with respect to each Payment Date thereafter,
One-Month LIBOR plus ____% and (ii) the Available Funds Interest Rate with
respect to such Payment Date. The Note Interest Rate for the first Payment Date
will equal ____% per annum.
NOTE OWNER: The Beneficial Owner of a Note.
NOTE PERCENTAGE: With respect to any Payment Date and any
Note, the ratio expressed as a percentage of the Note Principal Balance of such
Note to the aggregate Note Principal Balance of all Notes immediately prior to
such Payment Date.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
Note Principal Balance thereof minus all amounts distributed in respect of
principal with respect to such Note.
NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.
NOTE REGISTRAR: The Indenture Trustee, in its capacity as Note
Registrar.
NOTEHOLDER: The Person in whose name a Note is registered in
the Note Register, except that, any Note registered in the name of the
Depositor, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be outstanding and the registered holder will not be
considered a Noteholder or holder for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee or
the Owner Trustee knows to be so owned shall be so disregarded. Owners of Notes
that have been pledged in good faith may be regarded as Holders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee
the pledgee's right so to act with respect to such Notes and that the pledgee is
not the Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons. Any bonds on which payments are made under the Note Insurance
Policy shall be deemed Outstanding until the Note Insurer has been reimbursed
with respect thereto and the Note Insurer shall be deemed the Noteholder thereof
to the extent of such unreimbursed payment.
NOTES: The Notes designated as the "Notes" in the Indenture.
OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President,
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of the Master Servicer and delivered to the Indenture Trustee. With respect to
the Issuer, a certificate signed by any Authorized Officer of the Issuer, under
the circumstances described in, and otherwise complying with, the applicable
requirements of Section 10.01 of the Indenture, and delivered to the Indenture
Trustee. Unless otherwise specified, any reference in the Indenture to an
Officer's Certificate shall be to an Officer's Certificate of any Authorized
Officer of the Issuer.
ONE-MONTH LIBOR: With respect to any Interest Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page, as
of 11:00 a.m. (London time) on such Interest Determination Date. On each
Interest Determination Date, One-Month LIBOR for the related Interest Period
will be established by the Indenture Trustee as follows:
(i) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole
multiple of 1/16%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the higher of (i) One-Month LIBOR as determined on
the previous Interest Determination Date and (ii) the
Reserve Interest Rate.
OPINION OF COUNSEL: A written opinion of counsel acceptable to
Note Insurer who may be in-house counsel for the Master Servicer if acceptable
to the Indenture Trustee, the Note Insurer and the Rating Agencies or counsel
for the Depositor, as the case may be.
ORIGINAL SPECIFIED SUBORDINATION AMOUNT: An amount equal to
____% of the aggregate Principal Balance of the Mortgage Loans as of the Cut-Off
Date.
ORIGINAL VALUE: Except in the case of a refinance Mortgage
Loan, the lesser of the Appraised Value or sales price of Mortgaged Property at
the time a Mortgage Loan is closed, and for a refinance Mortgage Loan, the
Original Value is the value of such property set forth in an appraisal
acceptable to the Master Servicer.
OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar
or delivered to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other
Notes have been executed, authenticated and delivered pursuant to the
Indenture unless proof satisfactory
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to the Indenture Trustee is presented that any such Notes are held by a
holder in due course;
all Notes that have been paid with funds provided under the Note Insurance
Policy shall be deemed to be Outstanding until the Note Insurer has been
reimbursed with respect thereto.
OWNER TRUST : The Southern Pacific MBN Trust Series 199_-1 to
be created pursuant to the Trust Agreement.
OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items in Section 2.01 of the Trust Agreement.
OWNER TRUSTEE: ________________________ and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.
OWNER TRUSTEE FEE:
OWNER TRUSTEE FEE RATE: ______% per annum.
PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 8.02 of the Indenture and Section 4.03 of the
Servicing Agreement. The Payment Account shall be an Eligible Account.
