<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 23, 1999)
$256,997,000
(APPROXIMATE)
BEAR STEARNS ASSET BACKED SECURITIES, INC.
DEPOSITOR
EMC MORTGAGE CORPORATION
SELLER AND MASTER SERVICER
ASSET-BACKED CERTIFICATES, SERIES 2000-1
DISTRIBUTIONS ARE PAYABLE ON THE 25TH DAY OF EACH MONTH, COMMENCING IN
FEBRUARY 2000.
- -------------------
CONSIDER CAREFULLY
THE RISK FACTORS
BEGINNING ON
PAGE S-10 IN THIS
PROSPECTUS
SUPPLEMENT AND ON
PAGE 15 IN THE
PROSPECTUS.
The certificates
represent
obligations of the
trust only and do
not represent an
interest in or
obligation of Bear
Stearns Asset Backed
Securities, Inc.,
EMC Mortgage
Corporation,
IMC Mortgage
Company or
any of their
affiliates.
This prospectus
supplement may be
used to offer and
sell the offered
certificates only if
accompanied by the
prospectus.
The following classes of certificates are being offered
pursuant to this prospectus supplement and the accompanying
prospectus:
<TABLE>
ORIGINAL CERTIFICATE PASS-THROUGH
PRINCIPAL BALANCE RATE
<S> <C> <C>
Class AF $193,195,000 7.52%
Class AV $ 63,802,000 Adjustable
</TABLE>
The pass-through rate for the offered fixed rate certificates
will be subject to increase after the optional termination date
and to an interest rate cap as described in this prospectus
supplement under 'Description of the
Certificates -- Pass-Through Rates.'
The pass-through rate for the offered adjustable rate
certificates will adjust monthly, will be subject to increase
after the optional termination date, and will be subject to an
interest rate cap, in each case as described in this prospectus
supplement under 'Description of the
Certificates -- Pass-Through Rates.'
THE CERTIFICATES
The certificates represent interests in a pool of fixed
and adjustable rate, conventional, sub-prime mortgage
loans that are secured by first and second liens on one-
to four-family residential properties, as described in
this prospectus supplement.
Delinquencies and losses realized upon liquidation of
mortgage loans in the pool may adversely affect the yield
to investors in the certificates.
CREDIT ENHANCEMENT
Will be provided in the form of overcollateralization,
cross-collateralization and a certificate guaranty
insurance policy issued by Financial Security Assurance
Inc. that will unconditionally and irrevocably guarantee
payment of interest due on the offered certificates on
each distribution date and ultimate collection of the
principal balance of the certificates.
[Logo]
OPTIONAL TERMINATION
The master servicer will have the option to purchase the
assets of the trust fund on any distribution date on which
the principal balance of the mortgage loans and any
foreclosed real estate owned by the trust fund as of such
date has declined to or below 10% of the principal balance
of the mortgage loans as of January 1, 2000.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We expect that the offered certificates will be ready for delivery in
book-entry form only through the facilities of The Depository Trust Company,
Cedelbank and the Euroclear System on or about January 27, 2000. The offered
certificates will be offered in Europe and the United States of America.
BEAR, STEARNS & CO. INC.
January 21, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
PROSPECTUS SUPPLEMENT
<S> <C>
PAGE
------
Summary.......................... S-4
Risk Factors..................... S-10
The Mortgage Pool................ S-19
Servicing of the Mortgage
Loans.......................... S-32
Description of the
Certificates................... S-40
Credit Enchancement.............. S-55
Yield, Prepayment and Maturity
Considerations................. S-61
Use of Proceeds.................. S-67
The Certificate Insurer.......... S-67
Federal Income Tax
Consequences................... S-69
State Taxes...................... S-71
ERISA Considerations............. S-71
Method of Distribution........... S-73
Experts.......................... S-73
Legal Matters.................... S-74
Ratings.......................... S-74
Index of Defined Terms........... S-75
Annex I: Global Clearance,
Settlement and Tax
Documentation Procedures....... A-1
PROSPECTUS
<S> <C>
PAGE
------
Prospectus Supplement............ 3
Reports to Holders............... 3
Available Information............ 3
Incorporation of Certain
Documents by Reference......... 4
Summary of Terms................. 5
Risk Factors..................... 15
Description of the Securities.... 18
The Trust Funds.................. 21
Enhancement...................... 27
Servicing of Loans............... 29
The Agreements................... 35
Certain Legal Aspects of Loans... 42
The Depositor.................... 50
Use of Proceeds.................. 50
Certain Federal Income Tax
Considerations................. 50
State Tax Considerations......... 71
ERISA Considerations............. 71
Legal Investment................. 74
Plan of Distribution............. 74
Legal Matters.................... 74
Glossary of Terms................ 75
</TABLE>
S-2
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
- -------------------
We describe the certificates in two separate documents that provide varying
levels of detail: (a) the accompanying prospectus, which provides general
information, some of which may not apply to your certificates and (b) this
prospectus supplement, which describes the specific terms of your certificates.
If there is conflicting information between this prospectus supplement and the
accompanying prospectus, you should rely on the information in this prospectus
supplement.
Cross-references are included in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further discussions about related topics. The table of contents on page S-2
above provides the pages on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption 'Index of Defined Terms'
beginning on page S-75 in this prospectus supplement. You can find a listing of
the pages where certain capitalized terms used in the accompanying prospectus
are defined under the caption 'Glossary of Terms' beginning on page 75 in the
accompanying prospectus. Any capitalized terms that are used but not defined in
this prospectus supplement have the meanings assigned in the prospectus.
S-3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER WHEN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF AN OFFERING OF THE
CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
CERTAIN STATEMENTS CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CONSIST OF FORWARD-LOOKING
STATEMENTS RELATING TO FUTURE ECONOMIC PERFORMANCE OR PROJECTIONS AND OTHER
FINANCIAL ITEMS. THESE STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING WORDS SUCH AS 'MAY,' 'WILL,' 'SHOULD,' 'EXPECTS,' 'BELIEVES,'
'ANTICIPATES,' 'ESTIMATES,' OR OTHER COMPARABLE WORDS. FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER FROM THE PROJECTED RESULTS. THOSE RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND OUR CONTROL.
BECAUSE WE CANNOT PREDICT THE FUTURE, WHAT ACTUALLY HAPPENS MAY BE VERY
DIFFERENT FROM WHAT WE PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
THE CERTIFICATES
Asset-Backed Certificates, Series 2000-1, represent an undivided beneficial
ownership interest in a trust fund that consists primarily of a pool of fixed
and adjustable rate, conventional, sub-prime mortgage loans that are secured by
first and second liens on one-to four-family residential properties and certain
other property and assets described in this prospectus supplement.
See 'Description of the Certificates -- General' in this prospectus supplement.
ORIGINATOR
IMC Mortgage Company, a Florida corporation.
See 'The Mortgage Pool -- Underwriting Guidelines' in this prospectus
supplement.
DEPOSITOR
Bear Stearns Asset Backed Securities, Inc., a Delaware corporation and a limited
purpose finance subsidiary of The Bear Stearns Companies Inc. and an affiliate
of Bear, Stearns & Co. Inc.
See 'The Depositor' in the prospectus.
SELLER AND MASTER SERVICER
EMC Mortgage Corporation, a Delaware corporation and an affiliate of the
depositor and Bear, Stearns & Co. Inc.
See 'Servicing of the Mortgage Loans' in this prospectus supplement.
TRUSTEE
Bankers Trust Company of California, N.A., a national banking association.
See 'Description of the Certificates -- The Trustee' in this prospectus
supplement.
CERTIFICATE INSURER
Financial Security Assurance Inc., a New York corporation.
See 'The Certificate Insurer' in this prospectus supplement.
POOLING AND SERVICING AGREEMENT
The pooling and servicing agreement among the seller, the master servicer, the
depositor and the trustee, under which the trust fund will be formed.
S-4
<PAGE>
CUT-OFF DATE
The close of business on January 1, 2000.
CLOSING DATE
On or about January 27, 2000.
THE MORTGAGE LOANS
The aggregate principal balance of the mortgage loans as of the cut-off date is
$264,741,315.39. The mortgage loans will be divided into two separate groups
based on whether the interest rate on the related mortgage loans is fixed or
adjustable. Each group of mortgage loans is referred to as a 'loan group.' The
fixed rate loan group will consist solely of fixed rate mortgage loans that are
secured by first and second liens on mortgaged properties. The adjustable rate
loan group will consist solely of adjustable rate mortgage loans that are
secured by first liens on mortgaged properties.
FIXED RATE LOAN GROUP
The following table summarizes the characteristics of the mortgage loans in the
fixed rate loan group as of the cut-off date:
<TABLE>
<S> <C>
Number of Mortgage Loans..... 2,917
Aggregate Principal
Balance..................... $200,618,365.35
Average Principal Balance.... $68,775.58
Range of Principal
Balances.................... $940.46 to $577,834.39
Range of Mortgage Rates...... 6.00% to 17.90%
Weighted Average Mortgage
Rate........................ 10.16%
Weighted Average Combined
Loan-to-Value Ratio......... 75.87%
Weighted Average Scheduled
Remaining Term
to Maturity................. 245 months
Range of Scheduled Remaining
Term to Maturity............ 42 months to 359 months
Type of Mortgaged Properties
Single-family dwellings... 89.52%
2-4 family dwellings...... 8.51%
Condominiums.............. 1.82%
Mixed Use................. 0.12%
Other..................... 0.03%
Owner-occupied............... 93.72%
First liens.................. 93.49%
Second liens................. 6.51%
State Concentrations
California................ 10.15%
New York.................. 9.93%
Pennsylvania.............. 8.78%
Balloon loans................ 36.67%
30+ days delinquent.......... 4.40%
</TABLE>
ADJUSTABLE RATE LOAN GROUP
The following table summarizes the characteristics of the mortgage loans in the
adjustable rate loan group as of the cut-off date:
<TABLE>
<S> <C>
Number of Mortgage Loans..... 676
Aggregate Principal
Balance..................... $64,122,950.04
Average Principal Balance.... $94,856.43
Range of Principal $11,955.47 to
Balances.................... $666,111.88
Mortgage Interest Rates
Current Weighted Average
Mortgage Rate............ 10.19%
Range of Current Mortgage
Rates.................... 7.00% to 16.00%
Weighted Average Maximum
Mortgage Rate............ 16.72%
Range of Maximum Mortgage
Rates.................... 12.50% to 21.69%
Weighted Average Minimum
Mortgage Rate............ 9.53%
Range of Minimum Mortgage
Rates.................... 2.88% to 14.74%
Weighted Average
Loan-to-Value Ratio......... 75.71%
Weighted Average Scheduled
Remaining Term
to Maturity................. 346 months
Range of Scheduled Remaining
Term to Maturity............ 165 months to 358 months
Type of Mortgaged Properties
Single-family dwellings... 91.44%
2-4 family dwellings...... 7.10%
Condominiums.............. 1.46%
Owner-occupied............... 90.65%
First liens.................. 100.00%
State Concentrations
California................ 21.38%
Illinois.................. 8.14%
Ohio...................... 7.01%
30+ days delinquent.......... 7.25%
</TABLE>
As described in this prospectus supplement under 'The Mortgage Pool,' the
interest rates for the adjustable rate mortgage loans will generally adjust
semi-annually, subject to certain caps and floors.
Approximately 88.64% of the mortgage loans in the adjustable rate loan group are
mortgage loans that initially have a fixed rate of interest for approximately
two, three or five years following their origination, and thereafter have an
adjustable rate of interest for the remaining life of the loan.
See 'The Mortgage Pool' in this prospectus supplement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates are being issued in two certificate groups. The Class AF
Certificates,
S-5
<PAGE>
also called the 'offered fixed rate certificates,' will represent interests in
the fixed rate loan group. The Class AV Certificates, also called the 'offered
adjustable rate certificates,' will represent interests in the adjustable rate
loan group.
The trust will also issue the Class IO Certificates, Class P Certificates and a
class of residual certificates designated as the Class R Certificates, that are
not offered by this prospectus supplement.
The last scheduled distribution dates for the offered certificates are as
follows:
<TABLE>
<CAPTION>
LAST SCHEDULED
DISTRIBUTION
CLASS DATE
----- ----
<S> <C>
Class AF................................ March 25, 2030
Class AV................................ February 25, 2030
</TABLE>
RECORD DATE
For the offered fixed rate certificates, the last business day of the month
preceding the month of a distribution date. For the offered adjustable rate
certificates, as long as they are in book-entry form, the business day preceding
the applicable distribution date.
DENOMINATIONS
$25,000 and multiples of $1,000 in excess thereof.
REGISTRATION OF CERTIFICATES
The certificates will initially be issued in book-entry form. Persons acquiring
beneficial ownership interests in the certificates may elect to hold their
beneficial interests through The Depository Trust Company, in the United States,
or Cedelbank or the Euroclear System, in Europe.
See 'Description of Certificates -- Book-Entry Certificates' in this prospectus
supplement.
PASS-THROUGH RATES
The pass-through rate for the offered fixed rate certificates is the fixed rate
per annum set forth and described on the cover of this prospectus supplement. On
any distribution date, the pass-through rate for the offered fixed rate
certificates will be subject to an interest rate cap equal to the weighted
average of the adjusted net mortgage rates on the fixed rate mortgage loans.
This interest rate cap is called the 'fixed net rate cap.'
The pass-through rate for the offered adjustable rate certificates may change
from distribution date to distribution date. On any distribution date, the per
annum pass-through rate for the offered adjustable rate certificates will be
equal to the least of:
LIBOR plus the pass-through margin,
14.0% per annum, and
a maximum per annum rate referred to as the 'adjustable rate available funds
cap,' calculated as described under 'Description of the
Certificates -- Distributions -- Distributions of Interest' in this prospectus
supplement.
See 'Description of the Certificates -- Distributions -- Distributions of
Interest' and ' -- Calculation of One-Month LIBOR' in this prospectus
supplement.
If on any distribution date, the pass-through rate for the offered fixed rate
certificates is based on the fixed net rate cap, or the pass-through rate for
the offered adjustable rate certificates is based on the adjustable rate
available funds cap, the holders of those certificates will receive a smaller
amount of interest than such holders would have received on such distribution
date had the pass-through rate for those certificates not been calculated based
on the fixed net rate cap or the adjustable rate available funds cap, as
applicable.
The amount by which the interest payment on the offered adjustable rate
certificates has been reduced by operation of the adjustable rate available
funds cap will be paid on future distribution dates to the extent that money is
available to make those payments. Shortfalls attributable to the fixed net rate
cap will not be paid on any distribution date.
See 'Description of the Certificates -- Distributions' in this prospectus
supplement.
DISTRIBUTION DATES
The trustee will make distributions on the certificates on the 25th day of each
calendar
S-6
<PAGE>
month beginning in February 2000 to the appropriate holders of record. If the
25th day of a month is not a business day, then the distributions will be made
on the next business day after the 25th day of the month.
INTEREST PAYMENTS
On each distribution date holders of the offered certificates will be entitled
to receive:
the interest that has accrued on such certificates at the related pass-through
rate during the related accrual period, and
any interest due on a prior distribution date that was not paid.
The 'accrual period' for the fixed rate certificates will be the calendar month
immediately preceding the calendar month in which a distribution date occurs.
The 'accrual period' for the adjustable rate certificates will be the period
from and including the preceding distribution date (or from the closing date, in
the case of the first distribution date) to and including the day prior to the
current distribution date. Calculations of interest on the fixed rate
certificates will be based on a 360-day year that consists of twelve 30-day
months. Calculations of interest on the adjustable rate certificates will be
based on a 360-day year and the actual number of days elapsed during the related
accrual period.
There are certain circumstances that could reduce the amount of interest paid to
you.
See 'Description of the Certificates -- Distributions -- Distributions of
Interest' in this prospectus supplement.
PRINCIPAL PAYMENTS
On each distribution date, certificateholders will receive a distribution of
principal on their certificates if there is cash available on that date for the
payment of principal. Monthly principal distributions:
will generally include principal payments on the mortgage loans in the related
loan group, and
until certain overcollateralization levels have been reached, will include
excess interest payments on the mortgage loans.
You should review the priority of payments described under 'Description of the
Certificates -- Distributions' in this prospectus supplement.
See 'Description of the Certificates -- Distributions' and
' -- Overcollateralization and Crosscollateralization Provisions' in this
prospectus supplement.
CREDIT ENHANCEMENT
Credit enhancements provide limited protection to holders of specified
certificates against shortfalls in payments received on the mortgage loans. This
transaction employs the following forms of credit enhancement.
OVERCOLLATERALIZATION AND CROSS-COLLATERALIZATION
As of the closing date, the aggregate principal balance of the mortgage loans in
each loan group is expected to exceed the aggregate principal balance of the
certificates in the related certificate group by up to approximately 3.70% in
the case of the fixed rate loan group and 0.50% in the case of the adjustable
rate loan group. Each group of mortgage loans is expected to generate more
interest than is needed to pay interest on the related classes of certificates
because the weighted average interest rate of the mortgage loans in each loan
group is expected to be higher than the pass-through rate on the related
certificates. Any interest payments received in respect of the mortgage loans of
a loan group in excess of the amount that is needed to pay interest on the
certificates of the related certificate group, amounts due to the certificate
insurer and related trust fund expenses will be used to reduce further the total
principal balance of such certificates until a required level of
overcollateralization has been achieved.
In addition, the principal payment rules require that, under certain
circumstances, excess interest generated by one loan group be used to cover
shortfalls and to create or
S-7
<PAGE>
maintain overcollateralization with respect to the other loan group; this is
called 'cross-collateralization.'
See 'Description of the Certificates -- Overcollateralization and Cross-
Collateralization Provisions' in this prospectus supplement.
THE CERTIFICATE INSURANCE POLICY
The certificate insurance policy will guaranty the payment of principal and
interest on the offered certificates to the extent described in this prospectus
supplement. If the certificate insurer were unable to pay under the certificate
insurance policy, the offered certificates could be subject to losses and a
rating downgrade.
See 'The Certificate Insurer' in this prospectus supplement.
ADVANCES
The master servicer will make cash advances with respect to delinquent payments
of principal and interest on each mortgage loan to the extent that the master
servicer reasonably believes that such cash advances can be repaid from future
payments on the related mortgage loan. If the master servicer fails to make any
such advances, the trustee may be obligated to do so, as described in this
prospectus supplement. These cash advances are only intended to maintain a
regular flow of scheduled interest and principal payments on the certificates
and are not intended to guarantee or insure against losses.
See 'Servicing of the Mortgage Loans' in this prospectus supplement.
OPTIONAL TERMINATION
The master servicer may purchase all of the remaining assets in the trust fund
after the principal balance of the mortgage loans and any related foreclosed
real estate owned by the trust fund has declined to or below 10% of the
principal balance of the mortgage loans as of January 1, 2000. Such a purchase
by the master servicer will result in the early retirement of all certificates.
See 'Description of the Certificates -- Optional Termination' in this prospectus
supplement.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the trust will comprise multiple real estate
mortgage investment conduits, creating a tiered REMIC structure. The
certificates offered by this prospectus supplement will represent beneficial
ownership of REMIC 'regular interests.' The residual certificates will represent
the sole class of 'residual interest' in each REMIC.
Either class of offered certificates may be issued with original issue discount
for federal income tax purposes.
See 'Federal Income Tax Consequences' in this prospectus supplement and 'Certain
Federal Income Tax Considerations' in the prospectus for additional information
concerning the application of federal income tax laws.
LEGAL INVESTMENT
The Class AV Certificates will, and the Class AF Certificates will not, be
'mortgage related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984.
See 'Legal Investment' in the prospectus.
ERISA CONSIDERATIONS
The offered certificates may be purchased by a pension or other employee benefit
plan subject to the Employee Retirement Income Security Act of 1974 or Section
4975 of the Internal Revenue Code of 1986, so long as a number of conditions are
met. A fiduciary of an employee benefit plan must determine that the purchase of
a certificate is consistent with its fiduciary duties under applicable law and
does not result in a nonexempt prohibited transaction under applicable law.
See 'ERISA Considerations' in this prospectus supplement and in the prospectus.
RATINGS
The classes of certificates listed below will not be offered unless they receive
the
S-8
<PAGE>
respective ratings set forth below from Moody's Investors Service, Inc. and
Standard & Poor's Rating Service, a division of The McGraw-Hill Companies, Inc.
<TABLE>
<CAPTION>
Standard
Moody's & Poor's
Class Rating Rating
----- ------ ------
<S> <C> <C>
AF Aaa AAA
AV Aaa AAA
</TABLE>
A rating is not a recommendation to buy, sell or hold securities and either
rating agency can revise or withdraw such ratings at any time. In general,
ratings address credit risk and do not address the likelihood of prepayments.
See 'Ratings' in this prospectus supplement and 'Risk Factors -- Ratings are not
Recommendations' in the prospectus.
S-9
<PAGE>
RISK FACTORS
IN ADDITION TO THE MATTERS DESCRIBED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE
DECIDING TO PURCHASE A CERTIFICATE.
<TABLE>
<S> <C>
THE ORIGINATOR HAS CEASED OPERATIONS AS A
RESULT OF FINANCIAL DIFFICULTIES. All of the mortgage loans were originated or
purchased by IMC Mortgage Company during the period
from March 11, 1996 to November 15, 1999. Since the
middle of 1998, the originator experienced
significant financial difficulties as a result of
which it dramatically slowed its originations and
entered into a workout with its principal lenders.
There can be no assurance that the performance of
the mortgage loans will correlate with the
performance of mortgage loans originated by the
originator in prior years.
SERVICING OF THE MORTGAGE LOANS WILL BE
TRANSFERRED FOLLOWING THE CLOSING DATE. On or prior to the closing date, the seller will
purchase the mortgage loans on a servicing released
basis from the originator. Following the closing
date, the direct servicing of the mortgage loans
will be transferred to the master servicer. Any
transfer of servicing creates the possibility of
disruptions on collections and increases in
delinquencies and defaults due to misdirected or
misapplied payments, systems incompatabilities,
data input errors and other reasons. Although we
expect any disruptions would be temporary, we
cannot assure you as to the duration or severity of
the disruptions that may result from the transfer
of servicing. As a result, the mortgage loans may
initially experience higher rates of delinquencies,
defaults and loss severity than are typical in the
subprime mortgage market.
In addition, the certificate insurer will have the
right under certain circumstances not to renew the
master servicer's servicing right at the end of the
initial term or for any successive term of no more
than six months and to replace the master servicer.
CREDIT ENHANCEMENT MAY BE INADEQUATE TO
COVER LOSSES OVERCOLLATERALIZATION. The principal balance of the
mortgage loans in each loan group initially is
expected to be greater than the principal balance
of the related offered certificates; that is, each
certificate group initially will be
overcollateralized. Each group of mortgage loans is
expected to generate more interest than is needed
to pay interest on the related offered certificates
because the weighted average interest rate on the
related mortgage loans is expected to be higher
than the pass-through rate
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
on the related offered certificates. If the related
mortgage loans generate more interest than is
needed to pay interest on the related certificates
and trust fund expenses, such 'excess interest'
will be used to make additional principal payments
on the related certificates, which will reduce the
total principal balance of those certificates below
the aggregate principal balance of the related
mortgage loans, thereby creating additional
overcollateralization. Overcollateralization is
intended to provide limited protection to
certificateholders by absorbing the related
certificates' share of losses from liquidated
mortgage loans. However, we cannot assure you that
enough excess interest will be generated on the
mortgage loans of either loan group to establish or
maintain the required levels of
overcollateralization for the related certificate
group.
The excess interest available on any distribution
date will be affected by the actual amount of
interest received, advanced or recovered in respect
of the mortgage loans during the preceding month.
Such amount will be influenced by changes in the
weighted average of the mortgage rates resulting
from prepayments and liquidations of the related
mortgage loans as well as from adjustments of the
mortgage rates on adjustable rate mortgage loans.
Because the index used to determine the mortgage
rates on the adjustable rate mortgage loans is
different from the index used to determine the
pass-through rate on the offered adjustable rate
certificates, it is possible that the pass-through
rate on those certificates may be higher than the
interest rates on the related mortgage loans. In
that event, it may be necessary to apply all or a
portion of the available interest collections to
make required payments of interest on the offered
adjustable rate certificates. As a result, excess
interest may be unavailable for any other purpose.
If the certificate insurer becomes unable to
fulfill its obligations under the certificate
insurance policy, the trust fund would rely solely
on the overcollateralization and
cross-collateralization provisions to provide
protection against defaults. If the protection
afforded by overcollateralization and
cross-collateralization is insufficient, then you
could experience a loss on your investment.
CERTIFICATE INSURANCE POLICY. The certificate
insurance policy guarantees the timely payment of
interest and the ultimate payment of principal on
the offered certificates. However, the certificate
insurance policy does not cover any shortfalls in
interest collections due either to the application
of the Soldiers and Sailors Civil Relief Act of
1940 or to prepayment interest shortfalls. If the
other
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
forms of credit enhancement are inadequate to cover
these shortfalls, if any, the amount of interest
distributed will be reduced. In addition, a draw in
respect of principal under the certificate
insurance policy will not be made unless the
aggregate principal balance of the mortgage loans
in both loan groups is less than the aggregate
principal balances of the offered certificates in
both certificate groups. As a result, one
certificate group may be undercollateralized and no
draw in respect of principal would be made on the
certificate insurance policy.
ADJUSTMENTS OF THE MORTGAGE RATES MAY
LIMIT THE PASS-THROUGH RATE ON THE OFFERED
ADJUSTABLE RATE CERTIFICATES The pass-through rate on the offered adjustable
rate certificates adjusts monthly and is generally
based on one-month LIBOR. The mortgage rates on the
adjustable rate mortgage loans generally adjust
semi-annually based on six-month LIBOR. In
addition, a majority of the adjustable rate
mortgage loans do not have their first adjustment
dates for two, three or five years after
origination. Because six-month LIBOR may respond to
different economic and market factors than
one-month LIBOR, there is not necessarily a
correlation in movement between those indices. For
example, it is possible that the interest rates on
some mortgage loans may decline while the
pass-through rate on the related certificates is
stable or rising. In addition, although it is
possible that both the mortgage rates and
certificate pass-through rate may decline or
increase during the same period, because of the
difference between interest rate adjustment periods
and pass-through rate adjustment periods, mortgage
rates may decline or increase more slowly than the
related certificate pass-through rate.