PAYMENT DATE: The 25th day of each month, or if such day is
not a Business Day, then the next Business Day.
PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate of
the Note Principal Balances of all Notes. With respect to any Certificate, the
percentage on the face thereof.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POOL BALANCE: With respect to any date, the aggregate of the
Principal Balances of all Mortgage Loans as of such date.
PREFERENCE AMOUNT: Any amount previously distributed to an
Owner on the Notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
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PREMIUM AMOUNT: The amount of premium due to the Note Insurer
in accordance with the terms of the Insurance Agreement.
PREPAYMENT INTEREST SHORTFALL: As to any Payment Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate)
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in full or (b) a partial Prepayment during the prior calendar month,
an amount equal to interest accrued during the related Prepayment Period at the
Net Mortgage Rate on the amount of such partial Prepayment.
PREPAYMENT PERIOD: As to any Payment Date, the calendar month
preceding the month of distribution.
PRIMARY INSURANCE POLICY: Each primary policy of mortgage
guaranty insurance issued by a Qualified Insurer or any replacement policy
therefor.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any given time, (i) the Cut-off Date Principal Balance
of the Mortgage Loan, minus (ii) the sum of (a) the principal portion of the
Monthly Payments due with respect to such Mortgage Loan or REO Property during
each Due Period ending prior to the most recent Payment Date which were received
or with respect to which an Advance was made, and (b) all Principal Prepayments
with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds,
Liquidation Proceeds and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal in accordance with the Servicing Agreement
with respect to such Mortgage Loan or REO Property, and (c) any Realized Loss
with respect thereto for any previous Payment Date.
PRINCIPAL PAYMENT AMOUNT: With respect to any Payment Date (a)
other than the Final Scheduled Payment Date, and the first Payment Date
following any acceleration of the Notes following an Event of Default, the
lesser of (a) the sum of the Available Funds remaining after distributions
pursuant to clause (i) of Section 3.05 of the Indenture and any portion of any
Insured Payment for such Payment Date representing a Subordination Deficit and
(b) the sum of:
(1) the principal portion of all Monthly Payments
received during the related Due Period or advanced on
each Mortgage Loan;
(2) the Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period (or
deemed to have been so repurchased) pursuant to the
Mortgage Loan Purchase Agreement or Section 3.18 of
the Servicing Agreement and the amount of any
Substitution Adjustment Amounts during the related
Prepayment Period;
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(3) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments in full, partial Prepayments, Insurance
Proceeds, Liquidation Proceeds and REO Proceeds)
received during the related Prepayment Period to the
extent applied by the Master Servicer as payments or
recoveries of principal of the related Mortgage Loan;
(4) any Insured Payment made with respect to any
Subordination Deficit; and
MINUS
(5) the amount of any Subordination Reduction Amount
for such Payment Date;
and (b) with respect to the Final Scheduled Payment Date, and the first Payment
Date following any acceleration of the Notes following an Event of Default, the
amount necessary to reduce the Note Principal Balance to zero.
PRINCIPAL PREPAYMENT: Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
PROCEEDING: Any suit in equity, action at law or other
judicial or administrative proceeding.
PURCHASE PRICE: The meaning specified in Section 2.2(a) of the
Mortgage Loan Purchase Agreement.
PURCHASER: Southern Pacific Secured Assets Corp., a California
corporation, and its successors and assigns.
QUALIFIED INSURER: A mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as
an insurer by the Master Servicer and as a FNMA-approved mortgage insurer.
RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Depositor at the time of the initial issuance of the Notes. Initially, Moody's
or Standard & Poor's. If such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Note Insurer
so long as no Note Insurer Default exists, notice of which designation shall be
given to the Indenture Trustee.
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References herein to the highest short term unsecured rating category of a
Rating Agency shall mean A-1 or better in the case of Standard & Poor's and P-1
or better in the case of Moody's and in the case of any other Rating Agency
shall mean such equivalent ratings. References herein to the highest long-term
rating category of a Rating Agency shall mean "AAA" in the case of Standard &
Poor's and "Aaa" in the case of Moody's and in the case of any other Rating
Agency, such equivalent rating.