This absence of a correlation between movement in
the mortgage rates and the certificate pass-through
rate may reduce the interest payable on the
adjustable rate certificates because of the
imposition of a pass-through rate cap called the
'adjustable rate available funds cap.'
If on any distribution date the pass-through rate
for the offered adjustable rate certificates is
based on the adjustable rate available funds cap,
the holders of those certificates will receive a
smaller amount of interest than they would have
received on that distribution date had the
pass-through rate for those certificates not been
calculated based on the adjustable rate available
funds cap. Although it is intended that the amount
by which a certificateholder's interest payment has
been reduced by operation of the adjustable rate
available funds cap will be paid to that
certificateholder on future distribution dates,
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
we cannot assure you that excess funds will be
available to make any such payments. The ratings of
the offered adjustable rate certificates do not
address the likelihood of, and the certificate
insurance policy does not guarantee, the payment of
these amounts.
PREPAYMENTS AND DEFAULTS ON THE FIXED RATE
MORTGAGE LOANS MAY REDUCE THE YIELD ON THE
OFFERED FIXED RATE CERTIFICATES The pass-through rate on the offered fixed rate
certificates is subject to an interest rate cap
called the fixed net rate cap, equal to the
weighted average of the adjusted net mortgage rates
on the fixed rate mortgage loans. If fixed rate
mortgage loans with relatively higher mortgage
rates were to prepay or default, the fixed net rate
cap would be lower than otherwise would be the
case. If the pass-through rate on the offered fixed
rate certificates is limited by the fixed net rate
cap on any distribution date, the holders of those
certificates will not be entitled to recover any
resulting shortfall in interest on that
distribution date or on any other distribution
date.
DEFAULTS ON SECOND LIEN MORTGAGE LOANS
COULD RESULT IN PAYMENT DELAYS OR LOSSES Approximately 6.51% of the cut-off date principal
balance of the mortgage loans in the fixed rate
loan group will be secured by second mortgages on
residential properties. In the case of
liquidations, mortgage loans secured by second
mortgages are entitled to proceeds that remain from
the sale of the related mortgaged property after
any related first lien mortgage loan and prior
statutory liens have been repaid in full and any
related foreclosure costs have been paid. If those
proceeds are insufficient to satisfy the mortgage
loans secured by second mortgages and prior liens
and costs in the aggregate, the trust fund and,
accordingly, holders of the offered fixed rate
certificates will bear:
the risk of delay in distributions while any
deficiency judgment against the borrower is sought,
and
the risk of loss if the deficiency judgment cannot
be obtained or is not realized upon.
See 'Certain Legal Aspects of the Loans' in the
prospectus.
BALLOON LOANS MAY HAVE HIGH RATES OF
DEFAULT With respect to approximately 36.67% of the cut-off
date principal balance of the mortgage loans in the
fixed rate loan group, borrowers make monthly
payments of principal that are less than sufficient
to amortize those mortgage loans by their maturity.
These loans are commonly called 'balloon loans.' As
a result of these
</TABLE>
S-13
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<TABLE>
<S> <C>
lower monthly payments, a borrower generally will
be required to pay a large remaining principal
balance upon the maturity of a balloon loan. The
ability of a borrower to make that payment may
depend on its ability to obtain refinancing of the
balance due on the mortgage loan. In addition, an
increase in prevailing market interest rates over
the loan rate on the mortgage loan at origination
may reduce the borrower's ability to obtain
refinancing and to pay the principal balance of the
mortgage loan at its maturity.
DEFAULTS COULD CAUSE PAYMENT DELAYS AND
LOSSES There could be substantial delays in the
liquidation of defaulted mortgage loans and
corresponding delays in your receiving your portion
of the proceeds of liquidation. These delays could
last up to several years. Furthermore, an action to
obtain a deficiency judgment is regulated by
statutes and rules, and the amount of a deficiency
judgment may be limited by law. In the event of a
default by a borrower, these restrictions may
impede the ability of the master servicer to
foreclose on or to sell the mortgaged property or
to obtain a deficiency judgment. In addition,
liquidation expenses such as legal and appraisal
fees, real estate taxes and maintenance and
preservation expenses, will reduce the amount of
security for the mortgage loans and, in turn,
reduce the proceeds payable to certificateholders.
YOUR YIELD COULD BE ADVERSELY AFFECTED BY
THE UNPREDICTABILITY OF PREPAYMENTS No one can accurately predict the level of
prepayments that the trust fund will experience.
The trust fund's prepayment experience may be
affected by many factors, including:
general economic conditions,
the level of prevailing interest rates,
the availability of alternative financing,
homeowner mobility, and
the level of defaults.
Substantially all of the mortgage loans contain
due-on-sale provisions, and the master servicer
intends to enforce those provisions unless doing so
is not permitted by applicable law or the master
servicer, in a manner consistent with reasonable
commercial practice, permits the purchaser of the
mortgaged property in question to assume the
related mortgage loan. In addition approximately
62.90% of the mortgage loans by cut-off date
principal balance impose a prepayment charge in
connection with voluntary prepayments made within a
specified period after origination.
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
See 'The Mortgage Pool' and 'Yield, Prepayment and
Maturity Considerations' in this prospectus
supplement and 'Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses in Mortgage Loans' in
the prospectus for a description of certain
provisions of the mortgage loans that may affect
the prepayment experience on the mortgage loans.
The weighted average life of the certificates will
be sensitive to the rate and timing of principal
payments, including prepayments, on the mortgage
loans, which may fluctuate significantly from time
to time.
You should note that:
if you purchase your certificates at a discount and
principal is repaid on the related mortgage loans
slower than you anticipate, then your yield may be
lower than you anticipate;
if you purchase your certificates at a premium and
principal is repaid on the related mortgage loans
faster than you anticipate, then your yield may be
lower than you anticipate;
if you purchase an adjustable rate certificate,
your yield will also be sensitive to the level of
one-month LIBOR, the timing of adjustment of the
pass-through rate on your certificate as it
relates to the timing of adjustment of the
interest rates on the adjustable rate mortgage
loans, the level of the mortgage index and other
limitations on the pass-through rate of your
certificate, as described further in this
prospectus supplement; and
you bear the reinvestment risks resulting from a
faster or slower rate of principal payments than
you expected.
See 'Yield, Prepayment and Maturity Considerations'
in this prospectus supplement.
VIOLATIONS OF CONSUMER PROTECTION LAWS MAY
RESULT IN LOSSES Certain of the mortgage loans in each loan group
are subject to the Home Ownership and Equity
Protection Act of 1994, which amended the Truth in
Lending Act as it applies to certain mortgages.
This act requires some additional disclosures,
specifies the timing of those disclosures and
limits or prohibits inclusion of specific
provisions in mortgages subject to the act, any
violation of which could limit the ability of the
master servicer to collect on these mortgage loans.
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
The act also provides that any purchaser or
assignee of a mortgage covered by the act,
including the trust fund, is subject to all of the
claims and defenses which the borrower could assert
against the original lender. The maximum damages
that may be recovered under the act from an
assignee is the remaining amount of indebtedness
plus the total amount paid by the borrower in
connection with the mortgage loan.
The trust fund could be subject to all of the
claims and defenses which the borrower could assert
against the originator. Any violation of the act
which would result in this type of liability would
be a breach of the seller's representations and
warranties and the seller would be obligated to
cure or repurchase for the mortgage loan in
question, which could accelerate the timing of
principal distributions with respect to the related
loan group and may thereby affect the yields and
weighted average lives of your certificates. If the
seller fails to cure or repurchase, you may suffer
a loss.
A REDUCTION IN CERTIFICATE RATING COULD
HAVE AN ADVERSE EFFECT ON THE VALUE OF
YOUR CERTIFICATES The ratings of the certificates will depend
primarily on an assessment by the rating agencies
of the claims paying ability of the certificate
insurer. The rating by each of the rating agencies
of the certificates is not a recommendation to
purchase, hold or sell the certificates because
that rating does not address the market price of
the certificates or suitability for a particular
investor.
The rating agencies may suspend, reduce or withdraw
the rating of the claims paying ability of the
certificate insurer at any time. Any reduction in,
or suspension or withdrawal of, the ratings
assigned to the claims paying ability of the
certificate insurer would reduce the ratings on the
certificates and would probably reduce the market
value of the certificates and may affect your
ability to sell them.
YOUR DISTRIBUTIONS COULD BE ADVERSELY
AFFECTED BY THE BANKRUPTCY OR INSOLVENCY
OF CERTAIN PARTIES EMC Mortgage Corporation will treat its transfer of
the mortgage loans to the depositor as a sale of
the mortgage loans. However, if EMC Mortgage
Corporation becomes bankrupt, the trustee in
bankruptcy may argue that the mortgage loans were
not sold but were only pledged to secure a loan to
EMC Mortgage Corporation. If that argument is made,
you could experience delays or reduction in
payments on the certificates. If that argument is
successful, the bankruptcy trustee could elect to
sell the mortgage loans and pay down the
certificates early. Thus,
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
you could lose the right to future payments of
interest, and might suffer reinvestment loss in a
lower interest rate environment.
In addition, if the master servicer becomes
bankrupt, a bankruptcy trustee or receiver may have
the power to prevent the trustee from appointing a
successor master servicer. Any related delays in
servicing could result in increased delinquencies
or losses on the mortgage loans.
DEVELOPMENTS IN SPECIFIED STATES
COULD HAVE A DISPROPORTIONATE EFFECT ON
THE MORTGAGE LOANS DUE TO GEOGRAPHIC
CONCENTRATION OF MORTGAGED PROPERTIES Approximately 10.15%, 9.93%, 8.78%, 7.27%, 6.22%
and 5.74% of the fixed rate mortgage loans as of
the cut-off date are secured by mortgaged
properties that are located in the states of
California, New York, Pennsylvania, Florida,
Michigan and Illinois respectively. Approximately
21.38%, 8.14%, 7.01% and 6.01% of the adjustable
rate mortgage loans as of the cut-off date are
secured by mortgaged properties that are located in
the states of California, Illinois, Ohio and
Florida, respectively. Property in California may
be more susceptible than homes located in other
parts of the country to certain types of
uninsurable hazards, such as earthquakes, floods,
mudslides and other natural disasters. In addition,
economic conditions in the specified states, which
may or may not affect real property values, may
affect the ability of borrowers to repay their
loans on time;
declines in the residential real estate market in
the specified states may reduce the values of
properties located in those states, which would
result in an increase in the loan-to-value ratios;
and
any increase in the market value of properties
located in the specified states would reduce the
loan-to-value ratios and could, therefore, make
alternative sources of financing available to the
borrowers at lower interest rates, which could
result in an increased rate of prepayment of the
mortgage loans.
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
YOU MAY HAVE DIFFICULTY SELLING YOUR
CERTIFICATES The underwriter intends to make a secondary market
in the offered certificates, but the underwriter
has no obligation to do so. We cannot assure you
that a secondary market will develop or, if it
develops, that it will continue. Consequently, you
may not be able to sell your certificates readily
or at prices that will enable you to realize your
desired yield. The market values of the
certificates are likely to fluctuate, and such
fluctuations may be significant and could result in
significant losses to you.
The secondary markets for asset backed securities
have experienced periods of illiquidity and can be
expected to do so in the future. Illiquidity can
have a severely adverse effect on the prices of
certificates that are especially sensitive to
prepayment, credit or interest rate risk, or that
have been structured to meet the investment
requirements of limited categories of investors.
</TABLE>
S-18
<PAGE>
THE MORTGAGE POOL
GENERAL
Information with respect to the conventional, sub-prime mortgage loans (the
'Mortgage Loans') expected to be included in the pool of mortgage loans (the
'Mortgage Pool') included in the trust fund (the 'Trust Fund') is set forth
below. Prior to January 27, 2000 (the 'Closing Date'), Mortgage Loans may be
removed from the Mortgage Pool and/or other Mortgage Loans may be substituted
therefor. Bear Stearns Asset Backed Securities, Inc. (the 'Depositor') believes
that the information set forth herein with respect to the Mortgage Pool as
presently constituted is representative of the characteristics of the Mortgage
Pool as it will be constituted at the Closing Date, although certain
characteristics of the Mortgage Loans in the Mortgage Pool may vary. Unless
otherwise indicated, information presented below expressed as a percentage
(other than rates of interest) are approximate percentages based on (a) the
aggregate principal balance of the related group of Mortgage Loans as of
January 1, 2000 (such date, the 'Cut-off Date,' and such aggregate principal
balance, a 'Cut-off Date Principal Balance'), or (b) the aggregate principal
balance of all of the Mortgage Loans in the Mortgage Loans in the Mortgage Pool
as of the Cut-off Date (the 'Cut-off Date Pool Principal Balance').
All of the Mortgage Loans to be included in the Trust Fund will be evidenced
by promissory notes (the 'Mortgage Notes') secured by first and second lien
deeds of trust, security deeds or mortgages on one- to four-family residential
properties (the 'Mortgaged Properties') which are located in 48 states and the
District of Columbia. Each Mortgage Loan in the Trust Fund will be assigned to
one of two mortgage loan groups each of which constitutes a separate sub-trust
('Fixed Rate Loan Group' and 'Adjustable Rate Loan Group,' and each a 'Loan
Group'), comprised of Mortgage Loans that bear interest at fixed rates, in the
case of the Fixed Rate Loan Group (such Mortgage Loans, the 'Fixed Rate Mortgage
Loans'), and adjustable rates, in the case of the Adjustable Rate Loan Group
(such Mortgage Loans, the 'Adjustable Rate Mortgage Loans').
All of the Mortgage Loans to be included in the Trust Fund will provide for
the amortization of the amount financed over a series of monthly payments and
will provide for payments due as of a specified day of each month (each, a 'Due
Date'). The Due Dates occur throughout the month. The Mortgage Loans to be
included in the Trust Fund have been purchased by EMC Mortgage Corporation
directly in privately negotiated transactions from IMC Mortgage Company. The
Mortgage Loans were originated substantially in accordance with the underwriting
criteria for subprime ('B&C') quality Mortgage Loans described herein under
' -- Underwriting Guidelines.' Subprime mortgage loans are generally mortgage
loans made to borrowers with prior credit difficulties.
Scheduled monthly payments made by the Mortgagors on the Mortgage Loans
('Scheduled Payments') either earlier or later than the scheduled due dates
thereof will not affect the amortization schedule or the relative application of
such payments to principal and interest. The Mortgage Notes generally provide
for a grace period for monthly payments. Any Mortgage Loan may be prepaid in
full or in part at any time; however, approximately 58.90% of the Mortgage Loans
in the Fixed Rate Loan Group and approximately 75.42% of the Mortgage Loans in
the Adjustable Rate Loan Group (by Cut-off Date Principal Balance) provide for
the payment by the borrower of a prepayment charge on full prepayments made
within a specified period from the date of execution of the related Mortgage
Note.
The Cut-off Date Pool Principal Balance is $264,741,315.39, which is equal
to the aggregate Stated Principal Balance of the Mortgage Loans as of the
Cut-off Date. The 'Stated Principal Balance' of any Mortgage Loan as of any
Distribution Date is its Cut-off Date Principal Balance minus the sum the
principal portion of payments due or received prior to such Distribution Date
with respect to such Mortgage Loan, including Liquidation Proceeds. The Mortgage
Loans to be transferred by the Depositor to the Trust Fund on the Closing Date
will consist of 3,593 Mortgage Loans, of which approximately 75.78% are fixed
rate mortgage loans and approximately 24.22% are adjustable rate mortgage loans.
S-19
<PAGE>
Adjustable Rate Mortgage Loans. Substantially all of the Adjustable Rate
Mortgage Loans will have a Mortgage Rate which is subject to semi-annual
adjustment on the respective dates specified in the related Mortgage Note (each
such date, an 'Adjustment Date') to equal the sum, generally rounded to the
nearest 0.125%, of (i) the average of the London interbank offered rates for
six-month U.S. dollar deposits in the London market, as set forth in The Wall
Street Journal, or, if such rate ceases to be published in The Wall Street
Journal or becomes unavailable for any reason, then based upon a new index
selected by the Trustee, as holder of the related Mortgage Note, based on
comparable information, in substantially all cases as most recently announced as
of a date which is 30 or 45 days prior to such Adjustment Date (the 'Mortgage
Index'), and (ii) a fixed percentage amount specified in the related Mortgage
Note (the 'Gross Margin'); provided, however, that the Mortgage Rate for
substantially all of the Adjustable Rate Mortgage Loans will not increase or
decrease by more than 1.000% or 1.500% on any Adjustment Date (the 'Periodic
Rate Cap'), with the exception of the initial Adjustment Date for certain of the
2/28 Mortgage Loans, 3/27 Mortgage Loans and 5/25 Mortgage Loans (each defined
below), which are subject to a different initial Periodic Rate Cap, which is set
forth in the Mortgage Note. Substantially all of the Mortgage Loans in the
Adjustable Rate Loan Group were originated with Mortgage Rates less than the sum
of the then applicable Mortgage Index and the related Gross Margin.
Approximately 71.87% of the Mortgage Loans in the Adjustable Rate Loan Group
have fixed Mortgage Rates for approximately 24 months after origination thereof
(the '2/28 Mortgage Loans'), approximately 16.52% of the Mortgage Loans in the
Adjustable Rate Loan Group have fixed Mortgage Rates for approximately
36 months after origination thereof (the '3/27 Mortgage Loans') and
approximately 0.25% of the Mortgage Loans in the Adjustable Rate Loan Group have
fixed Mortgage Rates for approximately 60 months after origination thereof (the
'5/25 Mortgage Loans'), in each case before becoming subject to the semi-annual
adjustment described in the preceding sentences. Each of the Mortgage Loans in
the Adjustable Rate Loan Group will provide that over the life of each such
Mortgage Loan the Mortgage Rate will in no event be more than a specified rate
(the 'Maximum Mortgage Rate') or less than a specified rate (the 'Minimum
Mortgage Rate'), if any, set forth in the Mortgage Note. Effective with the
first payment due on an Adjustable Rate Mortgage Loan after each related
Adjustment Date, the monthly payment will be adjusted to an amount which will
fully amortize the outstanding principal balance of the Mortgage Loan over its
remaining term.
Loan-to-Value Ratio and Combined Loan-to-Value Ratio. The 'Loan-to-Value
Ratio' of a Mortgage Loan is equal to (1) the principal balance of such Mortgage
Loan at the date of origination, divided by (2) the Collateral Value of the
related Mortgaged Property. The 'Combined Loan-to-Value Ratio' of a Mortgage
Loan at any given time is the ratio, expressed as a percentage, of (1) the sum
of (a) the original principal balance of the Mortgage Loan and (b) the
outstanding principal balance at the date of origination of the Mortgage Loan of
any senior mortgage loan(s) to (2) the Collateral Value of the related Mortgaged
Property. The 'Collateral Value' of a Mortgaged Property is the lesser of
(x) the appraised value based on an appraisal made by an independent fee
appraiser at the time of the origination of the related Mortgage Loan, and
(y) the sales price of that Mortgaged Property at the time of origination. With
respect to a Mortgage Loan the proceeds of which were used to refinance an
existing mortgage loan, the Collateral Value is the appraised value of the
Mortgaged Property based upon the appraisal obtained at the time of refinancing.
No assurance can be given that the values of the Mortgaged Properties have
remained or will remain at their levels as of the dates of origination of the
related Mortgage Loans.
MORTGAGE LOANS
The following information sets forth in tabular format certain information,
as of the Cut-off Date, about the Mortgage Loans. Other than with respect to
rates of interest, percentages are approximate and are stated by Stated
Principal Balance of the related Loan Group as of the Cut-off Date. The sum of
the columns below may not equal the total indicated due to rounding.
S-20
<PAGE>
FIXED RATE LOAN GROUP
<TABLE>
<CAPTION>
MORTGAGE RATES FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MORTGAGE RATES MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
5.501% - 6.000%.......... 4 $ 233,580.62 0.12%
6.001% - 6.500%.......... 10 1,716,043.08 0.86
6.501% - 7.000%.......... 19 2,325,951.45 1.16
7.001% - 7.500%.......... 23 2,693,318.92 1.34
7.501% - 8.000%.......... 60 8,728,130.37 4.35
8.001% - 8.500%.......... 102 11,193,042.32 5.58
8.501% - 9.000%.......... 264 23,931,767.34 11.93
9.001% - 9.500%.......... 259 19,137,746.25 9.54
9.501% - 10.000%.......... 480 37,511,000.37 18.70
10.001% - 10.500%.......... 289 20,566,563.41 10.25
10.501% - 11.000%.......... 405 24,457,784.12 12.19
11.001% - 11.500%.......... 229 12,569,925.89 6.27
11.501% - 12.000%.......... 258 13,434,629.89 6.70
12.001% - 12.500%.......... 145 6,496,948.47 3.24
12.501% - 13.000%.......... 149 7,304,753.66 3.64
13.001% - 13.500%.......... 71 3,695,687.60 1.84
13.501% - 14.000%.......... 68 2,695,574.32 1.34
14.001% - 14.500%.......... 23 698,939.76 0.35
14.501% - 15.000%.......... 32 550,342.01 0.27
15.001% - 15.500%.......... 12 307,910.46 0.15
15.501% - 16.000%.......... 10 268,583.76 0.13
16.001% - 16.500%.......... 1 14,449.13 0.01
16.501% - 17.000%.......... 3 74,299.87 0.04
17.501% - 18.000%.......... 1 11,392.28 0.01
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans in the Fixed Rate Loan Group was approximately 10.16% per annum.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF COMBINED NUMBER OF BALANCE LOAN
LOAN-TO-VALUE RATIOS MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
0.00% - 10.00%........... 2 $ 72,252.16 0.04%
10.01% - 20.00%.......... 8 212,769.31 0.11
20.01% - 25.00%.......... 15 342,501.94 0.17
25.01% - 30.00%.......... 12 299,522.29 0.15
30.01% - 40.00%.......... 44 1,353,673.43 0.67
40.01% - 50.00%.......... 134 5,712,548.62 2.85
50.01% - 60.00%.......... 212 9,534,992.04 4.75
60.01% - 70.00%.......... 632 34,798,500.18 17.35
70.01% - 80.00%.......... 1,310 98,812,389.62 49.25
80.01% - 90.00%.......... 493 44,461,063.12 22.16
90.01% - 100.00%.......... 53 4,748,864.91 2.37
100.01% - 110.00%.......... 2 269,287.73 0.13*
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Combined Loan-to-Value Ratio of
the Mortgage Loans in the Fixed Rate Loan Group was approximately 75.87%.
* Mortgage Loans having a Combined Loan-to-Value Ratio in excess of 100% will
not be included in the Mortgage Pool delivered on the Closing Date.
<TABLE>
<CAPTION>
MORTGAGE LOAN PRINCIPAL BALANCE FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MORTGAGE LOAN NUMBER OF BALANCE LOAN
PRINCIPAL BALANCES MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00..... 450 $ 7,603,994.99 3.79%
$ 25,000.01 - $ 50,000.00... 921 34,690,621.77 17.29
$ 50,000.01 - $ 75,000.00... 658 40,425,551.39 20.15
$ 75,000.01 - $100,000.00... 356 30,921,550.63 15.41
$100,000.01 - $125,000.00... 198 22,047,784.32 10.99
$125,000.01 - $150,000.00... 112 15,269,661.41 7.61
$150,000.01 - $175,000.00... 69 11,203,018.29 5.58
$175,000.01 - $200,000.00... 43 8,030,872.98 4.00
$200,000.01 - $225,000.00... 31 6,589,230.80 3.28
$225,000.01 - $250,000.00... 18 4,272,565.09 2.13
$250,000.01 - $275,000.00... 14 3,699,560.55 1.84
$275,000.01 - $300,000.00... 13 3,753,707.01 1.87
$300,000.01 - $325,000.00... 14 4,375,296.52 2.18
$325,000.01 - $350,000.00... 7 2,359,590.96 1.18
$350,000.01 - $375,000.00... 4 1,445,923.26 0.72
$375,000.01 - $400,000.00... 3 1,169,560.95 0.58
$400,000.01 - $425,000.00... 1 424,081.41 0.21
$425,000.01 - $450,000.00... 3 1,300,677.14 0.65
$450,000.01+............... 2 1,035,115.88 0.52
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the average principal balance of the Mortgage Loans
in the Fixed Rate Loan Group was approximately $68,775.58.