REALIZED LOSS: With respect to each Mortgage Loan (or REO
Property) as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Principal Balance of the Mortgage
Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to Noteholders
up to the last day of the month in which the Cash Liquidation (or REO
Disposition) occurred on the Principal Balance of such Mortgage Loan (or REO
Property) outstanding during each Due Period that such interest was not paid or
advanced, minus (iii) the proceeds, if any, received during the month in which
such Cash Liquidation (or REO Disposition) occurred, to the extent applied as
recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage
Loan, net of the portion thereof reimbursable to the Master Servicer or any
Subservicer with respect to related Advances or expenses as to which the Master
Servicer or Subservicer is entitled to reimbursement thereunder but which have
not been previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
object of a Debt Service Reduction, the amount of such Debt Service Reduction.
RECORD DATE: With respect to the Notes and any Payment Date,
the last day of the calendar month preceding such Payment Date.
REFERENCE BANKS: Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC and their successors in
interest; PROVIDED that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Indenture Trustee
which are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Company
or any Affiliate thereof, (iii) whose quotations appear on the Reuters Screen
LIBO Page on the relevant Interest Determination Date and (iv) which have been
designated as such by the Indenture Trustee.
REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.
RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.1(b) of the Mortgage Loan Purchase Agreement
and any documents required to be added to such documents pursuant to the
Mortgage Loan Purchase Agreement, the Trust Agreement, Indenture or the
Servicing Agreement.
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RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT SHORTFALL: For any Payment Date, As to any Payment
Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO
Property) any shortfalls relating to the Relief Act or similar legislation or
regulations.
REO ACQUISITION: The acquisition by the Master Servicer on
behalf of the Indenture Trustee for the benefit of the Noteholders of any REO
Property pursuant to Section 3.13 of the Servicing Agreement.
REO DISPOSITION: As to any REO Property, a determination by
the Master Servicer that it has received substantially all Insurance Proceeds,
Liquidation Proceeds, REO Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
REO IMPUTED INTEREST: As to any REO Property, for any period,
an amount equivalent to interest (at the Net Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof for
such period.
REO PROCEEDS: Proceeds, net of expenses, received in respect
of any REO Property (including, without limitation, proceeds from the rental of
the related Mortgaged Property) which proceeds are required to be deposited into
the Collection Account only upon the related REO Disposition.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer in foreclosure or by deed in lieu of foreclosure.
REPURCHASE EVENT: With respect to any Mortgage Loan, either
(i) a discovery that, as of the Closing Date the related Mortgage was not a
valid lien on the related Mortgaged Property subject only to (A) the lien of any
prior mortgage indicated on the Mortgage Loan Schedule, (B) the lien of real
property taxes and assessments not yet due and payable, (C) covenants,
conditions, and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage and such other
permissible title exceptions as are permitted and (D) other matters to which
like properties are commonly subject which do not materially adversely affect
the value, use, enjoyment or marketability of the related Mortgaged Property or
(ii) with respect to any Mortgage Loan as to which the Seller delivers an
affidavit certifying that the original Mortgage Note has been lost or destroyed,
a subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to the Mortgage Loan Purchase Agreement
or purchased by the Master Servicer pursuant to the Servicing Agreement, an
amount equal to the sum, without duplication, of (i) 100% of the Principal
Balance thereof (without reduction for any amounts charged off) and
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(ii) unpaid accrued interest at the Mortgage Rate on the outstanding principal
balance thereof from the Due Date to which interest was last paid by the
Mortgagor to the first day of the month following the month of purchase plus
(iii) the amount of Advances and any unreimbursed Servicing Advances or
unreimbursed Advances made with respect to such Mortgage Loan plus (iv) any
other amounts owed to the Master Servicer or the Subservicer pursuant to Section
3.07 of the Servicing Agreement not included in clause (iii) of this definition.
REQUIRED SUBORDINATION AMOUNT: With respect to any Payment
Date occurring from the initial Payment Date and ending on the later of (i) the
date on which the aggregate Principal Balance of the Mortgage Loans is 50% of
the initial aggregate Principal Balance of the Mortgage Loans and (ii) the 30th
Payment Date, the greater of:
(a) the Original Specified Subordination Amount; and
(b) two times the excess of (1) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (2) two times the
current Net Monthly Excess Cash Flow for such Payment Date; and
with respect to any Payment Date thereafter, the greatest of:
(a) the lesser of (1) the Original Specified Subordination Amount and
(2) two times ____% times the aggregate Note Principal Balance as of such
Payment Date;
(b) two times the excess of (A) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (B) two times the
current Net Monthly Excess Cash Flow for such Payment Date;
(c) 0.5% of the Cut-Off Date Principal Balance of the Mortgage Loans;
and
(d) an amount equal to the outstanding balance of the four largest
Mortgage Loans as of the Cut-Off Date;
PROVIDED, HOWEVER, that if (x) a Servicer Default has occurred and is continuing
as of such Payment Date, and such Servicer Default has not been waived by the
Note Insurer or (y) a claim has been made on the Note Insurance Policy by the
Indenture Trustee, the Required Subordination Amount shall not decrease on any
Payment Date.
RESERVE INTEREST RATE: With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the three-month United States dollar lending rates
which New York City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest three-month United
States dollar lending rate which New York
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City banks selected by the Indenture Trustee are quoting on such Interest
Determination Date to leading European banks.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee,
any officer of the Indenture Trustee with direct responsibility for the
administration of the Trust Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: _______________________, a __________ corporation, and
its successors and assigns.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Master Servicer or each Subservicer with respect to the
Mortgage Loans or REO Property, which shall be an Eligible Account, for
collection of taxes, assessments, insurance premiums and comparable items as
described in Section 3.08 of the Servicing Agreement.
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Master
Servicer of its servicing obligations, including, without duplication, but not
limited to, the cost of (i) the preservation, restoration and protection of a
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO Property and (iv)
compliance with the obligations under Sections 3.10, 3.11, 3.13 of the Servicing
Agreement.
SERVICING AGREEMENT: The Servicing Agreement dated as of
______ 1, 199_, between the Master Servicer and the Issuer.
SERVICING CERTIFICATE: A certificate completed and executed by
a Servicing Officer on behalf of the Master Servicer in accordance with Section
4.01 of the Servicing Agreement.
SERVICING DEFAULT: The meaning assigned in Section 6.01 of the
Servicing Agreement.
SERVICING FEE: With respect to any Mortgage Loan, the sum of
the related Master Servicing Fee and the related Subservicing Fee.
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SERVICING FEE RATE: With respect to any Mortgage Loan, the sum
of the related Master Servicing Fee Rate and the Subservicing Fee Rate.
SERVICING OFFICER: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer, as such list may be amended from time to time.
SINGLE NOTE: A Note in the amount of $1,000.
STANDARD & POOR'S: Standard & Poor's Ratings Service, or its
successor in interest.
SUBORDINATION AMOUNT: As of any Payment Date, the excess, if
any, of (x) the sum of the aggregate Principal Balances of the Mortgage Loans as
of the close of business on the last day of the related Due Period as of such
Payment Date over (y) the Note Principal Balance of the Notes as of such Payment
Date (and following the making of all distributions on such Payment Date)
SUBORDINATION DEFICIT: With respect to any Payment Date, the
amount, if any, by which (x) the aggregate Note Principal Balance of the Notes
as of such Payment Date, and following the making of all distributions to be
made on such Payment Date (except for any payment to be made as to principal
from proceeds of the Note Insurance Policy), exceeds (y) the aggregate Principal
Balances of the Mortgage Loans as of the close of business on the preceding Due
Date on such Payment Date.