S-21
<PAGE>
FIXED RATE LOAN GROUP
<TABLE>
<CAPTION>
STATE DISTRIBUTIONS OF
MORTGAGED PROPERTIES FOR THE MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
STATE MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
Alaska..................... 2 $ 110,205.85 0.05%
Arizona.................... 16 1,148,176.30 0.57
Arkansas................... 28 1,076,329.19 0.54
California................. 141 20,357,388.57 10.15
Colorado................... 39 2,883,349.54 1.44
Connecticut................ 31 2,857,980.41 1.42
Delaware................... 29 1,611,255.38 0.80
District of Columbia....... 2 105,563.38 0.05
Florida.................... 222 14,586,861.33 7.27
Georgia.................... 72 4,244,520.94 2.12
Hawaii..................... 1 167,459.41 0.08
Idaho...................... 4 336,417.70 0.17
Illinois................... 156 11,509,682.56 5.74
Indiana.................... 118 5,463,090.22 2.72
Iowa....................... 19 927,582.22 0.46
Kansas..................... 21 1,006,995.67 0.50
Kentucky................... 20 1,258,295.91 0.63
Louisiana.................. 44 2,316,257.49 1.15
Maine...................... 9 390,598.05 0.19
Maryland................... 112 8,522,766.60 4.25
Massachusetts.............. 69 6,414,943.03 3.20
Michigan................... 219 12,482,285.40 6.22
Minnesota.................. 16 1,085,974.82 0.54
Mississippi................ 18 877,447.07 0.44
Missouri................... 50 2,310,292.56 1.15
Montana.................... 1 73,875.60 0.04
Nebraska................... 20 1,045,841.44 0.52
Nevada..................... 8 1,044,586.44 0.52
New Hampshire.............. 9 547,124.65 0.27
New Jersey................. 68 6,458,563.41 3.22
New Mexico................. 11 669,883.41 0.33
New York................... 251 19,920,831.84 9.93
North Carolina............. 147 8,739,773.07 4.36
North Dakota............... 2 143,332.23 0.07
Ohio....................... 152 8,592,265.45 4.28
Oklahoma................... 24 1,377,803.89 0.69
Oregon..................... 18 2,063,654.12 1.03
Pennsylvania............... 346 17,604,380.28 8.78
Rhode Island............... 14 1,025,738.80 0.51
South Carolina............. 69 4,186,927.12 2.09
Tennessee.................. 68 4,486,676.21 2.24
Texas...................... 79 5,543,944.31 2.76
Utah....................... 22 2,314,570.27 1.15
Vermont.................... 5 246,887.99 0.12
Virginia................... 80 4,965,476.26 2.48
Washington................. 30 3,980,475.37 1.98
West Virginia.............. 12 798,849.76 0.40
Wisconsin.................. 17 554,258.78 0.28
Wyoming.................... 6 180,925.05 0.09
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
Single Family.............. 2,639 $179,593,165.93 89.52%
2-4 Family................. 216 17,076,927.87 8.51
Condo...................... 58 3,649,605.02 1.82
Mixed Use.................. 3 234,867.37 0.12
Other...................... 1 63,799.16 0.03
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
Owner...................... 2,663 $188,017,940.30 93.72%
Investment................. 254 12,600,425.05 6.28
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ---------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
REMAINING MONTHS TO STATED MATURITY FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
REMAINING TERM (MONTHS) MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
0 - 48................... 1 $ 46,728.84 0.02%
49 - 60.................. 5 147,587.61 0.07
61 - 120.................. 120 3,142,702.55 1.57
121 - 180.................. 1,509 98,302,500.86 49.00
181 - 240.................. 293 16,375,896.83 8.16
241 - 300.................. 55 3,911,923.13 1.95
301 - 360.................. 934 78,691,025.53 39.22
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average remaining months to scheduled
maturity was approximately 245 months.
<TABLE>
<CAPTION>
LOAN PURPOSE FOR THE
MORTGAGE LOANS IN THE
FIXED RATE LOAN GROUP
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
Refinance.................. 2,540 $168,227,419.52 83.85%
Purchase................... 376 32,327,146.67 16.11
Other...................... 1 63,799.16 0.03
----- --------------- ------
Total.................... 2,917 $200,618,365.35 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-22
<PAGE>
ADJUSTABLE RATE LOAN GROUP
<TABLE>
<CAPTION>
MORTGAGE RATES FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MORTGAGE RATES MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
6.501% - 7.000%........... 1 $ 393,255.30 0.61%
7.001% - 7.500%........... 7 1,161,424.84 1.81
7.501% - 8.000%........... 19 3,499,290.46 5.46
8.001% - 8.500%........... 30 3,122,627.17 4.87
8.501% - 9.000%........... 42 6,326,501.65 9.87
9.001% - 9.500%........... 77 9,695,240.70 15.12
9.501% - 10.000%........... 108 10,371,128.61 16.17
10.001% - 10.500%........... 67 6,013,121.28 9.38
10.501% - 11.000%........... 79 8,245,277.05 12.86
11.001% - 11.500%........... 57 4,011,962.81 6.26
11.501% - 12.000%........... 49 3,187,161.66 4.97
12.001% - 12.500%........... 31 2,417,308.48 3.77
12.501% - 13.000%........... 34 2,212,685.84 3.45
13.001% - 13.500%........... 29 1,479,145.38 2.31
13.501% - 14.000%........... 17 844,623.14 1.32
14.001% - 14.500%........... 14 614,534.54 0.96
14.501% - 15.000%........... 9 290,909.08 0.45
15.001% - 15.500%........... 3 107,868.24 0.17
15.501% - 16.000%........... 3 128,883.81 0.20
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans in the Adjustable Rate Loan Group was approximately 10.19% per annum.
<TABLE>
<CAPTION>
GROSS MARGINS FOR
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
GROSS MARGINS MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
0.001% - 4.000%........... 11 $ 1,103,191.82 1.72%
4.001% - 5.000%........... 15 1,243,146.39 1.94
5.001% - 6.000%........... 138 16,152,805.30 25.19
6.001% - 7.000%........... 243 26,768,868.18 41.75
7.001% - 8.000%........... 123 9,638,109.68 15.03
8.001% - 9.000%........... 90 5,196,943.01 8.10
9.001% - 10.000%........... 31 1,857,026.15 2.90
10.001% - 11.000%........... 11 1,149,518.75 1.79
11.001% - 12.000%........... 11 625,214.25 0.98
12.001% - 13.000%........... 3 388,126.50 0.61
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Gross Margin of the Mortgage
Loans in the Adjustable Rate Loan Group was approximately 6.79%.
<TABLE>
<CAPTION>
MAXIMUM RATES FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MAXIMUM RATES MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
12.001% - 13.000%........... 1 $ 59,536.75 0.09%
13.001% - 14.000%........... 6 1,112,385.40 1.73
14.001% - 15.000%........... 42 7,019,364.76 10.95
15.001% - 16.000%........... 109 12,803,827.74 19.97
16.001% - 17.000%........... 209 21,245,375.35 33.13
17.001% - 18.000%........... 131 11,621,139.76 18.12
18.001% - 19.000%........... 99 6,345,335.25 9.90
19.001% - 20.000%........... 51 2,775,728.03 4.33
20.001% - 21.000%........... 23 997,425.94 1.56
21.001% - 22.000%........... 5 142,831.06 0.22
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Maximum Rate of the Mortgage
Loans in the Adjustable Rate Loan Group was approximately 16.72% per annum.
S-23
<PAGE>
ADJUSTABLE RATE LOAN GROUP
<TABLE>
<CAPTION>
MORTGAGE LOAN PRINCIPAL BALANCES FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MORTGAGE LOAN NUMBER OF BALANCE LOAN
PRINCIPAL BALANCES MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00...... 33 $ 652,432.74 1.02%
$ 25,000.01 - $ 50,000.00... 156 6,139,016.85 9.57
$ 50,000.01 - $ 75,000.00... 172 10,664,525.70 16.63
$ 75,000.01 - $100,000.00... 96 8,368,422.53 13.05
$100,000.01 - $125,000.00... 83 9,263,540.73 14.45
$125,000.01 - $150,000.00... 36 5,012,626.61 7.82
$150,000.01 - $175,000.00... 24 3,838,419.85 5.99
$175,000.01 - $200,000.00... 20 3,702,482.75 5.77
$200,000.01 - $225,000.00... 20 4,223,325.58 6.59
$225,000.01 - $250,000.00... 6 1,445,216.59 2.25
$250,000.01 - $275,000.00... 8 2,076,327.97 3.24
$275,000.01 - $300,000.00... 2 582,370.38 0.91
$300,000.01 - $325,000.00... 2 624,787.17 0.97
$325,000.01 - $350,000.00... 4 1,372,990.49 2.14
$350,000.01 - $375,000.00... 4 1,422,176.00 2.22
$375,000.01 - $400,000.00... 4 1,568,497.56 2.45
$450,000.01+................ 6 3,165,790.53 4.94
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the average principal balance of the Mortgage Loans
in the Adjustable Rate Loan Group was approximately $94,856.43.
<TABLE>
<CAPTION>
MINIMUM MORTGAGE RATES FOR
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MINIMUM INTEREST NUMBER OF BALANCE LOAN
RATES MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
1.000% - 5.000%........... 6 $ 318,199.79 0.50%
5.001% - 6.000%........... 16 1,464,950.59 2.28
6.001% - 7.000%........... 29 3,293,275.57 5.14
7.001% - 8.000%........... 51 7,628,947.01 11.90
8.001% - 9.000%........... 91 10,475,618.58 16.34
9.001% - 10.000%........... 177 18,659,129.39 29.10
10.001% - 11.000%........... 128 11,672,092.00 18.20
11.001% - 12.000%........... 102 6,639,629.09 10.35
12.001% - 13.000%........... 43 2,579,592.23 4.02
13.001% - 14.000%........... 24 1,085,064.01 1.69
14.001% - 15.000%........... 9 306,451.78 0.48
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Minimum Mortgage Rate of the
Mortgage Loans in the Adjustable Rate Loan Group was approximately 9.53% per
annum.
S-24
<PAGE>
ADJUSTABLE RATE LOAN GROUP
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIO FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- --------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
LOAN-TO-VALUE NUMBER OF BALANCE LOAN
RATIOS MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
30.01% - 40.00%........... 8 $ 426,522.87 0.67%
40.01% - 50.00%........... 19 829,232.90 1.29
50.01% - 60.00%........... 51 2,714,284.79 4.23
60.01% - 70.00%........... 172 13,988,091.63 21.81
70.01% - 80.00%........... 320 33,335,659.56 51.99
80.01% - 90.00%........... 96 11,691,588.54 18.23
90.01% - 100.00%........... 7 661,861.01 1.03
100.01% - 110.00%........... 3 475,708.73 0.74*
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio of the
Mortgage Loans in the Adjustable Rate Loan Group was approximately 75.71%.
* Mortgage Loans having a Combined Loan-to-Value Ratio in excess of 100% will
not be included in the Mortgage Pool delivered on the Closing Date.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
FOR THE MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
STATE MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
Arizona..................... 8 $ 658,624.63 1.03%
California.................. 77 13,709,300.75 21.38
Colorado.................... 19 1,781,440.38 2.78
Connecticut................. 9 859,024.90 1.34
Florida..................... 37 3,855,394.77 6.01
Georgia..................... 17 1,724,706.07 2.69
Idaho....................... 4 277,449.20 0.43
Illinois.................... 54 5,219,552.14 8.14
Indiana..................... 32 1,789,228.49 2.79
Iowa........................ 6 337,734.39 0.53
Kansas...................... 10 347,251.53 0.54
Kentucky.................... 5 227,524.03 0.35
Louisiana................... 2 503,525.35 0.79
Maine....................... 1 56,738.02 0.09
Maryland.................... 14 1,286,409.90 2.01
Massachusetts............... 14 2,126,830.07 3.32
Michigan.................... 61 3,119,671.61 4.87
Minnesota................... 20 1,551,770.67 2.42
Mississippi................. 1 35,880.56 0.06
Missouri.................... 2 84,759.79 0.13
Nebraska.................... 1 49,806.45 0.08
Nevada...................... 9 1,014,626.78 1.58
New Jersey.................. 13 1,445,397.94 2.25
New Mexico.................. 5 439,326.43 0.69
New York.................... 36 2,736,069.66 4.27
North Carolina.............. 22 1,491,982.72 2.33
Ohio........................ 66 4,495,794.92 7.01
Oklahoma.................... 4 196,696.93 0.31
Oregon...................... 12 1,942,152.55 3.03
Pennsylvania................ 30 2,752,923.17 4.29
Rhode Island................ 2 191,204.59 0.30
South Carolina.............. 5 523,613.00 0.82
Tennessee................... 5 250,680.74 0.39
Texas....................... 16 1,649,425.53 2.57
Utah........................ 18 1,843,895.18 2.88
Virginia.................... 7 542,811.42 0.85
Washington.................. 15 2,004,502.98 3.13
West Virginia............... 6 247,408.97 0.39
Wisconsin................... 9 530,367.52 0.83
Wyoming..................... 2 221,445.30 0.35
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-25
<PAGE>
ADJUSTABLE RATE LOAN GROUP
<TABLE>
<CAPTION>
INITIAL FIXED RATE PERIOD AT ORIGINATION FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
INITIAL FIXED RATE NUMBER OF BALANCE LOAN
PERIOD -- (MONTHS) MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
6.......................... 86 $ 6,695,286.20 10.44%
12.......................... 2 588,813.33 0.92
23.......................... 1 80,341.60 0.13
24.......................... 486 45,562,843.83 71.06
25.......................... 4 444,826.70 0.69
36.......................... 96 10,590,468.95 16.52
60.......................... 1 160,369.43 0.25
--- -------------- ------
Total..................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE FOR THE
2/28, 3/27 AND 5/25 MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP
- --------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NEXT ADJUSTMENT NUMBER OF BALANCE LOAN
DATE MORTGAGE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------------
<S> <C> <C> <C>
February 2000............... 5 $ 371,393.09 0.65%
March 2000.................. 4 246,550.34 0.43
April 2000.................. 7 436,788.91 0.77
May 2000.................... 17 1,126,364.20 1.98
June 2000................... 46 2,897,115.25 5.10
July 2000................... 72 5,468,466.52 9.62
August 2000................. 50 3,795,207.54 6.68
September 2000.............. 32 3,225,744.48 5.68
October 2000................ 15 1,803,688.88 3.17
November 2000............... 26 2,638,504.27 4.64
December 2000............... 18 2,664,919.48 4.69
January 2001................ 14 1,325,784.66 2.33
February 2001............... 15 1,680,896.58 2.96
March 2001.................. 17 2,527,014.05 4.45
April 2001.................. 15 1,600,695.14 2.82
May 2001.................... 18 2,017,737.52 3.55
June 2001................... 21 2,836,645.99 4.99
July 2001................... 43 4,829,391.31 8.50
August 2001................. 50 5,139,794.82 9.04
September 2001.............. 56 5,027,298.52 8.84
October 2001................ 12 1,028,114.24 1.81
November 2001............... 8 1,124,358.19 1.98
January 2002................ 2 261,889.92 0.46
February 2002............... 5 614,278.87 1.08
March 2002.................. 2 167,688.10 0.30
April 2002.................. 2 137,768.66 0.24
May 2002.................... 1 140,312.66 0.25
June 2002................... 4 267,874.79 0.47
July 2002................... 4 768,833.10 1.35
August 2002................. 3 262,801.95 0.46
September 2002.............. 2 125,745.32 0.22
October 2002................ 1 118,813.73 0.21
June 2003................... 1 160,369.43 0.28
--- -------------- ------
Total..................... 588 $56,838,850.51 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE FOR THE
NON-2/28, 3/27 AND 5/25 MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP
- -------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NEXT ADJUSTMENT NUMBER OF BALANCE LOAN
DATE MORTGAGE LOANS OUTSTANDING GROUP
- -------------------------------------------------------------------
<S> <C> <C> <C>
January 2000............. 1 $ 12,944.70 0.18%
February 2000............ 15 1,080,281.92 14.83
March 2000............... 11 1,026,398.35 14.09
April 2000............... 13 1,012,462.05 13.90
May 2000................. 15 1,181,989.55 16.23
June 2000................ 15 1,266,787.48 17.39
July 2000................ 18 1,703,235.48 23.38
-- ------------- ------
Total.................. 88 $7,284,099.53 100.00%
-- ------------- ------
-- ------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP
- -----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING GROUP
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Single Family............. 622 $58,635,082.30 91.44%
2-4 Family................ 40 4,551,639.28 7.10
Condo..................... 14 936,228.46 1.46
--- -------------- ------
Total................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- -----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING GROUP
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Owner..................... 600 $58,129,569.53 90.65%
Investment................ 76 5,993,380.51 9.35
--- -------------- ------
Total................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) Based upon representation of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
REMAINING MONTHS TO STATED MATURITY FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP(1)
- -----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
REMAINING TERM (MONTHS) MORTGAGE LOANS OUTSTANDING GROUP
- -----------------------------------------------------------------------
<S> <C> <C> <C>
121 - 180................. 2 $ 84,495.71 0.13%
181 - 240................. 1 54,241.32 0.08
301 - 360................. 673 63,984,213.01 99.78
--- -------------- ------
Total................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ---------
(1) As of the Cut-off Date, the weighted average remaining months to scheduled
maturity was approximately 346 months.
<TABLE>
<CAPTION>
LOAN PURPOSE FOR THE
MORTGAGE LOANS IN THE
ADJUSTABLE RATE LOAN GROUP
- -----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING GROUP
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Refinance................. 566 $53,675,831.53 83.71%
Purchase.................. 110 10,447,118.51 16.29
--- -------------- ------
Total................... 676 $64,122,950.04 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-26
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASE
Pursuant to the pooling and servicing agreement dated as of January 1, 2000
(the 'Pooling and Servicing Agreement'), among the Depositor, EMC Mortgage
Corporation, as seller (in such capacity, the 'Seller') and as master servicer
(in such capacity, the 'Master Servicer'), and Bankers Trust Company of
California, N.A., as trustee (the 'Trustee'), the Depositor on the Closing Date
will sell, transfer, assign, set over and otherwise convey without recourse to
the Trustee in trust for the benefit of the Certificateholders all right, title
and interest of the Depositor in and to each Mortgage Loan and all right, title
and interest in and to all other assets included in the Trust Fund, including
all principal and interest received on or with respect to the Mortgage Loans on
and after the Cut-off Date, exclusive of principal due and interest accruing
prior to the Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
on the Closing Date the following documents (collectively constituting the
'Trustee's Mortgage File') with respect to each Mortgage Loan:
(a) the original Mortgage Note, endorsed by the Originator, without
recourse in the following form: 'Pay to the order of without
recourse,' with all intervening endorsements that show a complete chain of
endorsement from the originator to the Seller;
(b) the original recorded Mortgage;
(c) a duly executed assignment of the Mortgage to 'Bankers Trust Company
of California, N.A., as Trustee for the benefit of the Certificateholders of
Bear Stearns Asset Backed Securities, Inc., Asset-Backed Certificates,
Series 2000-1;' in recordable form, as described in the Pooling and
Servicing Agreement;
(d) the original recorded assignment or assignments of the Mortgage
together with all interim recorded assignments of such Mortgage; and
(e) the original or duplicate original lender's title policy or, in the
event such original title policy has not been received from the insurer,
such original or duplicate original lender's title policy shall be delivered
within one year of the Closing Date.
Assignments of the Mortgage Loans to the Trustee (or its nominee) will be
recorded in the appropriate public office for real property records, except in
states (such as California) as to which an opinion of counsel is delivered to
the effect that 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 Depositor or the Seller. As to any Mortgage
Loan, the recording requirement exception described in the preceding sentence is
applicable only so long as the related Mortgage File is maintained in the
possession of the Trustee in one of the states to which such exception applies.
In the event any such assignment is delivered to the Trustee in blank and the
related Mortgage File is released by the Trustee pursuant to applicable
provisions of the Pooling and Servicing Agreement, the Trustee shall complete
such assignment as provided in subparagraph (c) above prior to any such release.
In the event such recording is required to protect the interest of the Trustee
in the Mortgage Loans, the Master Servicer is required to cause each previously
unrecorded assignment to be submitted for recording.
The Trustee will review the Mortgage Loan documents on or prior to the
Closing Date (or promptly after the Trustee's receipt of any document permitted
to be delivered after the Closing Date) and will hold such documents in trust
for the benefit of the holders of the Certificates. The Trustee will be
authorized to appoint a custodian to maintain possession of and, if applicable,
to review the documents relating to the Mortgage Loans as agent of the Trustee.
In addition, the Seller will make representations and warranties in the
Pooling and Servicing Agreement as of the Cut-off Date in respect of the
Mortgage Loans. The Depositor will file the
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<PAGE>
Pooling and Servicing Agreement containing such representations and warranties
with the Securities and Exchange Commission (the 'SEC') in a report on Form 8-K
within 15 days of the Closing Date.
After the Closing Date, if any document is found to be missing or defective
in any material respect, or if a representation or warranty with respect to any
Mortgage Loan is breached and such breach materially and adversely affects the
value of such Mortgage Loan or the interests of the Certificate Insurer or the
holders of the Certificates in such Mortgage Loan, the Trustee is required to
notify the Seller in writing. If the Seller cannot or does not cure such
omission, defect or breach within 90 days of its receipt of notice from the
Trustee, the Seller is required to repurchase the related Mortgage Loan from the
Trust Fund at a price (the 'Purchase Price') equal to 100% of the Stated
Principal Balance as of the date of repurchase thereof plus accrued and unpaid
interest thereon at the Mortgage Rate to the first day of the month following
the month of repurchase plus any unreimbursed Servicing Advances. Rather than
repurchase the Mortgage Loan as provided above, the Seller may remove such
Mortgage Loan (a 'Deleted Mortgage Loan') from the Trust Fund and substitute in
its place another Mortgage Loan of like kind (a 'Replacement Mortgage Loan');
however, such substitution is only permitted within two years after the Closing
Date. Any Replacement Mortgage Loan generally will, on the date of substitution,
among other characteristics set forth in the Pooling and Servicing Agreement,
have a Stated Principal Balance, after deduction of the principal portion
of the scheduled payment due in the month of substitution, not in excess
of, and not less than 90% of, the Stated Principal Balance of the Deleted
Mortgage Loan, the amount of any shortfall to be deposited by the Seller in
the Certificate Account not later than the succeeding Determination Date
and held for distribution to the holders of the Certificates on the related
Distribution Date,
if the Deleted Mortgage Loan that is being replaced is an Adjustable Rate
Mortgage Loan, have a Maximum Mortgage Rate not more than 1% per annum
higher or lower than the Maximum Mortgage Rate of the Deleted Mortgage
Loan,
if the Deleted Mortgage Loan that is being replaced is an Adjustable Rate
Mortgage Loan, have a Minimum Mortgage Rate not more than 1% per annum
higher or lower than the Minimum Mortgage Rate of the Deleted Mortgage
Loan,
if the Deleted Mortgage Loan that is being replaced is an Adjustable Rate
Mortgage Loan, have the same Mortgage Index and Periodic Rate Cap as the
Deleted Mortgage Loan and a Gross Margin not more than 1% per annum higher
or lower than that of the Deleted Mortgage Loan,
have the same or higher credit quality characteristics than that of the
Deleted Mortgage Loan,
be accruing interest at a rate not more than 1% per annum higher or lower
than that of the Deleted Mortgage Loan,
have a Combined Loan-to-Value Ratio or Loan-to-Value Ratio, as applicable,
no higher than that of the Deleted Mortgage Loan,
have a remaining term to maturity not greater than (and not more than one
year less than) that of the Deleted Mortgage Loan,
not permit conversion of the Mortgage Rate from a fixed rate to a variable
rate or vice versa,
provide for a prepayment charge on terms substantially similar to those of
the prepayment charge, if any, of the Deleted Mortgage Loan,
constitute the same occupancy type as the Deleted Mortgage Loan or be owner
occupied,
comply with all of the representations and warranties set forth in the
Pooling and Servicing Agreement as of the date of substitution, and
otherwise be acceptable to the Certificate Insurer.
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<PAGE>
With respect to any repurchase or substitution of a Mortgage Loan that is
not in default or as to which a default is not imminent, the Trustee must have
received a satisfactory opinion of counsel that such repurchase or substitution
will not cause the Trust Fund to lose the status of its REMIC elections or
otherwise subject the Trust Fund to a prohibited transaction tax. The obligation
to cure, repurchase or substitute as described above constitutes the sole remedy
available to the Certificateholders, the Trustee or the Depositor for omission
of, or a material defect in, a Mortgage Loan document or for a breach of
representation or warranty by the Seller with respect to a Mortgage Loan. The
Master Servicer or a holder of a Residual Certificate will be obligated to pay
any prohibited transaction taxes. The Master Servicer will be entitled to
reimbursement for any such payment from the assets of the Trust Fund or from a
holder of a Residual Certificate.
UNDERWRITING GUIDELINES
The Mortgage Loans were purchased from IMC Mortgage Company (the
'Originator'). Set forth below is a description of the underwriting procedures
(the 'Underwriting Guidelines') generally applied by the Originator to the
Mortgage Loans. As described above under 'Risk Factors,' the Originator no
longer originates mortgage loans.
The Underwriting Guidelines are primarily intended to evaluate the value and
adequacy of the mortgaged property as collateral and are also intended to
consider the mortgagor's credit standing and repayment ability. On a
case-by-case basis, the Originator may determine that, based upon compensating
factors, a prospective mortgagor not strictly qualifying under the Underwriting
Guidelines warrants an underwriting exception. Compensating factors may include,
but are not limited to, low loan-to-value ratio, low debt-to-income ratio, good
credit history, stable employment, pride of ownership and time in residence at
the applicant's current address. It is expected that a substantial number of the
Mortgage Loans will represent such underwriting exceptions.
The Underwriting Guidelines are less restrictive than the standards
generally acceptable to Fannie Mae and Freddie Mac with regard to the
mortgagor's credit standing and repayment ability. Mortgagors who qualify under
the Underwriting Guidelines, or under an underwriting exception thereto,
generally have payment histories and debt ratios which would not satisfy Fannie
Mae and Freddie Mac underwriting guidelines and may have a record of major
derogatory credit items such as outstanding judgments or prior bankruptcies. The
Underwriting Guidelines establish the maximum permitted loan-to-value ratio for
each loan type based upon these and other risk factors.
Under the Underwriting Guidelines, the Originator reviews and verifies the
loan applicant's sources of income (except under the Stated Income Documentation
program), calculates the amount of income from all such sources indicated on the
loan application, reviews the credit history of the applicant, calculates the
debt-to-income ratio to determine the applicant's ability to repay the loan and
reviews the mortgaged property for compliance with the Underwriting Guidelines.
The Underwriting Guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and regulations and requires
(x) an appraisal of the mortgaged property (which conforms to Freddie Mac and
Fannie Mae standards generally) and (y) a review of such appraisal, which review
may be conducted by a qualified underwriter and, depending upon the original
principal balance and loan-to-value ratio of the mortgaged property, may include
a desk review of the original appraisal, an elective review or a drive-by review
appraisal of the mortgaged property. In cases where the mortgage loan is
originated as part of the Originator's customer retention program, the
Originator may rely on an appraisal conducted not more than 18 months prior to
the origination of the new mortgage loan. Each appraisal includes a market data
analysis based on recent sales of comparable homes in the area and, where deemed
appropriate, replacement cost analysis based on the current cost of constructing
a similar home. The Underwriting Guidelines generally provide for single-family
loans with loan-to-value ratios at origination of 90% but permit up to 100% for
the highest credit grading category (80% under the Limited Documentation program
and 75% under the Stated Income Documentation
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<PAGE>
program), depending on the type and use of the property, the creditworthiness of
the mortgagor and the debt-to-income ratio. Under the Underwriting Guidelines,
the maximum combined loan-to-value ratio for purchase money mortgage loans may
differ from those applicable to refinancings.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history
and employment history, as well as certain other personal information. The
Originator requires a credit report on each applicant from a credit reporting
company. 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, bankruptcy, repossession, suits or
judgments. Self-employed individuals are generally required to submit their two
most recent federal income tax returns. In the course of their pre-funding
audit, the Originator generally reverifies the income of the mortgagor or, for a
self-employed individual, reviews the income documentation obtained pursuant to
the Underwriting Guidelines (except under the Stated Income Documentation
program).
The Mortgage Loans were originated consistent with and generally conform to
'Full Documentation,' 'Limited Documentation,' or 'Stated Income Documentation'
residential loan programs. Under each of the programs, the Originator generally
reviews the 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. In determining the
ability of the applicant to repay certain adjustable rate loans, a rate is
established that generally is equal to the lesser of the fully indexed interest
rate on the loan being applied for or one percent above the initial interest
rate of such loan. The Underwriting Guidelines require that mortgage loans be
underwritten in a standardized procedure which complies with applicable federal
and state laws and regulations and requires the Originator's underwriters to be
satisfied that the value of the property being financed, as indicated by an
appraisal and a review of the appraisal, currently supports the outstanding loan
balance. In general, the maximum loan amount for mortgage loans is $400,000. The
Underwriting Guidelines permit one- to four-family loans to have loan-to-value
ratios at origination of generally up to 100%, depending on, among other things,
the purpose of the mortgaged loan, the mortgagor's credit history, repayment
ability and debt service-to-income ratio, as well as the type and use of the
property. With respect to mortgage loans secured by mortgaged properties
acquired by a mortgagor under a 'lease option purchase,' the loan-to-value ratio
of the related mortgage loan is generally based on the appraised value at the
time of origination of such mortgage loan.
The Underwriting Guidelines require that income be verified for each
applicant and that the source of funds (if any) required to be deposited by the
applicant into escrow under its various programs be as follows: Under the Full
Documentation programs, applicants generally are required to submit two written
forms of verification of stable income for 12 months. Under the Limited
Documentation programs, generally one such form of verification is required for
12 months. Under the Stated Income Documentation programs, generally an
applicant may be qualified based upon monthly income as stated on the mortgage
loan application if the applicant meets certain criteria. All the foregoing
programs typically require that with respect to each applicant, there be a
telephone verification of the applicant's employment. Verification of funds (if
any) required to be deposited by the applicant into escrow in the case of a
purchase money loan is generally required under the Full Documentation program
guidelines. No such verification is required under the other programs.
The Underwriting Guidelines require title insurance, title commitment or an
attorney's opinion of title on all mortgage loans secured by liens on real
property. The Underwriting Guidelines also require that fire and extended
coverage casualty insurance be maintained on the secured property in an amount
at least equal to the principal balance of the related mortgage loan or the
replacement cost of the mortgaged property, whichever is less.
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<PAGE>
Under the Underwriting Guidelines, various risk categories are used to grade
the likelihood that the mortgagor will satisfy the repayment conditions of the
mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the Underwriting
Guidelines establish lower maximum loan-to-value ratios and maximum loan amounts
for loans graded in such categories.
NO RECOURSE TO THE DEPOSITOR OR THE SELLER
As described above under ' -- Assignment of the Mortgage Loans; Repurchase,'
the Depositor will cause the Mortgage Loans to be assigned to the Trustee,
without recourse. However, the Seller will be obligated to repurchase or
substitute for any Mortgage Loan as to which certain representations and
warranties are breached or for failure to deliver certain documents relating to
the Mortgage Loans as described above under ' -- Assignment of the Mortgage
Loans; Repurchase.' These obligations to purchase or substitute constitute the
sole remedy available to the Certificateholders or the Trustee for a breach of
any such representation or failure to deliver a constituent document.
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<PAGE>
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Pooling and Servicing Agreement. The Master Servicer may
perform any of its obligations under the Pooling and Servicing Agreement through
one or more subservicers acceptable to the Certificate Insurer. Notwithstanding
any such subservicing arrangement, the Master Servicer will remain liable for
its servicing duties and obligations under the Pooling and Servicing Agreement
as if the Master Servicer alone were servicing the Mortgage Loans. As of the
Closing Date, IMC Mortgage Company will service the Mortgage Loans through a
subservicing arrangement. On or about January 31, 2000, direct servicing of the
Mortgage Loans will transfer to the Master Servicer.
THE MASTER SERVICER
EMC Mortgage Corporation ('EMC'), a wholly-owned subsidiary of The Bear
Stearns Companies Inc., was established as a full-line mortgage banking company
to facilitate the purchase and servicing of whole loan portfolios containing
various levels of quality from 'investment grade' to varying degrees of
'non-investment grade' up to and including mortgaged properties acquired through
foreclosure or deed-in-lieu of foreclosure (each such mortgaged property, a 'REO
Property'). EMC was incorporated in the State of Delaware on September 26, 1990
and commenced operation in Texas on October 9, 1990.
The principal business of EMC has been the resolution of non-performing
residential mortgage loan portfolios acquired from Resolution Trust Corporation
('RTC'), from private investors and, most recently, from the Department of
Housing and Urban Development through its auctions of defaulted Federal Housing
Authority mortgage loans. EMC's servicing portfolio consists primarily of two
categories; (x) performing investment-quality loans serviced for EMC's own
account or the account of Fannie Mae, Freddie Mac, private mortgage conduits and
various institutional investors; and (y) non-investment grade, sub-performing
loans, non-performing loans and REO Properties serviced for EMC's own account
and for the account of investors in securitized performing and non-performing
collateral transactions.
EMC's operations resemble those of most mortgage banking companies, except
that significant emphasis is placed on the collection and due diligence areas,
due to the nature of the mortgage portfolios purchased. As of December 31, 1999,
EMC was servicing approximately $3.2 billion of mortgage loans and REO Property.
The principal executive offices of EMC are located at 909 Hidden Ridge
Drive, Irving, Texas 75038. Its telephone number is (972) 444-2800.
LOAN SERVICING
EMC has established standard policies for the servicing and collection of
mortgage loans. Servicing includes, but is not limited to, collecting,
aggregating and remitting mortgage loan payments, accounting for principal and
interest, holding escrow (impound) funds for payment of taxes and insurance,
making inspections as required of the mortgaged properties, preparation of tax
related information in connection with the mortgage loans, supervision of
delinquent mortgage loans, loss mitigation efforts, foreclosure proceedings and,
if applicable, the disposition of mortgaged properties, and generally
administering the mortgage loans, for which it receives servicing fees.
Billing statements with respect to mortgage loans are mailed monthly by EMC.
The statement details the payment activity since the prior month's statement and
specifies the payment due. Notice of changes in the applicable loan rate are
provided by EMC to the mortgagor by separate notification.
Except as otherwise paid by the Trust Fund, as described under 'Description
of the Certificates -- Distributions,' herein, EMC will pay or cause to be paid
certain ongoing expenses
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<PAGE>
associated with the Trust Fund and incurred by it in connection with its
responsibilities as Master Servicer under the Pooling and Servicing Agreement,
including, without limitation, payment of the fees and disbursements of the
Trustee (other than for any custodian appointed by the Trustee, the expenses of
which shall be payable by the Trustee), the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
subservicers. EMC will be entitled to reimbursement of the foregoing expenses
and, under limited circumstances, expenses incurred in enforcing the obligations
of subservicers, by the Trust Fund pursuant to the Pooling and Servicing
Agreement.
COLLECTION PROCEDURES
EMC, as Master Servicer, will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Pooling and Servicing Agreement and any applicable insurance policy, guaranty,
bankruptcy bond or alternative arrangements, follow such collection procedures
as are customary with respect to loans that are comparable to the Mortgage
Loans. Consistent with the above, the Master Servicer may, in its discretion,
(a) waive any assumption fee, late payment or other charge in connection with a
Mortgage Loan, other than prepayment charges except in limited circumstances,
and (b) to the extent not inconsistent with the coverage of such Mortgage Loan
by an insurance policy, guaranty, bankruptcy bond or alternative arrangements,
if applicable, arrange with a borrower a schedule for the liquidation of
delinquencies running for no more than 120 days after the applicable due date
for each payment. To the extent the Master Servicer is obligated to make or
cause to be made Advances, such obligation will remain during any period of such
an arrangement.
In any case in which property securing a Mortgage Loan has been, or is about
to be, conveyed by the mortgagor or obligor, 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 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 will not impair or threaten to
impair any recovery under any applicable insurance policy. If these conditions
are not met or if the Master Servicer reasonably believes it is unable under
applicable law to enforce such due-on-sale clause, the Master Servicer will
enter into or cause to be entered 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 for repayment of the Mortgage Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon. Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. In connection with any such
assumption, the terms of the related Mortgage Loan may not be changed.
When a mortgagor fails to make a payment, EMC attempts to cause the
deficiency to be cured by corresponding with the mortgagor. EMC generally mails
to the mortgagor a notice of intent to foreclose after the loan becomes 45 days
past due (two payments due but not received) and, within 30 days thereafter, if
the loan remains delinquent, institutes appropriate legal action to foreclose on
the mortgaged property. Foreclosure proceedings may be terminated if the
delinquency is cured. Mortgage loans to borrowers in bankruptcy proceedings may
be restructured in accordance with law and with a view to maximizing recovery of
such loans, including any deficiencies.
Once foreclosure is initiated by EMC, a foreclosure tracking system is used
to monitor the progress of the proceedings. The system includes state specific
parameters to monitor whether proceedings are progressing within the time frame
typical for the state in which the mortgaged property is located. During the
foreclosure proceeding, EMC determines the amount of the foreclosure bid and
whether to liquidate the mortgage loan.
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If foreclosed, the mortgaged property is sold at a public or private sale
and may be purchased by EMC. After foreclosure, EMC may liquidate the mortgaged
property and charge-off the loan balance which was not recovered through
liquidation proceeds.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, EMC's business judgment, changes in
the servicing portfolio and applicable laws and regulations.
DELINQUENCY AND FORECLOSURE EXPERIENCE
The following table sets forth the delinquency and foreclosure experience of
mortgage loans serviced by EMC as of the dates indicated. EMC's portfolio of
mortgage loans may differ significantly from the Mortgage Loans in terms of
interest rates, principal balances, geographic distribution, types of properties
and other possibly relevant characteristics. There can be no assurance, and no
representation is made, that the delinquency and foreclosure experience with
respect to the Mortgage Loans will be similar to that reflected in the table
below, nor is any representation made as to the rate at which losses may be
experienced on liquidation of defaulted Mortgage Loans. The actual delinquency
experience on the Mortgage Loans will depend, among other things, upon the value
of the real estate securing such Mortgage Loans and the ability of borrowers to
make required payments.
DELINQUENCY AND FORECLOSURE EXPERIENCE(1)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF JUNE 30, 1998
----------------------------------- -----------------------------------
% BY % BY
NO. OF PRINCIPAL PRINCIPAL NO. OF PRINCIPAL PRINCIPAL
LOANS BALANCE(2) BALANCE LOANS BALANCE(2) BALANCE
----- ---------- ------- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Current loans.............. 13,756 $1,040,738,898 66.51% 24,159 $1,869,900,359 70.72%
Period of delinquency(3)
30-59 days............. 1,123 63,591,591 4.06 2,877 187,511,932 7.09
60-89 days............. 405 24,783,972 1.58 1,091 71,415,699 2.70
90 days or more........ 1,186 71,235,486 4.55 2,041 143,439,906 5.42
Foreclosure/
bankruptcies(4).......... 2,919 276,595,987 17.68 4,091 305,592,230 11.56
Real estate owned.......... 831 87,923,377 5.62 783 66,294,610 2.51
------ -------------- ------ ------ -------------- ------
Total portfolio............ 20,220 $1,564,869,311 100.00% 35,042 $2,644,154,736 100.00%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999 AS OF DECEMBER 31, 1999
----------------------------------- -----------------------------------
% BY % BY
NO. OF PRINCIPAL PRINCIPAL NO. OF PRINCIPAL PRINCIPAL
LOANS BALANCE(2) BALANCE LOANS BALANCE(2) BALANCE
----- ---------- ------- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Current loans.............. 30,514 $2,172,839,680 68.56% 29,820 $2,126,295,991 67.24%
Period of delinquency(3)
30-59 days............. 4,450 292,369,887 9.22 4,561 294,645,532 9.32
60-89 days............. 1,404 90,314,938 2.85 1,596 105,645,337 3.34
90 days or more........ 1,576 116,479,156 3.67 1,856 131,615,974 4.16
Foreclosure/
bankruptcies(4).......... 5,318 408,881,121 12.90 5,696 415,640,129 13.14
Real estate owned.......... 1,170 88,642,865 2.80 1,080 88,549,174 2.80
------ -------------- ------ ------ -------------- ------
Total portfolio............ 44,432 $3,169,527,647 100.00% 44,609 $3,162,392,137 100.00%
</TABLE>
- ---------
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
(2) For the REO Properties, the Principal Balance is at the time of foreclosure.
(3) No mortgage loan is included in this table as delinquent until it is
30 days past due.
(4) Exclusive of the number of loans and Principal Balance shown in the period
of delinquency.
Since some of the mortgage loans in the Master Servicer's servicing
portfolio were originated by various originators at different times, it is
unlikely that the delinquency and foreclosure experience set forth above will be
representative of the actual delinquency and foreclosure experience on the
Mortgage Loans. In addition, a variety of factors, including the appreciation of
real estate values, historically have limited the loss and delinquency
experience on subprime mortgage loans. There can be no assurance that factors
beyond EMC's control, such as national or local economic conditions or downturn
in the real estate markets in which the Mortgaged Properties are located, will
not result in increased rates of delinquencies and foreclosure losses in the
future.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The expense fees with respect to the Trust Fund are payable out of the
interest payments on each Mortgage Loan. The expense fees consist of
(a) servicing compensation payable to the Master Servicer in respect of its
master servicing activities (the 'Master Servicing Fee'), (b) fees payable to
the Trustee in respect of its activities as trustee (the 'Trustee Fee') and
(c) the premium payable for the certificate insurance policy. The Master
Servicing Fee will be 0.50% per annum of the Stated Principal Balance of each
Mortgage Loan. The amount of the monthly Master Servicing Fee is subject to
adjustment with respect to prepaid Mortgage Loans, as described herein under
' -- Adjustment to Servicing Fee in Connection with Certain Prepaid Mortgage
Loans.' The Master Servicer is also entitled to receive, as additional servicing
compensation, all late payment fees, assumption fees and other similar charges
and all reinvestment income earned on amounts on deposit in the Certificate
Account and Distribution Account. The Master Servicer is obligated to pay
certain ongoing expenses associated with the Mortgage Loans and incurred by the
Trustee in connection with its responsibilities under the Pooling and Servicing
Agreement.
For any Mortgage Loan, the 'Net Mortgage Rate' is the Mortgage Rate thereon
minus 0.50% and the 'Adjusted Net Mortgage Rate' is the Mortgage Rate thereon
minus 1.2575%.
ADJUSTMENT TO MASTER SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE
LOANS
When a borrower prepays all or a portion of a Mortgage Loan between Due
Dates, the borrower pays interest on the amount prepaid only to the date of
prepayment. Principal Prepayments (as defined below) received during a month are
not distributed until the 25th day of the following month, and accordingly an
interest shortfall (a 'Prepayment Interest Shortfall') would result. In order to
mitigate the effect of any such shortfall in interest distributions to holders
of the Offered Certificates on any Distribution Date, the amount of the Master
Servicing Fee otherwise payable to the Master Servicer for such month (the
'Compensating Interest') shall, to the extent of such shortfall, be deposited by
the Master Servicer in the Certificate Account for distribution to holders of
the Offered Certificates entitled thereto on such Distribution Date. Any such
deposit by the Master Servicer will be reflected in the distributions to holders
of the Offered Certificates entitled thereto made on the Distribution Date on
which the Principal Prepayment received would be distributed.
ADVANCES
Subject to the following limitations, on the third Business Day prior to
each Distribution Date, the Master Servicer will be required to advance its own
funds, or funds in the Certificate Account that are not required to be
distributed on such Distribution Date, in an amount equal to the aggregate of
payments of principal and interest on the Mortgage Loans (adjusted to the
applicable Net Mortgage
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<PAGE>
Rate) that were due during the related Due Period and delinquent on the related
Determination Date, together with an amount equivalent to interest (adjusted to
the applicable Net Mortgage Rate) deemed due on each Mortgage Loan as to which
the related Mortgaged Property is an REO Property, such latter amount to be
calculated after taking into account any rental income from such Mortgaged
Property (any such advance, an 'Advance,' and the date of any such Advance, as
described herein, a 'Master Servicer Advance Date').
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Offered Certificates rather than to guarantee or
insure against losses. The Master Servicer is obligated to make Advances with
respect to delinquent payments of principal of or interest on each Mortgage Loan
(with such payments of interest adjusted to the related Net Mortgage Rate) to
the extent that such Advances are, in its judgment, reasonably recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to holders of the Offered Certificates on the related Distribution
Date. 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, or such
other entity as may be appointed as successor master servicer, will be obligated
to make any such Advance in accordance with the terms of the Pooling and
Servicing Agreement.
HAZARD INSURANCE
The Master Servicer will require the mortgagor or obligor on each Mortgage
Loan to maintain an insurance policy on buildings upon, or comprising part of,
the Mortgaged Property against loss by fire, hazards of extended coverage and
such other hazards as are customary in the area where the Mortgaged Property is
located with an insurer which is licensed to do business in the state where the
Mortgaged Property is located. All amounts collected by the Master Servicer
under any hazard insurance policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the mortgagor or
obligor in accordance with the Master Servicer's normal servicing procedures)
will be deposited in the Certificate Account. In the event that the Master
Servicer maintains a blanket policy insuring against hazard losses on all the
Mortgage Loans comprising part of the Trust Fund, it will conclusively be deemed
to have satisfied its obligation relating to the maintenance of hazard
insurance.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged Mortgaged Property, the Master Servicer is not required to
expend its own funds to restore the damaged Mortgaged Property unless it
determines (a) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (b) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related insurance policy
is not available for the reasons set forth in the preceding paragraph, or if the
defaulted Mortgage Loan is not covered by an insurance policy, the Master
Servicer will be obligated to follow or cause to be followed such normal
practices and procedures as it deems necessary or advisable to realize upon the
defaulted Mortgage Loan. If the proceeds of any liquidation of the Mortgaged
Property securing the defaulted Mortgage Loan are less than the principal
balance of such Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Trust Fund will realize a loss in the amount of such
difference plus the aggregate of expenses incurred by the Master Servicer in
connection with such proceedings and which are reimbursable under the Pooling
and Servicing Agreement. In the unlikely event that any such proceedings result
in a total recovery which is, after reimbursement to the Master
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Servicer of its expenses, in excess of the principal balance of such Mortgage
Loan plus interest accrued thereon that is payable to Certificateholders, the
Master Servicer will be entitled to withdraw or retain from the Certificate
Account amounts representing its normal servicing compensation with respect to
such Mortgage Loan and amounts representing the balance of such excess,
exclusive of any amount required by law to be forwarded to the related borrower,
as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan. In the event that the Master
Servicer has expended its own funds to restore the damaged Mortgaged Property
and such funds have not been reimbursed under the related hazard insurance
policy, it will be entitled to withdraw from the Certificate Account out of
related Liquidation Proceeds or Insurance Proceeds an amount equal to such
expenses incurred by it, in which event the Trust Fund may realize a loss up to
the amount so charged. Since Insurance Proceeds cannot exceed deficiency claims
and certain expenses incurred by the Master Servicer, no such payment or
recovery will result in a recovery to the Trust Fund which exceeds the principal
balance of the defaulted Mortgage Loan together with accrued interest thereon.
The proceeds from any liquidation of a Mortgage Loan will be applied in the
following order of priority: first, to reimburse the Master Servicer for any
unreimbursed expenses incurred by it to restore the related Mortgaged Property
and any unreimbursed servicing compensation payable to the Master Servicer with
respect to such Mortgage Loan; second, to reimburse the Master Servicer for any
unreimbursed Advances with respect to such Mortgage Loan; third, to accrued and
unpaid interest (to the extent no Advance has been made for such amount) on such
Mortgage Loan; and fourth, as a recovery of principal of such Mortgage Loan.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement will provide that on or before a
specified date in each year, a firm of independent public accountants will
furnish a statement to the Trustee and the Certificate Insurer to the effect
that, on the basis of the examination by such firm conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for Freddie Mac, the servicing by or on
behalf of the Master Servicer of mortgage loans or private asset backed
securities, or under pooling and servicing agreements substantially similar to
each other (including the Pooling and Servicing Agreement) was conducted in
compliance with such agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Audit Program for Mortgages
serviced for Freddie Mac, or the Uniform Single Attestation Program for Mortgage
Bankers, it is required to report. In rendering its statement such firm may
rely, as to matters relating to the direct servicing of Mortgage Loans by
subservicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for Freddie Mac
(rendered within one year of such statement) of firms of independent public
accountants with respect to the related subservicer.
The Pooling and Servicing Agreement will also provide for delivery to the
Trustee and the Certificate Insurer, on or before a specified date in each year,
of an annual statement signed by two officers of the Master Servicer to the
effect that the Master Servicer has fulfilled its obligations under the Pooling
and Servicing Agreement throughout the preceding year.
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Copies of the annual accountants' statement and the statement of officers of
the Master Servicer may be obtained by Certificateholders without charge upon
written request to the Master Servicer at the address of the Master Servicer set
forth above.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Pooling and Servicing Agreement will provide that the Master Servicer
may not resign from its obligations and duties under the Pooling and Servicing
Agreement except (a) upon a determination that its duties thereunder are no
longer permissible under applicable law or (b) upon compliance with the
following requirements:
the Master Servicer has proposed a successor to the Trustee and the
Certificate Insurer and the Trustee and the Certificate Insurer have
consented thereto
the proposed successor is qualified to service mortgage loans on behalf of
Fannie Mae or Freddie Mac
the Trustee has received written confirmation from each Rating Agency that
the appointment of such successor will not cause that Rating Agency to
reduce, qualify or withdraw its then-current ratings assigned to any class
of Offered Certificates without regard to the Certificate Insurance Policy.
In addition, the Master Servicer may be removed from its obligations and
duties as set forth in the Pooling and Servicing Agreement. No such resignation
will become effective until the Trustee or a successor servicer acceptable to
the Certificate Insurer has assumed the Master Servicer's obligations and duties
under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will further provide that neither the
Master Servicer, the Depositor nor any director, officer, employee, or agent of
the Master Servicer or the Depositor will be under any liability to the Trust
Fund, the Certificate Insurer or Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Master Servicer, the Depositor nor any such person will be protected
against any liability which would otherwise be imposed under the Pooling and
Servicing Agreement. The Pooling and Servicing Agreement will further provide
that the Master Servicer, the Depositor and any director, officer, employee or
agent of the Master Servicer or the Depositor will be 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 and Servicing Agreement or the Certificates, 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 and Servicing Agreement) and any other loss, liability or expense
for which the Master Servicer or the Depositor is obligated under the Pooling
and Servicing Agreement. In addition, the Pooling and Servicing Agreement will
provide that neither the Master Servicer nor the Depositor will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and which in its opinion may involve it in any expense or liability.
The Master Servicer or the Depositor may, however, in its discretion undertake
any such action which it may deem necessary or desirable with respect to the
Pooling and Servicing Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust Fund and the Master Servicer or the
Depositor, as the case may be, will be entitled to be reimbursed therefor out of
funds otherwise distributable to Certificateholders.
Any person into which the Master Servicer may be merged or consolidated, or
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
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the Pooling and Servicing Agreement, provided that such person is qualified to
sell mortgage loans to, and service mortgage loans on behalf of, Fannie Mae or
Freddie Mac, provided that such person is acceptable to the Certificate Insurer,
and further provided that such merger, consolidation or succession does not
adversely affect the then-current ratings of any class of Offered Certificates
without regard to the Certificate Insurance Policy.
INITIAL TERM OF MASTER SERVICER AND EXTENSIONS OF TERM
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
convenants and agrees to act as the Master Servicer for an initial term of no
more than six months, which term is required to be renewed, except under certain
circumstances, by the Certificate Insurer by notice to the Trustee for
successive terms of no more than six months, until the termination of the Trust
Fund.
The Master Servicer will, upon its receipt of a notice of extension, become
bound for the duration of the term covered by such extension notice to continue
as the Master Servicer subject to and in accordance with the other provisions of
the Pooling and Servicing Agreement. If, as of the fifteenth day prior to the
last day of any term of the Master Servicer, the Trustee shall not have received
any extension notice from the Certificate Insurer, the Trustee will, within five
days thereafter, give written notice of such non-receipt to the Certificate
Insurer and the Master Servicer. Upon any such termination of the Master
Servicer, all authority and power of the Master Servicer under the Pooling and
Servicing Agreement will pass to the Trustee or a substitute servicer appointed
at the direction of the Certificate Insurer pursuant to the Pooling and
Servicing Agreement. This provision under the Pooling and Servicing Agreement
may be modified or repealed upon the consent of the Certificate Insurer, without
the consent of Certificateholders.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Set forth below are summaries of the material terms and provisions
pursuant to which the Offered Certificates will be issued. The following
summaries are subject to, and are qualified in their entirety by reference to,
the provisions of the Pooling and Servicing Agreement. When particular
provisions or terms used in the Pooling and Servicing Agreement are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference.
The Bear Stearns Asset Backed Securities, Inc., Asset-Backed Certificates
Series 2000-1 (the 'Certificates') will consist of: (a) the Class AF
Certificates (the 'Fixed Rate Certificates'); (b) the Class AV Certificates (the
'Adjustable Rate Certificates' and, together with the Fixed Rate Certificates,
the 'Offered Certificates'); (c) the Class IO Certificates (the 'Class IO
Certificates'); (d) the Class P Certificates (the 'Class P Certificates'); and
(e) the Class R Certificates (the 'Residual Certificates'). As used herein, a
'Certificate Group' is either the Fixed Rate Certificates or the Adjustable Rate
Certificates, as the context requires.
The Class IO Certificates are issued with an interest bearing notional
principal balance as provided in the Pooling and Servicing Agreement, as well as
an actual principal balance equal to the initial overcollateralization. The
Class P Certificates will have a Certificate Principal Balance of $100, will not
bear interest and will be entitled to all prepayment charges collected by the
Master Servicer with respect to the Mortgage Loans. Only the Fixed Rate
Certificates and the Adjustable Rate Certificates are offered hereby.