SUBORDINATION INCREASE AMOUNT: With respect to any Payment
Date, the amount of any Net Monthly Excess Cashflow (including any Subordination
Reduction Amount) available in the Payment Account to increase the Subordination
Amount up to the Required Subordination Amount.
SUBORDINATION REDUCTION AMOUNT: With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordination Amount and
(b) the principal collections received by the Master Servicer with respect to
the prior Due Period.
SUBSERVICER: Any Person with whom the Master Servicer has
entered into a Subservicing Agreement as a Subservicer by the Master Servicer
and acceptable to the Note Insurer and the Indenture Trustee, including the
Initial Subservicers.
SUBSERVICING ACCOUNT: An Eligible Account established or
maintained by a Sub- servicer as provided for in Section 3.06(e) of the
Servicing Agreement.
SUBSERVICING AGREEMENT: The written contract between the
Master Servicer and any Subservicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.02 of the Servicing Agreement.
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SUBSERVICING FEE: With respect to each Mortgage Loan and any
date of determination, the product of (i) the Subservicing Fee Rate divided by
12 and (ii) the Principal Balance of such Mortgage Loans as of such date.
SUBSERVICING FEE RATE: For any date of determination, ____%
per annum.
SUBSTITUTION ADJUSTMENT AMOUNT: With respect to any Eligible
Substitute Mortgage Loan, the amount as defined in Section 2.03 of the Servicing
Agreement.
TELERATE SCREEN PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying One-Month LIBOR or comparable rates as may be
selected by the Issuer after consultation with the Indenture Trustee), the rate
will be the Reference Bank Rate.
TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST AGREEMENT: The Trust Agreement dated as of ______ 1,
199_ between the Owner Trustee and the Depositor.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
WEIGHTED AVERAGE NET MORTGAGE RATE: With respect to the
Mortgage Loans in the aggregate, and any Due Date, the average of the Net
Mortgage Rate for each Mortgage Loan as of the last day of the related Due
Period weighted on the basis of the related Principal Balances outstanding as of
the last day of the related Due Period for each Mortgage Loan as determined by
the Master Servicer in accordance with the Master Servicer's normal servicing
procedures.
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EXHIBIT 5.1, 8.1 AND 23.1
-------------------------
[LETTERHEAD OF THACHER PROFFITT & WOOD]
April 30, 1997
Southern Pacific Secured Assets Corp.
One Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035
Re: Southern Pacific Secured Assets Corp.
Mortgage Pass-Through Certificates
and Mortgage-Backed Notes;
Registration Statement on Form S-3
-------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Southern Pacific Secured
Assets Corp., a California corporation (the "Registrant") in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of
Mortgage Pass-Through Certificates ("Certificates") and Mortgage-Backed Notes
("Notes"; and together with Certificates, "Securities"), and the related
preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). The Certificates are issuable in series under
separate pooling and servicing agreements (each such agreement, a "Pooling and
Servicing Agreement"), among the Registrant, a master servicer to be identified
in the prospectus supplement for such series of Certificates and a trustee to be
identified in the prospectus supplement for such series of Certificates. Each
Pooling and Servicing Agreement will be substantially in the forms filed as an
Exhibit to the
<PAGE>
Southern Pacific Secured Assets Corp.
April 30, 1997 Page 2.
Registration Statement. The Notes are issuable in series pursuant to separate
indentures (each such indenture, an "Indenture"), between an issuer and an
indenture trustee, each to be identified in the prospectus supplement for such
series of Notes. Each Indenture will be substantially in the form filed as an
Exhibit to the Registration Statement.