Distributions on the Fixed Rate Certificates will be based primarily on
amounts available for distribution in respect of the Fixed Rate Mortgage Loans.
Distributions on the Adjustable Rate Certificates, will be based primarily on
amounts available for distribution in respect of the Adjustable Rate Mortgage
Loans.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $25,000 and integral multiples of $1,000 in excess thereof.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the 'Book-Entry
Certificates'). Persons acquiring beneficial ownership interests in the Offered
Certificates ('Certificate Owners') may elect to hold their Offered Certificates
through the Depository Trust Company ('DTC') in the United States, or Cedelbank
('CEDEL') or the Euroclear System ('Euroclear'), in Europe, if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the Offered
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for CEDEL and Chase
will act as depositary for Euroclear (in such capacities, individually the
'Relevant Depositary' and collectively the 'European Depositaries'). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing Certificate Principal Balances of $25,000 and
integral multiples of $1,000 in excess thereof. Except as described below, no
person acquiring a Book-Entry Certificate (each, a 'beneficial owner') will be
entitled to receive a physical certificate representing such Offered Certificate
(a 'Definitive Certificate'). Unless and until Definitive Certificates are
issued, it is anticipated that the only Certificateholder of the Offered
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Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not
be Certificateholders as that term is used in the Pooling and Servicing
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through the participating organizations that utilize the services of
DTC, including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ('Participants') and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the 'Rules'), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and organizations which have indirect access to the DTC system,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ('Indirect Participants'), with whom Certificate Owners have accounts
with respect to Offered Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess certificates, the Rules provide a mechanism by which Certificate Owners
will receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Offered Certificates only through Participants and
Indirect Participants by instructing such Participants and Indirect Participants
to transfer Offered Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Offered Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of Offered Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and Indirect
Participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in CEDEL,
or Euroclear as a result of a transaction with a Participant will be made
during, subsequent securities settlement processing and dated the business day
following, the DTC settlement date. Such credits or any transactions in such
securities, settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear, as a result of sales of securities by or through a CEDEL Participant
(as defined, below) or Euroclear Participant (as defined below) to a DTC
Participant, will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures, relating to the Offered Certificates, see 'Certain
Federal Income Tax Considerations -- Tax Treatment of Foreign Investors' in the
Prospectus and 'Global Clearance, Settlement And Tax
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Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements' in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterpart in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ('CEDEL
Participants') and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ('Euroclear Participants') and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for
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Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede & Co. Distributions with respect to Offered
Certificates held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See 'Certain Federal
Income Tax Considerations -- Tax Treatment of Foreign Investors' and
' -- Miscellaneous Tax Aspects -- Backup Withholding' in the Prospectus. Because
DTC can only act on behalf of Financial Intermediaries, the ability of a
beneficial owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance of
the Book-Entry Certificates in book-entry form may reduce the liquidity of such
Offered Certificates in the secondary market since certain potential investors
may be unwilling to purchase Offered Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust Fund provided by the Master Servicer
to Cede & Co., as nominee of DTC, may be made available to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting DTC or the Relevant Depositary, and to the Financial
Intermediaries to whose DTC accounts the Book-Entry Certificates of such
beneficial owners are credited.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Pooling and
Servicing Agreement only at the direction of one or more Financial
Intermediaries to whose DTC accounts the Book-Entry Certificates are credited,
to the extent that
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such actions are taken on behalf of Financial Intermediaries whose holdings
include such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a holder of an
Offered Certificate under the Pooling and Servicing Agreement on behalf of a
CEDEL Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Offered Certificates
which conflict with actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Depositor advises the Trustee in writing that DTC is no
longer willing, qualified or able to discharge properly its responsibilities as
nominee and depositary with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor,
(b) the Depositor at its sole option, elects to terminate a book-entry
system through DTC or
(c) after the occurrence of an Event of Default (as defined herein),
beneficial owners having not less than 51% of the Voting Rights evidenced by the
Offered Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of beneficial owners of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of the Offered Certificates under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
None of the Master Servicer, the Depositor or the Trustee will have any
responsibilty for any aspect of the records relating to or payments made on
account of beneficial ownership interests in Book-Entry Certificates held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DTC has advised the Depositor that management of DTC is aware that some
computer applications, systems, and the like for processing data ('Systems')
that are dependent upon calendar dates, including dates before, on, and after
January 1, 2000, may encounter 'Year 2000 problems.' DTC has informed its
participants and other members of the financial community (the 'Industry') that
is has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and income
payments) to securityholders, book-entry deliveries, and settlement of trades
within DTC ('Depositary Services'), continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's direct and indirect participants and third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
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electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
DEPOSITS TO THE CERTIFICATE ACCOUNT
The Master Servicer will establish and initially maintain an account (the
'Certificate Account') for the benefit of the Trustee on behalf of the
Certificateholders and the Certificate Insurer. The Certificate Account must be
either
maintained with a depository institution the debt obligations of which (or
in the case of a depository institution that is the principal subsidiary of
a holding company, the obligations of which) are rated in one of the two
highest rating categories by the Rating Agencies,
an account or accounts the deposits in which are fully insured by either
the Bank Insurance Fund (the 'BIF') of the Federal Deposit Insurance
Corporation (the 'FDIC') or the Savings Association Insurance Fund (as
successor to the Federal Savings and Loan Insurance Corporation ('SAIF')),
an account or accounts the deposits in which are insured by the BIF or SAIF
(to the limits established by the FDIC), and the uninsured deposits in
which are otherwise secured such that, as evidenced by an opinion of
counsel, the Certificateholders have a claim with respect to the funds in
the Certificate Account or a perfected first priority security interest
against any collateral securing such funds that is superior to the claims
of any other depositors or general creditors of the depository institution
with which the Certificate Account is maintained, or
an account or accounts otherwise acceptable to the Certificate Insurer.
On a daily basis within one Business Day after receipt, the Master Servicer
will deposit or cause to be deposited into the Certificate Account the following
payments and collections received or made or to be applied by it subsequent to
the Cut-off Date (to the extent not applied in computing the Cut-off Date Pool
Principal Balance):
1. all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
2. all payments on account of interest (other than interest due on the
Mortgage Loans on or prior to the Cut-Off Date) on the Mortgage Loans, net
of the related Master Servicing Fee;
3. all proceeds of any insurance policies (to the extent such proceeds
are not applied to the restoration of the property or released to the
mortgagor in accordance with the Master Servicer's normal servicing
procedures), other than proceeds that represent reimbursement of the Master
Servicer's costs and expenses incurred in connection with presenting claims
under the related insurance policies and other than proceeds in respect of
the Certificate Insurance Policy ('Insurance Proceeds'), all other net
proceeds received in connection with the partial or complete liquidation of
Mortgage Loans (whether through trustee's sale, foreclosure sale or
otherwise) or in connection with any condemnation or partial release of a
Mortgaged Property, together with the net proceeds received with respect to
any Mortgaged Properties acquired by the Master Servicer by foreclosure or
deed in lieu of foreclosure in connection with defaulted Mortgage Loans
(other than the amount of such net proceeds representing any profit realized
by the Master Servicer in connection with the disposition of any such
properties) (together with Insurance Proceeds, 'Liquidation Proceeds');
4. all payments made by the Master Servicer in respect of Prepayment
Interest Shortfalls;
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5. all prepayment charges collected by the Master Servicer during the
related Prepayment Period;
6. any amount required to be deposited by the Master Servicer in
connection with any losses on investment of funds in the Certificate
Account;
7. all amounts required to be deposited in connection with shortfalls in
the principal amount of Replacement Mortgage Loans; and
8. all Advances.
WITHDRAWALS FROM THE CERTIFICATE ACCOUNT
The Master Servicer may from time to time withdraw funds from the
Certificate Account prior to the related Master Servicer Advance Date for the
following purposes:
(a) to pay to the Master Servicer the Servicing Fee to the extent not
previously paid to or withheld by the Master Servicer (subject to reduction
as described above under 'Servicing of the Mortgage Loans -- Adjustment to
Servicing Fee in Connection with Certain Prepaid Mortgage Loans') and, as
additional servicing compensation, assumption fees, late payment charges and
net earnings on or investment income with respect to funds in or credited to
the Certificate Account;
(b) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan pursuant to this clause (b)
being limited to amounts received that represent late recoveries of payments
of principal and/or interest on the related Mortgage Loan (or Insurance
Proceeds or Liquidation Proceeds with respect thereto) with respect to which
such Advance was made;
(c) to reimburse the Master Servicer for any Advances or servicing
expenses and advances previously made that the Master Servicer has
determined to be nonrecoverable;
(d) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(e) to pay the Master Servicer any unpaid Master Servicing Fees and to
reimburse it for any unreimbursed ordinary and necessary out-of-pocket costs
and expenses incurred by the Master Servicer in the performance of its
master servicing obligations, such right of reimbursement pursuant to this
clause (e) being limited to amounts received representing late recoveries of
the payments of such costs and expenses (or Liquidation Proceeds, purchase
proceeds or repurchase proceeds with respect thereto);
(f) to pay to the Seller or the Master Servicer, as applicable, with
respect to each Mortgage Loan or Mortgaged Property acquired in respect
thereof that has been purchased by the Seller or the Master Servicer from
the Trust Fund pursuant to the Pooling and Servicing Agreement, all amounts
received thereon and not taken into account in determining the related
Stated Principal Balance of such repurchased Mortgage Loan;
(g) to reimburse the Seller, the Master Servicer or the Depositor for
fees and expenses incurred and reimbursable pursuant to the Pooling and
Servicing Agreement;
(h) to withdraw any amount deposited in the Certificate Account and not
required to be deposited therein; and
(i) to clear and terminate the Certificate Account upon termination of
the Pooling and Servicing Agreement.
In addition, not later than 1:00 p.m. Pacific Time on the Master Servicer
Advance Date preceding each Distribution Date, the Master Servicer shall
withdraw from the Certificate Account and remit to the Trustee the amount of
Interest Funds and Principal Funds for each Loan Group together with all
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prepayment charges collected by the Master Servicer, to the extent on deposit,
and the Trustee shall deposit such amount in the Distribution Account, as
described below.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
The Trustee will establish and maintain a distribution account (the
'Distribution Account') on behalf of the Certificateholders and the Certificate
Insurer. The Trustee will, promptly upon receipt, deposit in the Distribution
Account and retain therein (x) the aggregate amount remitted by the Master
Servicer to the Trustee and (y) any amount required to be deposited by the
Master Servicer in connection with any losses on investment of funds in the
Distribution Account.
WITHDRAWALS FROM THE DISTRIBUTION ACCOUNT
The Trustee will withdraw funds from the Distribution Account for
distribution as described below under ' -- Distributions' and may from time to
time make withdrawals from the Distribution Account
to pay itself the Trustee Fee for the related Distribution Date;
to pay to the Master Servicer, as additional servicing compensation,
earnings on or investment income with respect to funds in or credited to
the Distribution Account;
to withdraw any amount deposited in the Distribution Account and not
required to be deposited therein; and
to clear and terminate the Distribution Account upon the termination of the
Pooling and Servicing Agreement.
DISTRIBUTION DATES
General. Distributions on the Certificates will be made by the Trustee on
the 25th day of each month, or if such day is not a Business Day, on the first
Business Day thereafter, commencing in February 2000 (each, a 'Distribution
Date'), to the persons in whose names such Certificates are registered at the
close of business on the related record date (each a 'Record Date'). The Record
Date for the Fixed Rate Certificates for any Distribution Date will be the last
Business Day of the month preceding the month in which that Distribution Date
occurs. The Record Date for the Adjustable Rate Certificates for any
Distribution Date will be the Business Day preceding the applicable Distribution
Date; provided, however, that if the Adjustable Rate Certificates are no longer
Book-Entry Certificates, the Record Date will be the same as for the Fixed Rate
Certificates.
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate Register
or, in the case of any Certificateholder that holds 100% of a Class of
Certificates or who holds a Class of Certificates with an aggregate initial
Certificate Principal Balance of $1,000,000 or more and that has so notified the
Trustee in writing in accordance with the Pooling and Servicing Agreement, by
wire transfer in immediately available funds to the account of such
Certificateholder at a bank or other depository institution having appropriate
wire transfer facilities; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and surrender
of such Certificates at the Corporate Trust Office of the Trustee. On each
Distribution Date, a holder of a Certificate will receive such holder's
Percentage Interest of the amounts required to be distributed with respect to
the applicable Class of Certificates. The 'Percentage Interest' evidenced by a
Certificate will equal the percentage derived by dividing the denomination of
such Certificate by the aggregate denominations of all Certificates of the
applicable Class.
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DISTRIBUTIONS
On each Distribution Date, the Trustee will withdraw the Interest Funds and
Principal Funds for each Loan Group plus the amount, if any, paid under the
Certificate Insurance Policy with respect to such Loan Group and apply such
amounts in the following order of priority, in each case, to the extent of the
funds remaining:
1. Concurrently, to the Trustee and the Certificate Insurer, the Trustee
Fee and the Certificate Insurer Premium for such Loan Group and Distribution
Date.
2. To the Offered Certificates in the related Certificate Group, the
related Current Interest and any Interest Carry Forward Amount for those
Certificates for such Distribution Date.
3. To the Offered Certificates in the related Certificate Group, an
amount up to the related Principal Remittance Amount in the following order
of priority:
A. Fixed Rate Loan Group:
The related Principal Remittance Amount to the Class AF
Certificates, until the Certificate Principal Balance thereof has
been reduced to zero.
B. Adjustable Rate Loan Group:
The related Principal Remittance Amount to the Class AV
Certificates until the Certificate Principal Balance thereof has
been reduced to zero.
4. To the Certificate Insurer, any amounts owing under the Insurance
Agreement.
5. To the Offered Certificates in the other Certificate Group, the
amount of any applicable Available Funds Shortfall for such other
Certificate Group.
6. To the Offered Certificates in the related Certificate Group, an
amount up to the Extra Principal Distribution Amount for the related
Certificate Group for such Distribution Date, until the related Specified
Overcollateralization Amount is reached.
7. To the Offered Certificates in the other Certificate Group, any
Specified Overcollateralization Amount Deficiency for such other Certificate
Group remaining after the distributions pursuant to clause 6 above.
8. To the Class AV Certificateholders, a payment of any Adjustable Rate
Certificate Carryover.
9. To the Class IO Certificates and the Class R Certificates, the
remainder, allocated in accordance with the Pooling and Servicing Agreement.
On each Distribution Date, the Trustee will withdraw from the Distribution
Account and distribute to the Holders of the Class P Certificates all prepayment
charges received with respect to the Mortgage Loans in each Loan Group during
the related Prepayment Period, and such amounts will not be available for
distribution to the other Classes of Certificates.
GLOSSARY OF TERMS
The following terms have the meanings given below to help describe the
cashflows on the Offered Certificates:
'Adjustable Rate Certificate Carryover,' for the Adjustable Rate
Certificates on any Distribution Date on which the Pass-Through Rate is
based upon the Adjustable Rate Available Funds Cap, is the excess of
(x) the amount of interest that such Certificates would have been entitled
to receive on such Distribution Date had the Pass-Through Rate not been
calculated based on the Adjustable Rate Available Funds Cap over (y) the
amount of interest such Certificates received on such Distribution Date
based on the Adjustable Rate Available Funds Cap, together with the unpaid
portion of any such excess from prior Distribution Dates (and
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interest accrued thereon at the then applicable Pass-Through Rate, without
giving effect to the Adjustable Available Funds Cap).
'Available Funds Shortfall' as to any Loan Group and any Distribution
Date, is the excess, if any, of (x) the aggregate of the amounts required to
be distributed pursuant to clauses 1 through 4 above under
' -- Distributions,' over (y) the Interest Funds and Principal Funds for
such Loan Group and Distribution Date.
'Certificate Insurer Premium' means, for any Certificate Group, the sum
of the premium under the Certificate Insurance Policy plus any premium
supplement imposed under the Insurance Agreement upon the occurrence of
certain events thereunder.
'Current Interest,' with respect to each Class of the Offered
Certificates and each Distribution Date is the interest accrued at the
applicable Pass-Through Rate for the applicable Accrual Period on the
Certificate Principal Balance of such Class plus any amount previously
distributed with respect to interest for such Class that is recovered as a
voidable preference by a trustee in bankruptcy.
'Due Period' means, for any Distribution Date, the period from the
second day in the month preceding the month of that Distribution Date
through the first day of the month of that Distribution Date.
'Excess Cashflow,' for a Loan Group and with respect to any Distribution
Date, is the excess, if any, of the net Interest Funds and Principal Funds
for such Loan Group and Distribution Date over required distributions of
interest and principal (excluding any Extra Principal Distribution Amount)
on the Offered Certificates in the related Certificate Group on such
Distribution Date.
'Extra Principal Distribution Amount,' for a Loan Group and with respect
to any Distribution Date, is the lesser of (a) the excess, if any, of the
Specified Overcollateralization Amount for such Loan Group and Distribution
Date over the Overcollateralization Amount (after giving effect to
distributions of principal on the related Certificate Group other than any
Extra Principal Distribution Amount) for such Loan Group and Distribution
Date and (b) the Excess Cashflow for such Loan Group and Distribution Date
and any Excess Cashflow from the other Loan Group for such Distribution Date
available therefor in the priority set forth herein.
'Interest Carry Forward Amount,' with respect to each Class of the
Offered Certificates and each Distribution Date, is the sum of (1) the
excess of (A) Current Interest for such Class with respect to prior
Distribution Dates over (B) the amount actually distributed to such Class
with respect to interest on such prior Distribution Dates and (2) interest
on such excess (to the extent permitted by applicable law) at the applicable
Pass-Through Rate.
'Interest Funds,' with respect to each Loan Group and any Distribution
Date, are equal to the sum, without duplication, of
all scheduled interest collected during the related Due Period, and
interest paid during the related Prepayment Period in connection with any
prepayments, less the related Master Servicing Fee,
all Advances relating to interest,
all Compensating Interest and
Liquidation Proceeds (to the extent such Liquidation Proceeds relate to
interest) less all non-recoverable Advances relating to interest and
certain expenses reimbursed during the related Due Period, in each case
with respect to the Mortgage Loans in such Loan Group.
'OC Release Amount' is, for any Distribution Date and Certificate Group,
the lesser of (a) the Principal Funds for such Distribution Date and such
Certificate Group and (b) the excess,
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if any, of the related Overcollateralization Amount over the related
Specified Overcollateralization Amount.
'Overcollateralization Amount,' with respect to any Distribution Date
and Loan Group, is the excess, if any, of (a) the aggregate Stated Principal
Balances of the Mortgage Loans in such Loan Group as of the last day of the
related Due Period over (b) the Certificate Principal Balances of the
Offered Certificates in the related Certificate Group as of such date (after
taking into account the payment of principal on such Certificates on such
Distribution Date).
'Prepayment Period,' with respect to any Distribution Date, is the
calendar month preceding the calendar month in which such Distribution Date
occurs.
'Principal Distribution Amount,' with respect to each Distribution Date
and a Loan Group, is the sum of (x) the Principal Remittance Amount for such
Distribution Date for such Loan Group and (y) any Extra Principal
Distribution Amount for such Distribution Date for the related Certificate
Group.
'Principal Funds,' with respect to each Loan Group and any Distribution
Date, are equal to the sum, without duplication, of
the scheduled principal collected during the related Due Period or
advanced on or before the related Master Servicer Advance Date,
prepayments collected in the related Prepayment Period,
the Stated Principal Balance of each Mortgage Loan that was repurchased
by the Seller or the Master Servicer,
the amount, if any, by which the aggregate unpaid principal balance of
any Replacement Mortgage Loans is less than the aggregate unpaid
principal balance of any Deleted Mortgage Loans delivered by the Seller
in connection with a substitution of a Mortgage Loan and
all Liquidation Proceeds collected during the related Prepayment Period
(to the extent such Liquidation Proceeds related to principal) less all
non-recoverable Advances relating to principal reimbursed during the
related Due Period, in each case with respect to the Mortgage Loans in
such Loan Group.
'Principal Remittance Amount' is, for any Distribution Date and a
Certificate Group, the Principal Funds for such Distribution Date and such
Certificate Group minus the related OC Release Amount.
'Specified Overcollateralization Amount' means, with respect to any
Certificate Group and any Distribution Date, a specified level of
overcollateralization required by the Certificate Insurer calculated as
provided in the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement provides that the Specified Overcollateralization Amount with
respect to any Mortgage Loan Group may be modified, reduced or eliminated
without the consent of any Certificateholders.
'Specified Overcollateralization Amount Deficiency' as to any
Certificate Group and any Distribution Date, shall be the excess, if any, of
(i) the related Specified Overcollateralization Amount for such Distribution
Date over (ii) the related Overcollateralization Amount for such
Distribution Date calculated, for this purpose only, after giving effect to
the distribution of the related Principal Remittance Amount on such
Distribution Date but prior to any distributions of related Extra Principal
Distribution Amount on such Distribution Date.
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PASS-THROUGH RATES
The 'Pass-Through Rate' for the Fixed Rate Certificates is the per annum
fixed rate as set forth and described on the cover of this prospectus
supplement. On any Distribution Date after the Optional Termination Date, the
Pass-Through Rate for the Fixed Rate Certificates will increase by 0.50% per
annum. On any Distribution Date (including after the Optional Termination Date,
the Pass-Through Rate for the Fixed Rate Certificates will be subject to an
interest rate cap equal to the weighted average Adjusted Net Mortgage Rates on
the Fixed Rate Mortgage Loans in effect on the last day of the related Due
Period (such weighted average rate, the 'Fixed Net Rate Cap').
The 'Pass-Through Rate' for the Adjustable Rate Certificates will be equal
to the least of
the London interbank offered rate for one month United States dollar
deposits ('One-Month LIBOR') calculated as described below under
' -- Calculation of One-Month LIBOR' plus the Pass-Through Margin (as
defined below),
14.0% per annum, and
the Adjustable Rate Available Funds Cap for the Adjustable Rate
Certificates.
The 'Adjustable Rate Available Funds Cap' for the Adjustable Rate
Certificates for any Distribution Date will be a per annum rate equal to 12
times the quotient of (x) the total scheduled interest on the Adjustable Rate
Mortgage Loans for the related Due Period based on the Adjusted Net Mortgage
Rates in effect for interest payable during such related Due Period divided by
(y) the Certificate Principal Balance of the Adjustable Rate Certificates
(adjusted to an effective rate reflecting the accrual of interest calculated on
the basis of a 360-day year and the actual number of days elapsed).
The 'Pass-Through Margin' for the Adjustable Rate Certificates is as
follows: for any Distribution Date on or prior to the Optional Termination Date:
0.30%; and for any Distribution Date after the Optional Termination Date: 0.60%.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Offered Adjustable Rate Certificates
(each such date, an 'Interest Determination Date'), the Trustee will determine
One-Month LIBOR for such Accrual Period on the basis of such rate as it appears
on Telerate Screen Page 3750, as of 11:00 a.m. (London time) on such Interest
Determination Date. 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 LIBOR or comparable rates as may be
reasonably selected by the Trustee), One-Month LIBOR for the applicable Accrual
Period will be the Reference Bank Rate as defined herein. If no such quotations
can be obtained and no Reference Bank Rate is available, One-Month LIBOR will be
the One-Month LIBOR applicable to the preceding Accrual Period.
The 'Reference Bank Rate' with respect to any Accrual Period, means the
arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of
0.03125%) of the offered rates for United States dollar deposits for one month
that are quoted by the Reference Banks as of 11:00 a.m., New York City time, on
the related Interest Determination Date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the aggregate
Certificate Principal Balance of all Adjustable Rate Certificates for such
Accrual Period, provided that at least two such Reference Banks provide such
rate. If fewer than two offered rates appear, the Reference Bank Rate will be
the arithmetic mean (rounded upwards, if necessary, to the nearest whole
multiple of 0.03125%) of the rates quoted by one or more major banks in New York
City, selected by the Trustee, as of 11:00 a.m., New York City time, on such
date for loans in U.S. dollars to leading European banks for a period of one
month in amounts approximately equal to the Certificate Principal
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Balance of all Adjustable Rate Certificates for such Accrual Period. As used in
this section, 'LIBOR Business Day' means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; and
'Reference Banks' means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market
with an established place of business in London,
which have been designated as such by the Trustee and
which are not controlling, controlled by, or under common control with, the
Depositor, the Seller or the Master Servicer.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable to
the Offered Adjustable Rate Certificates for the related Accrual Period for the
Offered Adjustable Rate Certificates shall (in the absence of manifest error) be
final and binding.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will forward to each
Certificateholder, the Certificate Insurer, the Master Servicer and the
Depositor a statement generally setting forth, among other information:
1. the amount of the related distribution to holders of the Offered
Certificates allocable to principal, separately identifying (A) the
aggregate amount of any Principal Prepayments included therein, (B) the
aggregate of all scheduled payments of principal included therein and
(C) Extra Principal Distribution Amount;
2. the amount of such distribution to holders of the Offered
Certificates allocable to interest;
3. the Interest Carry Forward Amounts for each Class of Offered
Certificates (if any);
4. the Certificate Principal Balance of the Offered Certificates after
giving effect to the distribution of principal on such Distribution Date;
5. the Pool Stated Principal Balance for the following Distribution
Date;
6. the amount of the Master Servicing Fee paid to or retained by the
Master Servicer for the related Due Period;
7. the Pass-Through Rate for each Class of Adjustable Rate Certificates
for such Distribution Date;
8. the amount of Advances included in the distribution on such
Distribution Date;
9. the number and aggregate principal amounts of the Mortgage Loans in
each Loan Group (A) delinquent (exclusive of related Mortgage Loans in
foreclosure) (1) 30-59 days, (2) 60-89 days and (3) 90 or more days, and
(B) in foreclosure and delinquent (1) 30-59 days, (2) 60-89 days and (3) 90
or more days, in each case as of the close of business on the last day of
the calendar month preceding such Distribution Date;
10. with respect to any Mortgage Loan in each Loan Group that became an
REO Property during the preceding calendar month, the loan number and Stated
Principal Balance of such Mortgage Loan as of the close of business on the
Determination Date preceding such Distribution Date and the date of
acquisition thereof;
11. with respect to each Loan Group, the related Overcollateralization
Amount and Specified Overcollateralization Amount;
12. the total number and principal balance of any REO Properties in each
Loan Group as of the close of business on the Determination Date preceding
such Distribution Date;
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13. any Adjustable Rate Certificate Carryover paid and all remaining
Adjustable Rate Certificate Carryover remaining on each Class of the
Adjustable Rate Certificates on such Distribution Date; and
14. Amounts paid under the Certificate Insurance Policy.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each Certificateholder of
record during the previous calendar year a statement containing information
necessary to enable Certificateholders to prepare their tax returns. Such
statements will not have been examined and reported upon by an independent
public accountant.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Seller, without the consent of Certificateholders but
with the consent of the Certificate Insurer,
to cure any ambiguity,
to correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein, or
to make any other revisions with respect to matters or questions arising
under the Pooling and Servicing 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 Certificateholder. An amendment will be deemed not to adversely
affect in any material respect the interests of the Certificateholders if the
person requesting such amendment obtains a letter from each Rating Agency
stating that such amendment will not result in the downgrading or withdrawal of
the respective ratings then assigned to any class of Certificates without
respect to the Certificate Insurance Policy. The Pooling and Servicing Agreement
may also be amended with the consent of the Certificate Insurer but without the
consent of any of the Certificateholders, to change the manner in which the
Certificate Account is maintained, provided that any such change does not
adversely affect the then current rating on any class of Certificates without
respect to the Certificate Insurance Policy. In addition, the Pooling and
Servicing Agreement may be amended with the consent of the Certificate Insurer
but without the consent of Certificateholders to modify, eliminate or add to any
of its provisions to such extent as may be necessary to maintain the Trust
Fund's REMIC elections, provided that the Trustee has received an opinion of
counsel to the effect that such action is necessary or helpful to maintain such
qualifications.
In addition, the Pooling and Servicing Agreement may be amended by the
Depositor, the Master Servicer, the Seller and the holders of a Majority in
Interest of each Class of Certificates affected thereby with the consent of the
Certificate Insurer for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment may
(a) reduce in any manner the amount of, or delay the timing of, payments
required to be distributed on any Certificate without the consent of the holder
of such Certificate;
(b) adversely affect in any material respect the interests of the holders of
any Class of Certificates in a manner other than as described in clause (a)
above, without the consent of the holders of Certificates of such Class
evidencing, as to such Class, percentage interests aggregating 66%; or
(c) reduce the aforesaid percentage of aggregate outstanding principal
amounts of Certificates of each 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.
Upon satisfaction of the conditions for amendment, the Trustee shall execute
such amendment unless, based on an opinion of counsel, such amendment adversely
affects in any material respect the rights, duties or immunities of the Trustee.
In addition, no amendment to the Pooling and Servicing
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Agreement will be effective unless the Trustee shall have first received an
opinion of counsel to the effect that such amendment will not cause the Trust
Fund's REMIC election to fail to qualify.
OPTIONAL TERMINATION
The Master Servicer will have the right to purchase all remaining Mortgage
Loans and REO Properties and thereby effect early retirement of all the
Certificates subject to the Stated Principal Balance of the Mortgage Loans and
REO Properties at the time of repurchase being less than or equal to 10% of
Cut-off Date Principal Balance of the Mortgage Loans (the 'Optional Termination
Date') and, if such purchase would result in a draw on the Certificate Insurance
Policy, subject to the consent of the Certificate Insurer. In the event such
option is exercised by the Master Servicer, the repurchase will be made at a
price equal to the sum of (x) 100% of the Stated Principal Balance of each
Mortgage Loan (other than in respect of REO Property) plus accrued interest
thereon at the applicable Mortgage Rate, net of the Master Servicing Fee,
(y) the appraised value of any REO Property (up to the Stated Principal Balance
of the related Mortgage Loan), and (z) any unreimbursed out-of-pocket costs and
expenses and the principal portion of Advances, in each case previously incurred
by the Master Servicer in the performance of its servicing obligations, together
with all amounts due to the Certificate Insurer. Proceeds from such purchase
will be distributed to the Certificateholders in the priority described above.
Any purchase of the Mortgage Loans and REO Properties will result in an early
retirement of the Certificates.
OPTIONAL PURCHASE OF DEFAULTED LOANS
As to any Mortgage Loan which is delinquent in payment by 91 days or more,
the Master Servicer may, at its option, purchase such Mortgage Loan at a price
equal to 100% of the Stated Principal Balance thereof plus accrued interest
thereon at the applicable Mortgage Rate, from the date through which interest
was last paid by the related mortgagor or advanced to the first day of the month
in which such amount is to be distributed plus any unreimbursed Servicing
Advances.
EVENTS OF DEFAULT
Events of Default (each an 'Event of Default') will consist of:
any failure by the Master Servicer to deposit in the Certificate Account or
the Distribution Account the required amounts or remit to the Trustee any
payment (including an Advance required to be made under the terms of the
Pooling and Servicing Agreement) which continues unremedied for any
applicable cure period specified in the Pooling and Servicing Agreement
after written notice of such failure shall have been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer and the
Trustee by the Certificate Insurer or, with the consent of the Certificate
Insurer, the holders of Certificates evidencing not less than 25% of the
Voting Rights evidenced by the Certificates;
any failure by the Master Servicer to observe or perform in any material
respect any other of its covenants or agreements, or any breach of a
representation or warranty made by the Master Servicer, in the Pooling and
Servicing Agreement, which continues unremedied for 60 days after the
giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer and the Trustee by the
Certificate Insurer or, with the consent of the Certificate Insurer, the
holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates;
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, and certain actions by or on behalf of the Master
Servicer indicating its insolvency or inability to pay its obligations; or
the occurrance of an event of default under the Insurance Agreement.
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As of any date of determination, (x) holders of the Offered Certificates
will be allocated 95% of all Voting Rights, allocated among the Offered
Certificates in proportion to their respective outstanding Certificate Principal
Balances and (y) holders of the Residual Certificates will be allocated all of
the remaining Voting Rights. Voting Rights will be allocated among the
Certificates of each such Class in accordance with their respective percentage
interests.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee shall, but only upon the receipt of instructions
from the Certificate Insurer or, with the consent of the Certificate Insurer,
the holders of Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates, terminate all of the rights and obligations of
the Master Servicer under the Pooling and Servicing Agreement and in and to the
Mortgage Loans, whereupon the Trustee or a successor servicer approved by the
Certificate Insurer will succeed to all of the responsibilities and duties of
the Master Servicer under the Pooling and Servicing Agreement, including the
obligation to make Advances. In the event that the Trustee is unwilling or
unable to act and the Certificate Insurer fails to appoint a successor, the
Trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, a mortgage loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the Pooling
and Servicing Agreement. No assurance can be given that termination of the
rights and obligations of the Master Servicer under the Pooling and Servicing
Agreement would not adversely affect the servicing of the Mortgage Loans,
including the delinquency experience of the Mortgage Loans.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under the Pooling and Servicing Agreement
to institute any proceeding with respect thereto, unless the Certificate Insurer
consents thereto and such holder previously has given to the Trustee written
notice of the continuation of an Event of Default and unless the holders of
Certificates having not less than 25% of the Voting Rights evidenced by the
Certificates have made written request to 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 has neglected or refused to
institute any such proceeding.
THE TRUSTEE
Bankers Trust Company of California, N.A. will be the Trustee under the
Pooling and Servicing Agreement. The Depositor and the Master Servicer may
maintain other banking relationships in the ordinary course of business with the
Trustee. Offered Certificates may be surrendered at the Corporate Trust Office
of the Trustee located at 1761 East St. Andrew Place, Santa Ana, California
92705, Attention: Bear Stearns Asset Backed Securities, Inc., Series 2000-1 or
at such other addresses as the Trustee may designate from time to time.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the Offered
Certificateholders consists of the application of the related Excess Cashflow,
the overcollateralization and cross-collateralization features of the Trust Fund
and the Certificate Insurance Policy.
TREATMENT OF REALIZED LOSSES
If, with respect to any Mortgage Loan that becomes a liquidated Mortgage
Loan during a Due Period, the Liquidation Proceeds relating thereto and
allocated to principal are less than the Principal Balance of such Mortgage
Loan, the amount of the insufficiency will constitute a 'Realized Loss.'
Realized Losses will reduce the aggregate of the outstanding principal balances
of the Mortgage
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Loans in the related Loan Group and accordingly will reduce the related
Overcollateralization Amount. The application of related Excess Cashflow to fund
Extra Principal Distribution Amounts and thereby reduce the Certificate
Principal Balances of the related Offered Certificates will increase the related
Overcollateralization Amount. Realized Losses that occur in a Loan Group will,
in effect, be absorbed first, by the Class R Certificates, both through the
application of the Excess Cashflow to fund such deficiency and through a
reduction in the related Overcollateralization Amount.
Realized Losses remaining after such absorption by the Class R Certificates
and the application of the related Excess Cashflow and through the reduction of
the related Overcollateralization Amount (including giving effect to the
cross-collateralization feature of the Trust Fund) to the extent of any Coverage
Deficit will be covered by a draw on the Certificate Insurance Policy.
OVERCOLLATERALIZATION AND APPLICATION OF EXCESS CASHFLOW
The weighted average Adjusted Net Mortgage Rate for the Mortgage Loans in
each Mortgage Loan Group is generally expected to be higher than the weighted
average of the Pass-Through Rates on the related Offered Certificates. In
addition, to the extent that there is overcollateralization, these Mortgage
Loans will be generating still further excess interest relative to the
Pass-Through Rates on the related Offered Certificates. The Excess Cashflow
generally consists of this excess interest generated on the related Mortgage
Loans. Excess Cashflow will be allocated to the extent described herein to the
accelerated payment of principal in the form of the Extra Principal Distribution
Amount.
The overcollateralization mechanics of the Trust Fund result in a limited
acceleration of the Offered Certificates relative to the amortization of the
Mortgage Loans in the related Loan Group. The accelerated amortization is
achieved by the application of the Excess Cashflow described above and certain
amounts released from the other Loan Group, as described below under the caption
' -- Crosscollateralization Provisions,' to the payment of the Certificate
Principal Balance of the related Offered Certificates. Any such application will
cause the aggregate of the related Certificate Principal Balance to amortize
more rapidly than the Mortgage Loans in the related Loan Group, increasing the
amount of overcollateralization. These features are intended to create
overcollateralization equal to the excess of the aggregate Stated Principal
Balances of the Mortgage Loans in the related Loan Group over the aggregate
Certificate Principal Balance of the related Offered Certificates. Once the
Specified Overcollateralization Amount is reached, such accelerated amortization
features will cease, unless necessary to maintain the Specified
Overcollateralization Amount.
As of the Closing Date, there will be limited initial Overcollateralization
Amount with respect to each Loan Group in the amount required by the Certificate
Insurer and provided in the Pooling and Servicing Agreement. Absent Realized
Losses in a Loan Group, any Excess Cashflow will be paid as Extra Principal
Distribution Amounts, thereby increasing the Overcollateralization Amount
related to such Loan Group up to the related Specified Overcollateralization
Amount. On any Distribution Date on which the Specified Overcollateralization
Amount steps down, the related OC Release Amounts will not be passed through as
a distribution of principal to the holders of the related Offered Certificates
on such Distribution Date, but will either be applied to cover any amounts due
to the Certificate Insurer or applied to any Specified Overcollateralization
Amount Deficiency in the other Loan Group as described under the caption
' -- Crosscollateralization Provisions,' or be distributed to the Class R
Certificateholders as described under the caption 'Description of the
Certificates -- Distributions,' and the amortization of the Offered Certificates
of the related Certificate Group will accordingly be decelerated. Any Excess
Cashflow distributed to the Class R Certificateholders on any Distribution Date
will not be available to pay amounts due to the Offered Certificateholders on
subsequent Distribution Dates.
The Pooling and Servicing Agreement provides that, based on the delinquency
and loss experience of the Mortgage Loans and certain triggers required by the
Certificate Insurer as set forth in the Pooling and Servicing Agreement, the
Specified Overcollateralization Amount with respect to
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such Loan Group may increase or decrease over time. In addition, the Pooling and
Servicing Agreement provides that the Specified Overcollateralization Amount
with respect to a Loan Group may be modified, reduced or eliminated without the
consent of any Certificateholders. An increase would result in a temporary
period of accelerated amortization of the related Offered Certificates to
increase the actual level of overcollateralization to the Specified
Overcollateralization Amount; a decrease would result in a temporary period of
decelerated amortization to reduce the actual level of overcollateralization to
the Specified Overcollateralization Amount.
OVERCOLLATERALIZATION AND THE CERTIFICATE INSURANCE POLICY
The Pooling and Servicing Agreement will require the Trustee to make a claim
for an Insured Payment under the Certificate Insurance Policy not later than the
third Business Day prior to any Distribution Date as to which the Trustee has
determined that a Coverage Deficit with respect to a Class of Offered
Certificates will occur for the purpose of applying the proceeds of such Insured
Payment as a payment of principal to the related Class of Offered
Certificateholders on such Distribution Date. With respect to any Distribution
Date and any Class of Offered Certificates, a 'Coverage Deficit' will mean such
Class' allocable percentage of the amount, if any, by which (x) the aggregate of
the Certificate Principal Balances of the Classes of Offered Certificates, after
taking into account all distributions thereto in respect of principal to be made
on such Distribution Date, other than amounts paid by the Certificate Insurer,
exceeds (y) the aggregate Stated Principal Balance of the Mortgage Loans as of
the end of the applicable Due Period. Accordingly, the Certificate Insurance
Policy guarantees ultimate collection of the full amount of the Certificate
Principal Balance of each Class of Offered Certificates, rather than current
payments of the amounts of any Realized Losses to the holders of each Class of
Offered Certificates. YOU SHOULD REALIZE THAT, UNDER CERTAIN LOSS OR DELINQUENCY
SCENARIOS APPLICABLE TO THE MORTGAGE LOANS, YOU MAY TEMPORARILY RECEIVE NO
DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF YOUR
CERTIFICATES.
THE CERTIFICATE INSURANCE POLICY
The following summary of the terms of the Certificate Insurance Policy does
not purport to be complete and is qualified in its entirety by reference to the
Certificate Insurance Policy. A form of the Certificate Insurance Policy may be
obtained, upon request, from the Trustee.
Simultaneously with the issuance of the Offered Certificates, the
Certificate Insurer will deliver the Certificate Insurance Policy to the Trustee
for the benefit of the Holders of the Offered Certificates. Under the
Certificate Insurance Policy, the Certificate Insurer will irrevocably and
unconditionally guarantee payment on each Distribution Date to the Trustee for
the benefit of the Holders of the Offered Certificates of Insured Payments with
respect to the Offered Certificates for such Distribution Date, calculated in
accordance with the original terms of the Offered Certificates when issued and
without regard to any amendment or modification of the Offered Certificates
except amendments or modifications to which the Certificate Insurer has given
its prior written consent.
As used in the Certificate Insurance Policy, the following terms have the
following meanings:
'Agreement' means the Pooling and Servicing Agreement dated as of
January 1, 2000 among Bear, Stearns Asset Backed Securities, Inc., as
Depositor, EMC Mortgage Corporation, as Seller and Master Servicer and
Bankers Trust Company of California, N.A., as Trustee, without regard to any
amendment or supplement unless the Certificate Insurer shall have consented
to such amendment or supplement in writing.
'Business Day' means any day other than a Saturday, Sunday or a day on
which the Certificate Insurer or banking institutions in New York City or in
the city in which the corporate trust office of the Trustee under the
Agreement is located are authorized or obligated by law or executive order
to close.
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'Deficiency Amount' means, with respect to the Offered Certificates and
any Distribution Date, the excess, if any, of (A) the sum of (i) the Current
Interest plus Interest Carry Forward Amount for each Class of Offered
Certificates, less any shortfalls in interest collections due either to the
application of the Soldiers and Sailors Civil Relief Act of 1940 or to
Prepayment Interest Shortfalls not covered by Compensation Interest and any
interest recovered as a voidable preference, and (ii) the Guaranteed
Principal Amount over (B) Interest Funds and Principal Funds for both of the
Loan Groups (after payment of the Trustee Fee, Master Servicing Fee and the
Certificate Insurer Premium). The Certificate Insurance Policy will not
cover payment of any Adjustable Rate Certificate Carryover.
'Guaranteed Principal Amount' means for any Distribution Date (a) the
amount, if any, by which the aggregate Certificate Principal Balance of the
Offered Certificates exceeds the aggregate Stated Principal Balance of the
Mortgage Loans at the end of the related Due Period (after giving effect to
all distributions of principal on the Offered Certificates on such
Distribution Date) and (b) on the Distribution Date in March 25, 2030 (after
giving effect to all other distributions of principal on the Offered
Certificates), an amount equal to the aggregate Certificate Principal
Balance.
'Insured Payment' means (i) as of any Distribution Date, any Deficiency
Amount and (ii) any Preference Amount.
'Preference Amount' means any amount previously distributed to an Owner
on the Offered Certificates 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. 'SS'101 et seq.), as amended from time to
time, in accordance with a final nonappealable order of a court having
competent jurisdiction.
'Receipt' and 'Received' with respect to the Certificate Insurance
Policy means actual delivery to the Certificate Insurer and to the fiscal
agent appointed by the Certificate Insurer at its option, if any, prior to
12:00 p.m., New York City time, on a Business Day; delivery either on a day
that is not a Business Day or after 12:00 p.m., New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice or
certificate given under the Certificate Insurance Policy by the Trustee is
not in proper form or is not properly completed, executed or delivered, it
shall be deemed not to have been Received, and the Certificate Insurer or
the fiscal agent shall promptly so advise the Trustee and the Trustee may
submit an amended notice.
'Term of the Policy' means the period from and including the date of
issuance of the Certificate Insurance Policy to and including the date on
which the Principal Balance for each Class of Certificates is zero, plus
such additional period, to the extent specified in the Certificate Insurance
Policy, during which any payment on the applicable Class of Certificates
could be avoided in whole or in part as a preference payment.
Capitalized terms used in the Certificate Insurance Policy and not otherwise
defined therein shall have the respective meanings set forth in the Agreement as
of the date of execution of the Certificate Insurance Policy, without giving
effect to any subsequent amendment or modification to the Agreement unless such
amendment or modification has been approved in writing by the Certificate
Insurer.
If any Insured Payment is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the Certificate Insurer
will pay such amount out of funds of the Certificate Insurer on the later of (a)
the date when due to be paid pursuant to the Order referred to below or (b) the
first to occur of (i) the fourth Business Day following Receipt by the
Certificate Insurer from the Trustee of (A) a certified copy of the order of the
court or other governmental body that exercised jurisdiction to the effect that
a holder of the applicable Class of Certificates is required to return principal
or interest distributed with respect to the applicable Class of Certificates
during the
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Term of the Policy because such distributions were avoidable preferences under
applicable bankruptcy law (the 'Order'), (B) a certificate of such Holder of the
applicable Class of Certificates that the Order has been entered and is not
subject to any stay, and (C) an assignment duly executed and delivered by such
Holder of the applicable Class of Certificates, in such form as is reasonably
required by the Certificate Insurer and provided to such Holder of the
applicable Class of Certificates by the Certificate Insurer, irrevocably
assigning to the Certificate Insurer all rights and claims of such Holder of the
applicable Class of Certificates against the debtor which made such preference
payment or otherwise with respect to such preference payment, or (ii) the date
of Receipt by the Certificate Insurer from the Trustee of the items referred to
in clauses (A), (B) and (C) above if, at least four Business Days prior to such
date of Receipt, the Certificate Insurer shall have Received written notice from
the Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or Holder of the applicable Class of Certificates
directly (unless a Holder of the applicable Class of Certificates has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order, in which case such payment shall be disbursed
to the Trustee for distribution to such Certificateholder upon proof of such
payment reasonably satisfactory to the Certificate Insurer). In connection with
the foregoing, the Certificate Insurer shall have the rights provided pursuant
to the Pooling and Servicing Agreement.
Payment of claims under the Certificate Insurance Policy will be made by the
Certificate Insurer following Receipt by the Certificate Insurer of the
appropriate notice for payment on the later to occur of (a) 12:00 noon, New York
City time, on the second Business Day following Receipt of such notice for
payment, and (b) 12:00 noon, New York City time, on the relevant Distribution
Date.
The Certificate Insurer shall be subrogated to the rights of the holders of
the Offered Certificates to receive payments of principal and interest, as
applicable, with respect to distributions on the Offered Certificates to the
extent of any payment by the Certificate Insurer under the Certificate Insurance
Policy. To the extent the Certificate Insurer makes Insured Payments, either
directly or indirectly (as by paying through the Trustee), to the Holders of the
Offered Certificates, the Certificate Insurer will be subrogated to the rights
of the Holders of the Offered Certificates, as applicable, with respect to such
Insured Payment and shall be deemed to the extent of the payments so made to be
a registered holder of Offered Certificates for purposes of payment.
Claims under the Certificate Insurance Policy constitute direct unsecured
and unsubordinated obligations of the Certificate Insurer, and will rank equally
with any other unsecured and unsubordinated obligations of the Certificate
Insurer except for certain obligations in respect to tax and other payments to
which preference is or may become afforded by statute. The terms of the
Certificate Insurance Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution of
the Sponsor. The Certificate Insurance Policy by its terms may not be canceled
or revoked prior to distribution in full of all Guaranteed Principal Amounts.
The Certificate Insurance Policy is governed by the laws of the State of New
York. The Certificate Insurance Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the Certificate Insurer
agrees under the Certificate Insurance Policy not to assert, and waives, for the
benefit of each Holder of Offered Certificates, all its rights (whether by
counterclaim, setoff or otherwise) and defenses (including, without limitation,
the defense of fraud), whether acquired by subrogation, assignment or otherwise,
to the extent that such rights and defenses may be available to the Certificate
Insurer to avoid payment of its obligations under the Certificate Insurance
Policy in accordance with the express provisions of the Certificate Insurance
Policy.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
default by the Certificate Insurer in connection with the Certificate Insurance
Policy exists, the Certificate Insurer will be entitled to exercise certain
rights of the Holders of the Offered Certificates, without the consent of
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such Holders, and the Holders of the Offered Certificates may exercise such
rights only with the prior written consent of the Certificate Insurer.
The Master Servicer, the Depositor and the Certificate Insurer will enter
into an Insurance and Indemnity Agreement (the 'Insurance Agreement') pursuant
to which the Master Servicer will agree to reimburse, with interest, the
Certificate Insurer for amounts paid pursuant to claims under the Certificate
Insurance Policy. The Master Servicer will further agree to pay the Certificate
Insurer all reasonable charges and expenses which the Certificate Insurer may
pay or incur relative to any amounts paid under the Certificate Insurance Policy
or otherwise in connection with the transaction and to indemnify the Certificate
Insurer against certain liabilities. Except to the extent provided therein,
amounts owing under the Insurance Agreement will be payable solely from the
Trust Fund. An event of default by the Master Servicer under the Insurance
Agreement will constitute an event of default by the Master Servicer under the
Pooling and Servicing Agreement and allow the Certificate Insurer, among other
things, to direct the Trustee to terminate the Master Servicer. An 'event of
default' by the Master Servicer under the Insurance Agreement includes (i) the
Master Servicer's failure to pay when due any amount owed under the Insurance
Agreement or certain other documents, (ii) the Master Servicer's untruth or
incorrectness in any material respect of any representation or warranty of the
Master Servicer in the Insurance Agreement, the Pooling and Servicing Agreement
or certain other documents, (iii) the Master Servicer's failure to perform or to
observe any covenant or agreement in the Insurance Agreement, the Pooling and
Servicing Agreement and certain other documents, (iv) the Master Servicer's
failure to pay its debts in general or the occurrence of certain events of
insolvency or bankruptcy with respect to the Master Servicer, (v) the occurrence
of an event of default under the Pooling and Servicing Agreement or certain
other documents, (vi) a claim being made on the Certificate Insurance Policy and
(vii) certain loss and delinquency tests specified therein. For a description of
the Certificate Insurer, see 'The Certificate Insurer' in this Prospectus
Supplement.
CROSSCOLLATERALIZATION PROVISIONS
Certain Interest Funds and Principal Funds with respect to each Certificate
Group will be available to cover certain shortfalls and to create
overcollateralization with respect to the Offered Certificates relating to the
other Certificate Group as described above under the caption 'Description of the
Certificates -- Distributions.'
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The weighted average life of, and the yield to maturity on each Class of
Offered Certificates generally will be directly related to the rate of payment
of principal (including prepayments) of the Mortgage Loans in the related Loan
Group. The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the mortgage loans,
the geographic locations of the properties securing the loans, the extent of the
mortgagor's equity in such properties, and changes in the mortgagors' housing
needs, job transfers and employment status. In addition, approximately 58.90% of
the Mortgage Loans in the Fixed Rate Loan Group and approximately 75.42% of the
Mortgage Loans in the Adjustable Rate Loan Group (by Cut-off Date Principal
Balance) provide for the payment by the borrower of a prepayment charge on full
prepayments made within a specified period from the date of the execution of the
related Mortgage Note. These penalties, if enforced by the Master Servicer, may
affect the rate of prepayments on the Mortgage Loans.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors who purchase the Offered Certificates at prices
other than par, even if the average rate of principal prepayments is consistent
with the expectations of investors. In general, the earlier the payment of
principal of the Mortgage Loans the greater the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Certificates may not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments.
The prepayment behavior of subprime mortgage loans may differ from that of
prime mortgage loans in that the prepayment rate may be influenced more by the
rate of defaults and liquidations than by voluntary refinancings. Subprime
mortgage loans may experience greater defaults in a rising interest rate
environment as the borrower's resources are stretched, thereby producing
prepayments at a time when prepayments would normally be expected to decline.
Alternatively, some borrowers may be able to re-establish or improve their
credit rating thereby permitting them to refinance into a lower cost mortgage
loan. Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase any of the Offered
Certificates. The Depositor does not make any representations or warranties as
to the rate of prepayment or the factors to be considered in connection with
such determinations.