In connection with rendering this opinion letter, we have
examined the forms of the Pooling and Servicing Agreements and Indenture
contained as Exhibits in the Registration Statement, the Registration Statement
and such records and other documents as we have deemed necessary. As to matters
of fact, we have examined and relied upon representations or certifications of
officers of the Registrant or public officials. We have assumed the authenticity
of all documents submitted to us as originals, the genuineness of all
signatures, the legal capacity of natural persons and the conformity to the
originals of all documents. We have assumed that all parties, other than the
Registrant, had the corporate power and authority to enter into and perform all
obligations thereunder, and, as to such parties, we also have assumed the
enforceability of such documents.
In rendering this opinion letter, we express no opinion as to
the laws of any jurisdiction other than the laws of the State of New York, nor
do we express any opinion, either implicitly or otherwise, on any issue not
expressly addressed below. In rendering this opinion letter, we have not passed
upon and do not pass upon the application of "doing business" or the securities
laws of any jurisdiction. This opinion letter is further subject to the
qualification that enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other laws affecting
the enforcement of the rights of creditors generally and (ii) general principles
of equity, whether enforcement is sought in a proceeding in equity or at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, such Pooling and Servicing Agreement will
be a legal and valid obligation of the Registrant.
2. When an Indenture for a series of Notes has been duly
authorized by all necessary action and duly executed and delivered by the
parties thereto, such Indenture will be a legal and valid obligation of the
applicable issuer.
3. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, and when the Certificates of such series
have been duly executed and authenticated in accordance with the provisions of
that Pooling and Servicing Agreement, and issued and sold
<PAGE>
Southern Pacific Secured Assets Corp.
April 30, 1997 Page 3.
as contemplated in the Registration Statement and the prospectus and prospectus
supplement delivered in connection therewith, such Certificates will be legally
and validly issued and outstanding, fully paid and non-assessable, and the
holders of such Certificates will be entitled to the benefits of that Pooling
and Servicing Agreement.
4. When an Indenture for a series of Notes has been duly
authorized by all necessary action and duly executed and delivered by the
parties thereto, and when the Notes of such series have been duly executed and
authenticated in accordance with the provisions of that Indenture, and issued
and sold as contemplated in the Registration Statement and the prospectus and
prospectus supplement delivered in connection therewith, such Notes will be
legally and validly issued and outstanding, fully paid and non-assessable, and
will be binding obligations of the applicable issuer, and the holders of such
Notes will be entitled to the benefits of that Indenture.
5. The description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Consequences" in the
prospectus contained in the Registration Statement, while not purporting to
discuss all possible federal income tax consequences of an investment in
Securities, is accurate with respect to those tax consequences which are
discussed.
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement, and to the use of our name in the
prospectus and prospectus supplement included in the Registration Statement
under the heading "Legal Matters", and in the prospectus included in the
Registration Statement under the heading "Certain Federal Income Tax
Consequences", without admitting that we are "experts" within the meaning of the
Act, and the rules and regulations thereunder, with respect to any part of the
Registration Statement, including this Exhibit.
Very truly yours,
/s/ Thacher Proffitt & Wood
THACHER PROFFITT & WOOD
EXHIBIT 24.1
------------
SOUTHERN PACIFIC SECURED ASSETS CORP.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints any of Bernard Guy, Robert W. Howard,
Frank Frazzitta and Jim Smith as his true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (including his capacity as
director and/or officer of Southern Pacific Secured Assets Corp.), to sign any
or all amendments (including post-effective amendments) to the Registration
Statement on Form S-3, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned Directors have executed this Power of
Attorney this 30th day of April, 1997.
SIGNATURE TITLE DATE
/s/ Robert W. Howard Director, Chairman of the April 30, 1997
- ----------------------- Board (Principal Executive Officer)
Robert W. Howard
/s/ Bernard Guy Director and Chief April 30, 1997
- ----------------------- Operating Officer
Bernard Guy
/s/ Jim Smith Director and Secretary April 30, 1997
- -----------------------
Jim Smith
/s/ Frank Frazzitta Director and Chief Financial April 30, 1997
- ----------------------- Officer (Principal Financial
Frank Frazzitta Officer and Principal Accounting
Officer)