The weighted average life and yield to maturity of each Class of Offered
Certificates will also be influenced by the amount of Excess Cashflow generated
by the Mortgage Loans and applied in reduction of the Certificate Principal
Balances of such Certificates. The level of Excess Cashflow available on any
Distribution Date to be applied in reduction of the Certificate Principal
Balances of the Offered Certificates will be influenced by, among other factors,
the overcollateralization level of the assets in the Loan Group at such
time (i.e., the extent to which interest on the Mortgage Loans is accruing
on a higher Stated Principal Balance than the Certificate Principal Balance
of the related Offered Certificates);
the delinquency and default experience of the Mortgage Loans,
the level of One-Month LIBOR and the Mortgage Index for the Adjustable Rate
Mortgage Loans, and
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the provisions of the Pooling and Servicing Agreement that permit principal
collections to be distributed to the Residual Certificates (as provided in
the Pooling and Servicing Agreement) when required overcollateralization
levels have been met.
To the extent that greater amounts of Excess Cashflow are distributed in
reduction of the Certificate Principal Balances of a Class of Offered
Certificates, the weighted average life thereof can be expected to shorten. No
assurance, however, can be given as to the amount of Excess Cashflow distributed
at any time or in the aggregate. See 'Credit Enhancement --
Overcollateralization and Application of Excess Cashflow' herein.
PREPAYMENTS AND YIELDS FOR OFFERED CERTIFICATES
The extent to which the yield to maturity of the Offered Certificates may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a discount or premium and, correspondingly, the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans in the related Loan Group. In particular, in the
case of an Offered Certificate purchased at a discount, an investor should
consider the risk that a slower than anticipated rate of principal payments,
liquidations and purchases of the Mortgage Loans in the related Loan Group could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of an Offered Certificate purchased at a premium, the
risk that a faster than anticipated rate of principal payments, liquidations and
purchases of such Mortgage Loans in the related Loan Group could result in an
actual yield to such investor that is lower than the anticipated yield.
The effective yield to the holders of the Fixed Rate Certificates will be
lower than the yield otherwise produced by the applicable rate at which interest
is passed through to such holders and the purchase price of such Certificates
because monthly distributions will not be payable to such holders until the 25th
day (or, if such day is not a business day, the following business day) of the
month following the month in which interest accrues on the related Mortgage
Loans (without any additional distribution of interest or earnings thereon in
respect of such delay).
All of the Mortgage Loans in the Fixed Rate Loan Group are fixed rate
Mortgage Loans. In general, if prevailing interest rates fall significantly
below the interest rates on fixed rate mortgage loans, such mortgage loans are
likely to be subject to higher prepayment rates than if prevailing rates remain
at or above the interest rates on such mortgage loans. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate mortgage
loans, such mortgage loans are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such mortgage
loans.
Mortgage Loans with higher Mortgage Rates may prepay faster than Mortgage
Loans with relatively lower Mortgage Rates in response to a given change in
market interest rates. Any such disproportionate prepayment of Fixed Rate
Mortgage Loans may reduce the Fixed Net Rate Cap. If the Pass-Through Rate on
the Fixed Rate Certificates is limited by the Fixed Net Rate Cap, no amounts
will be distributable on the applicable Distribution Date or on any future
Distribution Date in respect of the foregone interest amounts.
All of the Mortgage Loans in the Adjustable Rate Loan Group are adjustable
rate Mortgage Loans. As is the case with conventional fixed rate mortgage loans,
adjustable rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable rate mortgage loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed rate mortgage loans at lower interest
rates may encourage mortgagors to refinance their adjustable rate mortgage loans
to a lower fixed interest rate.
Although the Mortgage Rates on the Adjustable Rate Mortgage Loans are
subject to adjustment, such Mortgage Rates adjust less frequently than the
Pass-Through Rate on the Adjustable Rate
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Certificates and adjust by reference to the Mortgage Index. Changes in LIBOR may
not correlate with changes in the Mortgage Index and also may not correlate with
prevailing interest rates. It is possible that an increased level of LIBOR could
occur simultaneously with a lower level of prevailing interest rates which would
be expected to result in faster prepayments, thereby reducing the weighted
average life of the Adjustable Rate Certificates. The Mortgage Rate applicable
to all or substantially all of the Adjustable Rate Mortgage Loans and any
Adjustment Date will be based on the Mortgage Index value most recently
announced generally as of a date which is 30 or 45 days prior to such Adjustment
Date. Thus, if the Mortgage Index value with respect to an Adjustable Rate
Mortgage Loan rises, the lag in time before the corresponding Mortgage Rate
increases will, all other things being equal, slow the upward adjustment of the
Adjustable Rate Available Funds Cap on the Adjustable Rate Certificates. In
addition, a substantial majority of the Mortgage Loans in the Adjustable Rate
Loan Group have Mortgage Rates which will not adjust for a substantial period of
time after origination. The rate of prepayment on those Adjustable Rate Mortgage
Loans may increase as those Mortgage Loans approach their first Adjustment
Dates. Even if current interest rates on alternative mortgage loans are only
slightly higher or lower than the rates on those Mortgage Loans, the borrowers
may attempt to refinance their Mortgage Loans to avoid increases in their
monthly payments. See 'The Mortgage Pool' herein.
Although certain amounts will be available to pay any Adjustable Rate
Certificate Carryover, there is no assurance that funds will be available to pay
such amount. The ratings assigned to the Adjustable Rate Certificates do not
address the likelihood of, and the Certificate Insurance Policy does not
guarantee, the payment of any such amount.
The 'Last Scheduled Distribution Date' for each Class of the Offered
Certificates is the Distribution Date in the month following the latest maturing
mortgage loan plus two months. The actual final Distribution Date with respect
to each Class of Offered Certificates could occur significantly earlier than its
Last Scheduled Distribution Date because
prepayments are likely to occur which will be applied to the payment of the
Certificate Principal Balances thereof,
Excess Cashflow to the extent available will be applied as an accelerated
payment of principal on the Offered Certificates as described herein and
the Master Servicer may purchase all the Mortgage Loans when the
outstanding Stated Principal Balances thereof has declined to 10% or less
of the Cut-off Date Principal Balance.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The models used in this Prospectus Supplement (each, a
'Prepayment Model') are based on an assumed rate of prepayment each month of the
then unpaid principal balance of a pool of mortgage loans similar to the
Mortgage Loans in each Loan Group. For the Fixed Rate Mortgage Loans, the
Prepayment Model used in this Prospectus Supplement is a prepayment assumption
which represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans for the life of such
mortgage loans ('PPC'). 100% of PPC assumes prepayment rates of 4% per annum of
the then outstanding principal balance of the Fixed Rate Mortgage Loans in the
first month of the life of such Mortgage Loans and an additional 1.9091% per
annum in each month thereafter up to and including the twelfth month. Beginning
in the twelfth month and in each month thereafter during the life of such Fixed
Rate Mortgage Loans, 100% PPC assumes a constant prepayment rate of 25% per
annum. For the Adjustable Rate Mortgage Loans, the Prepayment Model used in this
Prospectus Supplement is a prepayment assumption which represents a constant
assumed rate of prepayment each month relative of the then outstanding principal
balance of a pool of mortgage loans for the life of such mortgage loans ('CPR').
30% CPR assumes a constant monthly prepayment rate of 30% per annum.
As used in the following tables 100% PPC assumes that the Fixed Rate
Mortgage Loans will prepay at rates equal to 100% of PPC; 125% PPC assumes that
the Fixed Rate Mortgage Loans will
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prepay at rates equal to 125% of PPC; 150% PPC assumes that the Fixed Rate
Mortgage Loans will prepay at rates equal to 150% of PPC; and the other
percentages of PPC identified therein assume that the Fixed Rate Mortgage Loans
will prepay at rates equal to such respective percentages of PPC.
There is no assurance, however, that prepayments on the Mortgage Loans will
conform to any level of the Prepayment Model, and no representation is made that
the Mortgage Loans will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates. Other factors affecting prepayment of
mortgage loans include changes in obligors' housing needs, job transfers and
unemployment. In the case of mortgage loans in general, if prevailing interest
rates fall significantly below the interest rates on such mortgage loans, the
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above the rates borne by such mortgage
loans. Conversely, if prevailing interest rates rise above the interest rates on
such mortgage loans, the rate of prepayment would be expected to decrease.
The following tables have been prepared on the basis of the following
assumptions (collectively, the 'Modeling Assumptions'):
the Fixed Rate Mortgage Loans and the Adjustable Rate Mortgage Loans prepay
at the indicated percentage of the applicable Prepayment Model;
distributions on the Offered Certificates are received, in cash, on the
25th day of each month, commencing in February 2000, in accordance with the
payment priorities defined herein;
no defaults or delinquencies in, or modifications, waivers or amendments
respecting, the payment by the Mortgagors of principal and interest on the
Mortgage Loans occur;
scheduled payments are assumed to be received on the first day of each
month commencing in February 2000, and prepayments represent payment in
full of individual Mortgage Loans and are assumed to be received on the
last day of each month, commencing in January 2000, and include 30 days'
interest thereon;
the level of six-month LIBOR remains constant at 6.19215% per annum, the
level of one-month LIBOR remains constant at 5.78125% per annum and the
level of the one-year Treasury Rate remains constant at 6.054% per annum;
the Pass-Through Margin for the Adjustable Rate Certificates remains
constant at the rate applicable prior to the Optional Termination Date and
the Pass-Through Margin for the Adjustable Rate Certificates is adjusted
accordingly on any Distribution Date following the related Optional
Termination Date;
the Closing Date for the Certificates is January 27, 2000;
the Trustee Fee is 0.01%.
the Mortgage Rate for each Adjustable Rate Mortgage Loan is adjusted on its
next Mortgage Rate Adjustment Date (and on subsequent Mortgage Rate
Adjustment Dates, if necessary) to equal the sum of (a) the assumed level
of the Mortgage Index and (b) the respective Gross Margin (such sum being
subject to the applicable periodic adjustment caps);
except as indicated with respect to the weighted average lives, no optional
termination is exercised on the Optional Termination Date; and
each Loan Group consists of Mortgage Loans having the approximate
characteristics described below:
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FIXED RATE LOAN GROUP
<TABLE>
<CAPTION>
ORIGINAL REMAINING
AMORTIZATION AMORTIZATION REMAINING TERM
CURRENT TERM TERM TO MATURITY
BALANCE MORTGAGE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$73,573,249.54 10.275% 360 349 169
$ 3,337,019.00 10.448% 114 102 102
$24,729,251.32 10.357% 180 167 167
$16,375,896.83 9.989% 240 227 227
$ 3,911,923.13 9.801% 297 284 284
$78,691,025.53 10.021% 360 348 348
</TABLE>
ADJUSTABLE RATE LOAN GROUP
<TABLE>
<CAPTION>
ORIGINAL REMAINING
AMORTIZATION AMORTIZATION GROSS INITIAL RESET
CURRENT MORTGAGE TERM TERM GROSS LIFE PERIODIC PERIODIC CHANGE
INDEX BALANCE RATE (IN MONTHS) (IN MONTHS) MARGIN CAP CAP CAP FREQUENCY
----- ------- ---- ----------- ----------- ------ --- --- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-year UST $ 588,813.33 10.610% 360 339 6.208% 14.990% 2.000% 2.000% 12
6-month LIBOR $17,241,964.51 11.283% 360 341 7.136% 16.970% 1.154% 1.873% 6
6-month LIBOR $15,453,849.31 9.978% 360 345 6.959% 16.808% 1.327% 2.778% 6
6-month LIBOR $15,492,380.59 9.605% 360 348 6.674% 16.442% 1.374% 2.967% 6
6-month LIBOR $12,581,455.69 9.756% 359 353 6.435% 16.700% 1.451% 2.956% 6
6-month LIBOR $ 2,096,756.18 9.764% 354 345 6.024% 16.568% 1.402% 2.641% 6
6-month LIBOR $ 507,361.00 10.127% 360 356 6.374% 17.127% 1.500% 3.000% 6
6-month LIBOR $ 160,369.43 8.900% 360 341 6.250% 15.900% 1.500% 3.000% 6
<CAPTION>
NUMBER OF
MONTHS UNTIL
NEXT RATE
ADJUSTMENT
INDEX DATE
----- ----
<S> <C>
1-year UST 3
6-month LIBOR 5
6-month LIBOR 9
6-month LIBOR 16
6-month LIBOR 20
6-month LIBOR 28
6-month LIBOR 32
6-month LIBOR 41
</TABLE>
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<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL
<TABLE>
<CAPTION>
CLASS AF CLASS AV
------------------------------------------- -------------------------------------------
FIXED RATE MORTGAGE LOANS (PPC) 0% 50% 75% 100% 125% 150% 175% 0% 50% 75% 100% 125% 150% 175%
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
ADJUSTABLE RATE MORTGAGE LOANS (CPR) 0% 20% 25% 30% 35% 40% 45% 0% 20% 25% 30% 35% 40% 45%
DISTRIBUTION DATE -- --- --- --- --- --- --- -- --- --- --- --- --- ---
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage. 100 100 100 100 100 100 100 100 100 100 100 100 100 100
January 25, 2001........................ 96 84 77 71 65 58 52 96 76 71 66 61 56 51
January 25, 2002........................ 95 71 61 51 42 33 26 94 59 51 44 37 31 25
January 25, 2003........................ 94 61 47 37 29 21 16 94 46 38 31 24 19 15
January 25, 2004........................ 92 51 38 27 19 13 9 93 36 28 21 16 11 8
January 25, 2005........................ 90 43 30 20 13 8 5 93 29 21 15 10 7 4
January 25, 2006........................ 88 37 24 15 9 5 2 92 23 16 10 7 4 2
January 25, 2007........................ 86 32 19 11 6 3 1 92 18 12 7 4 2 1
January 25, 2008........................ 83 27 15 8 4 2 0 91 14 9 5 3 1 0
January 25, 2009........................ 81 23 12 6 2 1 0 90 11 6 3 1 0 0
January 25, 2010........................ 78 19 9 4 1 0 0 89 9 5 2 1 0 0
January 25, 2011........................ 75 16 7 3 1 0 0 87 7 3 1 0 0 0
January 25, 2012........................ 72 14 6 2 0 0 0 86 6 2 1 0 0 0
January 25, 2013........................ 68 12 4 1 0 0 0 84 4 2 0 0 0 0
January 25, 2014........................ 64 10 3 1 0 0 0 83 3 1 0 0 0 0
January 25, 2015........................ 33 4 1 0 0 0 0 80 3 1 0 0 0 0
January 25, 2016........................ 31 4 1 0 0 0 0 78 2 0 0 0 0 0
January 25, 2017........................ 29 3 0 0 0 0 0 75 1 0 0 0 0 0
January 25, 2018........................ 27 2 0 0 0 0 0 72 1 0 0 0 0 0
January 25, 2019........................ 25 2 0 0 0 0 0 69 1 0 0 0 0 0
January 25, 2020........................ 23 1 0 0 0 0 0 65 0 0 0 0 0 0
January 25, 2021........................ 21 1 0 0 0 0 0 60 0 0 0 0 0 0
January 25, 2022........................ 19 1 0 0 0 0 0 55 0 0 0 0 0 0
January 25, 2023........................ 17 0 0 0 0 0 0 49 0 0 0 0 0 0
January 25, 2024........................ 15 0 0 0 0 0 0 43 0 0 0 0 0 0
January 25, 2025........................ 12 0 0 0 0 0 0 36 0 0 0 0 0 0
January 25, 2026........................ 10 0 0 0 0 0 0 28 0 0 0 0 0 0
January 25, 2027........................ 7 0 0 0 0 0 0 20 0 0 0 0 0 0
January 25, 2028........................ 4 0 0 0 0 0 0 9 0 0 0 0 0 0
January 25, 2029........................ 0 0 0 0 0 0 0 1 0 0 0 0 0 0
January 25, 2030........................ 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)(1)..... 14.7 5.7 4.1 3.1 2.4 1.9 1.6 20.6 4.0 3.2 2.6 2.1 1.8 1.5
Weighted Average Life (in
years)(1)(2)........................... 14.7 5.4 3.7 2.8 2.2 1.8 1.4 20.4 3.9 3.0 2.4 2.0 1.7 1.4
</TABLE>
- ---------
(1) THE WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES IS DETERMINED BY (i)
MULTIPLYING THE AMOUNT OF EACH PRINCIPAL PAYMENT BY THE NUMBER OF YEARS FROM
THE DATE OF ISSUANCE TO THE RELATED DISTRIBUTION DATE, (ii) ADDING THE
RESULTS, AND (iii) DIVIDING THE SUM BY THE INITIAL RESPECTIVE CERTIFICATE
PRINCIPAL BALANCE FOR SUCH CLASS OF OFFERED CERTIFICATES.
(2) TO THE OPTIONAL TERMINATION DATE.
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<PAGE>
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to the Offered Certificates with the SEC in
a report on Form 8-K. Such tables and materials were prepared by the Underwriter
at the request of certain prospective investors, based on assumptions provided
by, and satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the Modeling
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifically requesting them.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans.
THE CERTIFICATE INSURER
The following information has been supplied by Financial Security Assurance
Inc. (the 'Certificate Insurer') for inclusion in this Prospectus Supplement.
GENERAL
The Certificate Insurer is a monoline insurance company incorporated in 1984
under the laws of the State of New York. The Certificate Insurer is licensed to
engage in financial guaranty insurance business in all 50 states, the District
of Columbia and Puerto Rico.
The Certificate Insurer and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer. The
Certificate Insurer and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. The Certificate Insurer insures both newly-issued
securities sold in the primary market and outstanding securities sold in the
secondary market that satisfy the Certificate Insurer's underwriting criteria.
The Certificate Insurer is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ('Holdings'), a New York Stock Exchange listed company.
Major shareholders of Holdings include White Mountains Insurance Group, Inc.,
MediaOne Capital Corporation, The Tokio Marine and Fire Insurance Co., Ltd. and
XL Capital Ltd. No shareholder of Holdings is obligated to pay any debt of the
Certificate Insurer or any claim under any insurance policy issued by the
Certificate Insurer or to make any additional contribution to the capital of the
Certificate Insurer.
The principal executive offices of the Certificate Insurer are located at
350 Park Avenue, New York 10022, and its telephone number at that location is
(212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the Certificate Insurer or
any of its domestic or Bermuda operating insurance company subsidiaries are
generally reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to
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<PAGE>
applicable statutory risk limitations. In addition, the Certificate Insurer
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with other reinsurers under various quota share treaties and
on a transaction-by-transaction basis. Such reinsurance is utilized by the
Certificate Insurer as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit the
Certificate Insurer's obligations under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
The Certificate Insurer's insurance financial strength is rated 'Aaa' by
Moody's. The Certificate Insurer's insurer financial strength is rated 'AAA' by
S&P and Standard & Poor's (Australia) Pty. Ltd. The Certificate Insurer's
claims-paying ability is rated 'AAA' by Fitch IBCA, Inc. and Japan Rating and
Investment information, Inc. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See 'Ratings' in this Prospectus Supplement.
CAPITALIZATION
The following table sets forth the capitalization of the Certificate Insurer
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
UNAUDITED
(IN THOUSANDS)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance $ 550,165
premiums)................................................
----------
Surplus Notes.............................................. 120,000
----------
Minority Interest.......................................... 22,002
----------
Shareholder's Equity:
Common Stock........................................... 15,000
Additional Paid-In Capital............................. 706,117
Accumulated Other Comprehensive Income (Loss) (net of
deferred income taxes)............................... (23,005)
Accumulated Earnings................................... 450,593
----------
Total Shareholder's Equity................................. 1,148,705
----------
Total Deferred Premium Revenue, Surplus Notes, Minority
Interest and Shareholder's Equity........................ $1,840,872
----------
----------
</TABLE>
For further information concerning the Certificate Insurer, see the
Consolidated Financial Statements of Financial Security Assurance Inc. and
Subsidiaries, and the notes thereto, incorporated by reference in this
Prospectus Supplement. The Certificate Insurer's financial statements are
included as exhibits to the Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q filed with the Securities and Exchange Commission by Holdings and may
be reviewed at the EDGAR website maintained by the Securities and Exchange
Commission and at Holdings's website, http://www.FSA.com. Copies of the
statutory quarterly and annual statements filed with the State of New York
Insurance Department by the Certificate Insurer are available upon request to
the State of New York Insurance Department.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described under 'Incorporation of Certain
Documents by Reference' in the Prospectus, the financial statements of the
Certificate Insurer included in or as
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<PAGE>
exhibits to the following documents that have been filed with the Securities and
Exchange Commission by Holdings, are hereby incorporated by reference in this
Prospectus Supplement: (a) the Annual Report on Form 10-K, as amended, for the
year ended December 31, 1998 and (b) the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, Subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Offered Certificates shall be deemed to be incorporated by reference into
this Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The Seller has informed the Certificate Insurer that the Seller will provide
without charge to any person to whom this Prospectus Supplement is delivered,
upon oral or written request of such person, a copy of any or all of the
foregoing financial statements incorporated by reference. Requests for such
copies should be directed to EMC Mortgage Corporation, 909 Hidden Ridge Drive,
Irving, Texas 75038, Attention: Executive Vice President, telephone number (972)
444-2800.
The Seller hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the financial statements of the
Certificate Insurer included in or as an exhibit to the Annual Report of
Holdings filed pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act that is incorporated by reference in the Registration Statement of
which this Prospectus Supplement forms a part shall be deemed to be a new
registration statement relating to the Offered Certificates, and the offering of
the Offered Certificates at that time shall be deemed to be the initial bona
fide offering thereof.
INSURANCE REGULATION
The Certificate Insurer is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, the Certificate Insurer and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York, the
Certificate Insurer is subject to Article 69 of the New York Insurance Law,
which, among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions, or single risks, and the volume of transactions, or
aggregate risks, that may be underwritten by each such insurer. Other provisions
of the New York Insurance Law, applicable to non-life insurance companies such
as the Certificate Insurer, regulate, among other things, permitted investments,
payment of dividends, transactions with affiliates, mergers, consolidations,
acquisitions or sales of assets and incurrence of liability for borrowings.
FEDERAL INCOME TAX CONSEQUENCES
The Pooling and Servicing Agreement provides that multiple REMIC elections
will be made with respect to the assets in the Trust Fund, creating a tiered
REMIC structure.
Upon the issuance of the Offered Certificates, Stroock & Stroock & Lavan LLP
('Tax Counsel'), will deliver its opinion concluding that for federal income tax
purposes, assuming compliance with the Pooling and Servicing Agreement, each
REMIC comprising the Trust Fund will qualify as a REMIC within the meaning of
Section 860D of the Internal Revenue Code of 1986, as amended (the 'Code') and
that the Offered Certificates represent regular interests in a REMIC.
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<PAGE>
TAXATION OF REGULAR INTERESTS
A holder of an Offered Certificate will be treated for federal income tax
purposes as owning a regular interest in a REMIC.
Assuming that an Offered Certificate is held as a 'capital asset' within the
meaning of section 1221 of the Code, gain or loss on its disposition should
generally, subject to the limitation described below, be capital gain or loss.
Gain will be treated as ordinary income, however, to the extent such gain does
not exceed the excess, if any, of (x) the amount that would have been includable
in the holder's gross income with respect to the regular interest had income
thereon accrued at a rate equal to 110% of the applicable federal rate as
defined in Section 1274(d) of the Code determined as of the date of purchase of
the Offered Certficate over (y) the amount actually included in such holder's
income with respect to the regular interest.
Interest on a regular interest must be included in income by a holder under
the accrual method of accounting, regardless of the holder's regular method of
accounting. In addition, a regular interest could be considered to have been
issued with OID. See 'Certain Federal Income Tax Considerations -- Taxation of
the REMIC and its Holders' in the Prospectus. The prepayment assumption that
will be used in determining the accrual of any OID, market discount, or bond
premium, if any, will be a rate equal to 100% of the applicable Prepayment Model
in the case of the Fixed Rate Mortgage Loans and 30% of CPR in the case of the
Adjustible Rate Mortgage Loans as described above. No representation is made
that the Mortgage Loans will prepay at such rates or at any other rate. OID must
be included in income as it accrues on a constant yield method, regardless of
whether the holder receives currently the cash attributable to such OID.
STATUS OF THE OFFERED CERTIFICATES
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code, and as 'real estate assets' under Section
856(c)(5)(B) of the Code, generally, in the same proportion that the assets of
the Trust Fund would be so treated. In addition, to the extent a regular
interest represents real estate assets under Section 856(c)(5)(B) of the Code,
the interest derived from that regular interest would be interest on obligations
secured by interests in real property for purposes of section 856(c)(3) of the
Code.
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from 'prohibited transactions' (the '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 Certificates. It is not anticipated that any REMIC
comprising the Trust Fund will engage in any prohibited transactions in which it
would recognize a material amount of net income.
In addition, certain contributions to a trust fund that elects to be treated
as a REMIC made after the day on which such trust fund issues all of its
interests could result in the imposition of a tax on the trust fund equal to
100% of the value of the contributed property (the 'Contributions Tax'). None of
the REMICs comprising the Trust Fund will accept contributions that would
subject it to such tax.
In addition, a trust fund that elects to be treated as a REMIC may also be
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 from foreclosure property' generally means
gain from the sale of a foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust. It is not
anticipated that any REMIC
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<PAGE>
comprising the Trust Fund will recognize net income from foreclosure property
subject to federal income tax.
Where 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 a REMIC 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, such tax will
be borne by the Master Servicer or Trustee in either case out of its own funds.
In the event that either the Master Servicer or the Trustee, as the case may be,
fails to pay or is not required to pay any such tax as provided above, such tax
will be paid by the relevant REMIC within the Trust Fund with amounts otherwise
distributable to the holders of Certificates in the manner provided in the
Pooling and Servicing Agreement.
For further information regarding the federal income tax consequences of
investing in the Class Certificates, see 'Certain Federal Income Tax
Considerations -- Taxation of the REMIC and its Holders' in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), prohibits 'parties in interest' with respect to an employee
benefit plan subject to ERISA from engaging in certain transactions involving
such Plan and its assets unless a statutory, regulatory or administrative
exemption applies to the transaction. Section 4975 of the Code imposes certain
excise taxes on prohibited transactions involving 'disqualified persons' and
employee benefit plans or other arrangements (including, but not limited to,
individual retirement accounts) described under that section (collectively with
employee benefit plans subject to ERISA, 'Plans'); ERISA authorizes the
imposition of civil penalties for prohibited transactions involving Plans not
covered under Section 4975 of the Code. Any Plan fiduciary which proposes to
cause a Plan to acquire the Offered Certificates should consult with its counsel
with respect to the potential consequences under ERISA and the Code of the
Plan's acquisition and ownership of such Certificates. See 'ERISA
Considerations' in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
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<PAGE>
The U.S. Department of Labor has granted to Bear, Stearns & Co. Inc. an
administrative exemption (Prohibited Transaction Exemption 90-30; Exemption
Application No. D-8207, 55 Fed. Reg. 21461 (1990)) (the 'Exemption') from
certain of the prohibited transaction rules of ERISA and the related excise tax
provisions of Section 4975 of the Code with respect to the initial purchase, the
holding and the subsequent resale by Plans of certificates in pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The Exemption applies to
mortgage loans such as the Mortgage Loans in the Trust Fund.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's Ratings Service, a Division of The
McGraw-Hill Companies, Inc. ('S&P'), Moody's Investors Service, Inc.
('Moody's'), Duff & Phelps Credit Rating Co. ('DCR') or Fitch IBCA, Inc.
('Fitch');
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market
value of such loans; the sum of all payments made to and retained by the
servicer and any other servicer represents not more than reasonable
compensation for such person's services under the agreement pursuant to
which the loans are pooled and reimbursements of such person's reasonable
expenses in connection therewith; and
(6) the Plan investing in the certificates is an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D of the SEC under the Securities
Act of 1933.
The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(b) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for
at least one year prior to the Plan's acquisition of certificates; and
(c) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when a Plan fiduciary causes
a Plan to acquire certificates in a trust holding receivables as to which the
fiduciary (or its affiliate) is an obligor, provided that, among other
requirements,
in the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent (50%) of each class of certificates in
which Plans have invested is acquired by persons independent of the
Restricted Group;
such fiduciary (or its affiliate) is an obligor with respect to five
percent (5%) or less of the fair market value of the obligations contained
in the trust;
S-72
<PAGE>
a Plan's investment in certificates of any class does not exceed
twenty-five percent (25%) of all of the certificates of that class
outstanding at the time of the acquisition; and
immediately after the acquisition, no more than twenty-five percent (25%)
of the assets of any Plan with respect to which such person is a fiduciary
are invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity.
The Exemption does not apply to Plans sponsored by the Underwriter, the
Trustee, the Master Servicer, any other servicer, any obligor with respect to
Mortgage Loans included in the Trust Fund constituting more than five percent of
the aggregate unamortized principal balance of the assets in the Trust Fund, any
insurer or any affiliate of such parties (the 'Restricted Group').
It is expected that the Exemption will apply to the acquisition and holding
of the Offered Certificates by Plans and that all conditions of the Exemption
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single Mortgagor that is the obligor on five
percent (5%) of the Mortgage Loans included in the Trust Fund by aggregate
unamortized principal balance of the assets of the Trust Fund.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Exemption or any other exemption, and the
potential consequences in their specific circumstances, prior to making an
investment in the Offered Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification, an investment in the Offered Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and Bear, Stearns & Co. Inc. (an affiliate of the
Depositor, the Seller and the Master Servicer) (the 'Underwriter'), the
Depositor has agreed to sell the Offered Certificates to the Underwriter, and
the Underwriter has agreed to purchase from the Depositor the initial
Certificate Principal Balance of each Class of the Offered Certificates from the
Depositor. Distribution of the Offered Certificates will be made by the
Underwriter from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. In connection with the sale of the
Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts. It is
expected that the proceeds to the Depositor from the sale of the Offered
Certificates will be approximately $255,869,289, plus accrued interest, before
deducting issuance expenses payable by the Depositor, estimated to be
approximately $642,493.
The Depositor has been advised by the Underwriter that it intends to make a
market in the Offered Certificates, but the Underwriter has no obligation to do
so. There can be no assurance that a secondary market for the Offered
Certificates (or any particular Class thereof) will develop or, if it does
develop, that it will continue or that such market will provide sufficient
liquidity to Certificateholders.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
EXPERTS
The consolidated balance sheets of Financial Security Assurance, Inc. and
its subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31,
S-73
<PAGE>
1998, incorporated by reference in this Prospectus Supplement, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Stroock & Stroock & Lavan LLP, New York, New York. Stroock & Stroock & Lavan
LLP, New York, New York, will also pass upon certain legal matters on behalf of
the Seller, the Master Servicer and the Underwriter.
RATINGS
It is a condition of the issuance of the Offered Certificates that each
Class of Offered Certificates be assigned the ratings designated below by
Moody's and S&P (the 'Rating Agencies').
<TABLE>
<CAPTION>
CLASS MOODY'S RATING S&P RATING
- ----- -------------- ----------
<S> <C> <C>
AF Aaa AAA
AV Aaa AAA
</TABLE>
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. 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 Rating Agencies. The
ratings on the Offered Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Mortgage Loans, the
payment of the Adjustable Rate Certificate Carryover or the anticipated yields
in light of prepayments.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than Moody's and S&P. However, there can be no assurance as
to whether any other rating agency will rate the Offered Certificates or, if it
does, what ratings would be assigned by such other rating agency. The ratings
assigned by such other rating agency to the Offered Certificates could be lower
than the respective ratings assigned by the Rating Agencies.
S-74
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2/28 Mortgage Loans. S-20
3/27 Mortgage Loans. S-20
5/25 Mortgage Loans........... S-20
accredited investor........... S-72
Adjustable Rate Available
Funds Cap................... S-51
Adjustable Rate Certificate
Carryover................... S-48
Adjustable Rate
Certificates................ S-40
Adjustable Rate Loan Group.... S-19
Adjustable Rate Mortgage
Loans....................... S-19
Adjusted Net Mortgage Rate.... S-35
Adjustment Date............... S-20
Advance....................... S-36
Agreement..................... S-57
Available Funds Shortfall..... S-49
B&C........................... S-19
beneficial owner.............. S-40
BIF........................... S-45
Book-Entry Certificates....... S-40
Business Day.................. S-57
capital asset................. S-70
CEDEL......................... S-40
CEDEL Participants............ S-42
Certificates.................. S-40
Certificate Account........... S-45
Certificate Group............. S-40
Certificate Insurer........... S-67
Certificate Insurer Premium... S-49
Certificate Owners............ S-40
Class IO Certificates......... S-40
Class P Certificates.......... S-40
Closing Date.................. S-19
Code.......................... S-70
Collateral Value.............. S-20
Combined Loan-to-Value
Ratio....................... S-20
Compensating Interest......... S-35
Contributions Tax............. S-70
Cooperative................... S-42
Coverage Deficit.............. S-57
CPR........................... S-63
Current Interest.............. S-49
Cut-off Date.................. S-19
Cut-off Date Pool Principal
Balance..................... S-19
Cut-off Date Principal
Balance..................... S-19
DCR........................... S-72
Deficiency Amount............. S-57
Definitive Certificate........ S-40
Deleted Mortgage Loan......... S-28
Depositor..................... S-19
Depositary Services........... S-44
disqualified persons.......... S-71
Distribution Account.......... S-47
Distribution Date............. S-47
DTC........................... S-40
Due Date...................... S-19
Due Period.................... S-49
EMC........................... S-32
ERISA......................... S-71
Euroclear..................... S-40
Euroclear Operator............ S-42
Euroclear Participants........ S-42
European Depositaries......... S-40
Event of Default.............. S-54
Excess Cashflow............... S-49
Exemption..................... S-72
Extra Principal Distribution
Amount...................... S-49
FDIC.......................... S-45
Financial Intermediary........ S-41
Fitch......................... S-72
Fixed Net Rate Cap............ S-51
Fixed Rate Certificates....... S-40
Fixed Rate Loan Group......... S-19
Fixed Rate Mortgage Loans..... S-19
Full Documentation............ S-30
Global Securities............. A-1
Gross Margin.................. S-20
Guaranteed Principal Amount... S-58
Holdings...................... S-67
Indirect Participants......... S-41
Industry...................... S-44
Insurance Proceeds............ S-45
Insurance Agreement........... S-60
Insured Payment............... S-58
Interest Carry Forward
Amount...................... S-49
Interest Determination Date... S-51
Interest Funds................ S-49
Last Scheduled Distribution
Date........................ S-63
LIBOR Business Day............ S-51
Liquidation Proceeds.......... S-45
Limited Documentation......... S-30
Loan Group.................... S-19
</TABLE>
S-75
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Loan-to-Value Ratio........... S-20
Master Servicer............... S-27
Master Servicer Advance
Date........................ S-36
Master Servicing Fee.......... S-35
Maximum Mortgage Rate......... S-20
Minimum Mortgage Rate......... S-20
Modeling Assumptions.......... S-64
Moody's....................... S-72
Mortgage Index................ S-20
Mortgage Loans................ S-19
Mortgage Notes................ S-19
Mortgage Pool................. S-19
Mortgaged Properties.......... S-19
net income from foreclosure
property.................... S-70
Net Mortgage Rate............. S-35
OC Release Amount............. S-49
Offered Certificates.......... S-40
One-Month LIBOR............... S-51
Optional Termination Date..... S-54
Order......................... S-58
Originator.................... S-29
Overcollateralization
Amount...................... S-50
Participants.................. S-41
parties in interest........... S-71
Pass-Through Margin........... S-51
Pass-Through Rate............. S-50
Percentage Interest........... S-47
Periodic Rate Cap............. S-20
Plans......................... S-71
Pooling and Servicing
Agreement................... S-27
PPC........................... S-63
Preference Amount............. S-58
Prepayment Interest
Shortfall................... S-35
Prepayment Model.............. S-63
Prepayment Period............. S-50
Principal Distribution
Amount...................... S-50
Principal Funds............... S-50
Principal Remittance Amount... S-50
prohibited transactions....... S-70
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prohibited Transactions Tax... S-70
Purchase Price................ S-28
Rating Agencies............... S-74
real estate assets............ S-70
Realized Loss................. S-55
Receipt....................... S-58
Received...................... S-58
Record Date................... S-47
Reference Bank Rate........... S-51
Reference Banks............... S-52
Relevant Depositary........... S-40
REO Property.................. S-32
Replacement Mortgage Loan..... S-28
Residual Certificates......... S-40
Restricted Group.............. S-73
RTC........................... S-32
Rules......................... S-41
SAIF.......................... S-45
Scheduled Payments............ S-19
SEC........................... S-28
Seller........................ S-27
S&P........................... S-72
Specified
Overcollateralization Amount
Deficiency.................. S-50
Specified
Overcollateralization
Amount...................... S-50
Stated Income Documentation... S-30
Stated Principal Balance...... S-19
Systems....................... S-44
Tax Counsel................... S-69
Term of the Policy............ S-58
Terms and Conditions.......... S-43
Trustee....................... S-27
Trustee Fee................... S-35
Trustee's Mortgage File....... S-27
Trust Fund.................... S-19
Underwriter................... S-73
Underwriting Guidelines....... S-29
U.S. Person................... A-4
</TABLE>
S-76
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Bear Stearns
Asset Backed Securities, Inc. Asset-Backed Certificates, Series 2000-1 (the
'Global Securities') will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations and prior mortgage pass-through certificate issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior mortgage pass-through certificate
issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
pass-through certificate issues in same-day funds.
A-1
<PAGE>
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC Seller and CEDEL or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of either the actual number of days
in such accrual period and a year assumed to consist of 360 days or a 360-day
year of twelve 30-day months, as applicable to the related Class of Global
Securities. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the CEDEL or Euroclear cash debt will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
A-2
<PAGE>
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of either the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of twelve 30-day months, as applicable to the related
Class of Global Securities. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the CEDEL
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the CEDEL Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day period.
If settlement is not completed on the intended value date (i.e., the trade
fails), receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with Effectively Connected Income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or Reduced Rate for non-U.S. Persons Resident in Treaty Countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the
A-3
<PAGE>
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8.
Form 1001 may be filed by the Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term 'U.S. Person' means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States, any State thereof or the District of Columbia, (iii) an estate the
income of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and one
or more United States persons have the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities or with the application of Treasury regulations relating to
tax documentation requirements that are generally effective with respect to
payments after December 31, 2000. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
A-4
<PAGE>
PROSPECTUS
BEAR STEARNS ASSET BACKED SECURITIES, INC.
(Depositor)
Bear Stearns Asset Backed Securities, Inc. (the 'Depositor') may offer from
time to time under this Prospectus and related Prospectus Supplements the
Asset-Backed Notes (the 'Notes') and the Asset-Backed Certificates (the
'Certificates' and, together with the Notes, the 'Securities') which may be sold
from time to time in one or more series (each, a 'Series').
As specified in the related Prospectus Supplement, the Certificates of a
Series will evidence undivided interests in certain assets deposited into a
trust (each, a 'Trust Fund') by the Depositor pursuant to a Pooling and
Servicing Agreement or a Trust Agreement, as described herein. As specified in
the related Prospectus Supplement, the Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness of the related
Trust Fund. The Trust Fund for a Series of Securities will include assets
purchased from the seller or sellers specified in the related Prospectus
Supplement (the 'Seller') composed of (a) Primary Assets, which may include one
or more pools of (i) closed-end home equity loans (the 'Mortgage Loans'),
secured by mortgages on one- to four-family residential or mixed-use properties,
(ii) home improvement installment sales contracts and installment loan
agreements (the 'Home Improvement Contracts') which are either unsecured or
secured by mortgages on one- to four-family residential or mixed-use properties,
or by purchase money security interests in the home improvements financed
thereby (the 'Home Improvements') and (iii) securities backed or secured by
Mortgage Loans and/or Home Improvement Contracts, (b) all monies due thereunder
net, if and as provided in the related Prospectus Supplement, of certain amounts
payable to the servicer of the Mortgage Loans and/or Home Improvement Contracts
(collectively, the 'Loans'), which servicer may also be the Seller, specified in
the related Prospectus Supplement (the 'Servicer'), (c) if specified in the
related Prospectus Supplement, funds on deposit in one or more pre-funding
amounts and/or capitalized interest accounts and (d) reserve funds, letters of
credit, surety bonds, insurance policies or other forms of credit support as
described herein and in the related Prospectus Supplement. The amount initially
deposited in a pre-funding account for a Series of Securities will not exceed
fifty percent of the aggregate principal amount of such series of Securities.
(cover continued on next page)
------------------------
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND CERTIFICATES OF A
SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST FUND ONLY AND ARE NOT
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, THE SELLER, THE
TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS
OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON OR
ENTITY. THE DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF
SECURITIES WILL BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH
IN THE RELATED AGREEMENT AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
----------------------------
SEE 'RISK FACTORS' ON PAGE 15 FOR CERTAIN FACTORS TO BE CONSIDERED IN
PURCHASING THE SECURITIES.
----------------------------
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 OR THE
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by Bear, Stearns & Co. Inc. and the other underwriters
set forth in the related Prospectus Supplement, if any, subject to prior sale,
to withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by Bear, Stearns & Co. Inc. and the other
underwriters, if any, and certain further conditions. Retain this Prospectus for
future reference. This Prospectus may not be used to consummate sales of the
Securities offered hereby unless accompanied by a Prospectus Supplement.
BEAR, STEARNS & CO. INC.
July 23, 1999
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(continued from previous page)
Each Series of Securities will be issued in one or more classes (each, a
'Class'). Interest on and principal of the Securities of a Series will be
payable on each Distribution Date specified in the related Prospectus
Supplement, at the times, at the rates, in the amounts and in the order of
priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with respect to
the amount, percentage and timing of distributions of principal, interest or
both and one or more Classes may be subordinated to other Classes with respect
to distributions of principal, interest or both as described herein and in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Primary Assets and other assets comprising the Trust Fund may be
divided into one or more Asset Groups and each Class of the related Series will
evidence beneficial ownership of the corresponding Asset Group, as applicable.
The rate of reduction of the aggregate principal balance of each Class of a
Series may depend principally upon the rate of payment (including prepayments)
with respect to the Loans or Underlying Loans relating to the Private
Securities, as applicable. A rate of prepayment lower or higher than anticipated
will affect the yield on the Securities of a Series in the manner described
herein and in the related Prospectus Supplement. Under certain limited
circumstances described herein and in the related Prospectus Supplement, a
Series of Securities may be subject to termination or redemption under the
circumstances described herein and in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, an election may be made
to treat certain assets comprising the Trust Fund for a Series as a 'real estate
mortgage investment conduit' (a 'REMIC') for federal income tax purposes. See
'CERTAIN FEDERAL INCOME TAX CONSIDERATIONS' herein.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to such Series of
Securities: (i) the aggregate principal amount, interest rate, and authorized
denominations of each Class of such Securities; (ii) certain information
concerning the Primary Assets, the Seller and any Servicer; (iii) the terms of
any Enhancement with respect to such Series; (iv) the terms of any insurance
related to the Primary Assets; (v) information concerning any other assets in
the related Trust Fund, including any Reserve Fund; (vi) the Final Scheduled
Distribution Date of each Class of such Securities; (vii) the method to be used
to calculate the amount of principal required to be applied to the Securities of
each Class of such Series on each Distribution Date, the timing of the
application of principal and the order of priority of the application of such
principal to the respective Classes and the allocation of principal to be so
applied; (viii) the Distribution Dates and any Assumed Reinvestment Rate (as
defined herein); (ix) additional information with respect to the plan of
distribution of such Securities; and (x) whether a REMIC election will be made
with respect to some or all of the Trust Fund for such Series.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities are required under the related Agreement to be forwarded to
Holders. Unless otherwise specified in the related Prospectus Supplement, such
reports will not be examined and reported on by an independent public
accountant. If so specified in the Prospectus Supplement for a Series of
Securities, such Series or one or more Classes of such Series will be issued in
book-entry form. In such event, (i) owners of beneficial interests in such
Securities will not be considered 'Holders' under the Agreements and will not
receive such reports directly from the related Trust Fund; rather, such reports
will be furnished to such owners through the participants and indirect
participants of the applicable book-entry system and (ii) references herein to
the rights of 'Holders' shall refer to the rights of such owners as they may be
exercised indirectly through such participants. See 'THE AGREEMENTS -- Reports
to Holders' herein.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act of 1933, as amended, with
respect to the Securities. This Prospectus, which forms a part of the
Registration Statement, and the Prospectus Supplement relating to each Series of
Securities contain summaries of the material terms of the documents referred to
herein and therein, but do not contain all of the information set forth in the
Registration Statement pursuant to the Rules and Regulations of the Commission.
For further information, reference is made to such Registration Statement and
the exhibits thereto. Such Registration Statement and exhibits can be inspected
and copied at prescribed rates at the public reference facilities maintained by
the Commission at its Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Office located as follows, Midwest
Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and Northeast
Regional Office, Seven World Trade Center, New York, New York 10048.
Each Trust Fund will be required to file certain reports with the Commission
pursuant to the requirements of the Securities Exchange Act of 1934, as amended.
The Depositor intends to cause each Trust Fund to suspend filing such reports if
and when such reports are no longer required under said Act.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
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 nor an offer of the 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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by such Trust Fund shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor on behalf of any Trust Fund will provide without charge to
each person to whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the documents referred to above that
have been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Depositor
at 245 Park Avenue, New York, New York 10167.
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SUMMARY OF TERMS
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 Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the 'GLOSSARY OF TERMS' herein.
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Securities Offered........................ Asset-Backed Certificates (the 'Certificates') and
Asset-Backed Notes (the 'Notes'). Certificates are
issuable from time to time in Series pursuant to a
Pooling and Servicing Agreement or Trust Agreement. Each
Certificate of a Series will evidence an interest in the
Trust Fund for such Series, or in an Asset Group
specified in the related Prospectus Supplement. Notes
are issuable from time to time in Series pursuant to an
Indenture. Each Series of Securities will consist of one
or more Classes, one or more of which may be Classes of
Compound Interest Securities, Planned Amortization Class
('PAC') Securities, Variable Interest Securities, Zero
Coupon Securities, Principal Only Securities, Interest
Only Securities, Participating Securities, Senior
Securities or Subordinate Securities. Each Class may
differ in, among other things, the amounts allocated to
and the priority of principal and interest payments,
Final Scheduled Distribution Dates, Distribution Dates
and interest rates. The Securities of each Class will be
issued in fully registered form in the denominations
specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, the
Securities or certain Classes of such Securities offered
thereby may be available in book-entry form only.
Depositor................................. Bear Stearns Asset Backed Securities, Inc. (the
'Depositor') was incorporated in the State of Delaware
in June 1995, and is a wholly-owned, special purpose
subsidiary of The Bear Stearns Companies Inc. None of
The Bear Stearns Companies Inc. nor any other affiliate
of the Depositor, the Servicer, the Trustee or the
Seller has guaranteed or is otherwise obligated with
respect to the Securities of any Series. See 'THE
DEPOSITOR.'
Interest Payments......................... Interest payments on the Securities of a Series entitled
by their terms to receive interest will be made on each
Distribution Date, to the extent set forth in, and at
the applicable rate specified in (or determined in the
manner set forth in), the related Prospectus Supplement.
The interest rate on Securities of a Series may be
variable or change with changes in the rates of interest
on the related Loans or Underlying Loans relating to the
Private Securities, as applicable and/or as prepayments
occur with respect to such Loans or Underlying Loans, as
applicable. Interest Only Securities may be assigned a
'Notional Amount' set forth in the related Prospectus
Supplement which is used solely for convenience in
expressing the calculation of interest and for certain
other purposes and does not represent the right to
receive any distributions allocable to principal.
Principal Only Securities may not be entitled to receive
any interest payments or may be entitled to receive only
nominal interest payments. Interest payable on the
Securities of a Series on a Distribution Date will
include all interest accrued during
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the period specified in the related Prospectus
Supplement. See 'DESCRIPTION OF THE
SECURITIES -- Payments of Interest.'
Principal Payments........................ All payments of principal of a Series of Securities will
be made in an aggregate amount determined as set forth
in the related Prospectus Supplement and will be paid at
the times and will be allocated among the Classes of
such Series in the order and amounts, and will be
applied either on a pro rata or a random lot basis among
all Securities of any such Class, all as specified in
the related Prospectus Supplement.
Final Scheduled Distribution Date of the
Securities.............................. The Final Scheduled Distribution Date with respect to
each Class of Notes is the date no later than which
principal thereof will be fully paid and with respect to
each Class of Certificates is the date after which no
Certificates of such Class are expected to remain
outstanding, in each case calculated on the basis of the
assumptions applicable to such Series described in the
related Prospectus Supplement. The Final Scheduled
Distribution Date of a Class may equal the maturity date
of the Primary Asset in the related Trust Fund which has
the latest stated maturity or will be determined as
described herein and in the related Prospectus
Supplement.
The actual final Distribution Date of the Securities of
a Series will depend primarily upon the rate of payment
(including prepayments, liquidations due to default, the
receipt of proceeds from casualty insurance policies and
repurchases) of the Loans or Underlying Loans relating
to the Private Securities, as applicable, in the related
Trust Fund. Unless otherwise specified in the related
Prospectus Supplement, the actual final Distribution
Date of any Security is likely to occur earlier and may
occur substantially earlier or may occur later than its
Final Scheduled Distribution Date as a result of the
application of prepayments to the reduction of the
principal balances of the Securities and as a result of
defaults on the Primary Assets. The rate of payments on
the Loans or Underlying Loans relating to the Private
Securities, as applicable, in the Trust Fund for a
Series will depend on a variety of factors, including
certain characteristics of such Loans or Underlying
Loans, as applicable, and the prevailing level of
interest rates from time to time, as well as on a
variety of economic, demographic, tax, legal, social and
other factors. No assurance can be given as to the
actual prepayment experience with respect to a Series.
See 'RISK FACTORS -- Yield May Vary' and 'DESCRIPTION OF
THE SECURITIES -- Weighted Average Life of the
Securities' herein.
Optional Termination...................... One or more Classes of Securities of any Series may be
redeemed or repurchased in whole or in part, at the
Depositor's or the Servicer's option, at such time and
under the circumstances specified in the related
Prospectus Supplement, at the price set forth therein.
If so specified in the related Prospectus Supplement for
a Series of Securities, the Depositor, the Servicer, or
such other entity that is specified in the related
Prospectus Supplement, may, at its option, cause an
early termination of the related Trust Fund by
repurchasing all of the Primary Assets remaining in the
Trust Fund on or after a specified date, or on or after
such time as the aggregate
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principal balance of the Securities of the Series or the
Primary Assets relating to such Series, as specified in
the related Prospectus Supplement, is less than the
amount or percentage specified in the related Prospectus
Supplement. See 'DESCRIPTION OF THE
SECURITIES -- Optional Redemption, Purchase or
Termination.'
In addition, the Prospectus Supplement may provide other
circumstances under which Holders of Securities of a
Series could be fully paid significantly earlier than
would otherwise be the case if payments or distributions
were solely based on the activity of the related Primary
Assets.
The Trust Fund............................ The Trust Fund for a Series of Securities will consist
of one or more of the assets described below, as
described in the related Prospectus Supplement.
A. Primary Assets......................... The Primary Assets for a Series may consist of any
combination of the following assets, to the extent and
as specified in the related Prospectus Supplement. The
Primary Assets will be purchased from the Seller or may
be purchased by the Depositor in the open market or in
privately negotiated transactions, including
transactions with entities affiliated with the
Depositor.
(1) Loans............................... Primary Assets for a Series will consist, in whole or in
part, of Loans. Some Loans may be delinquent or
non-performing as specified in the related Prospectus
Supplement. Loans may be originated by or acquired from
an affiliate of the Depositor and an affiliate of the
Depositor may be an obligor with respect to any such
Loan. The Loans will be conventional contracts or
contracts insured by the Federal Housing Administration
('FHA') or partially guaranteed by the Veterans
Administration ('VA'). See 'The Trust Funds -- The
Loans' for a discussion of such guarantees. To the
extent provided in the related Prospectus Supplement,
additional Loans may be periodically added to the Trust
Fund, or may be removed from time to time if certain
asset value tests are met, as described in the related
Prospectus Supplement.
The 'Loans' for a Series will consist of (i) closed-end
home equity loans (the 'Mortgage Loans') and (ii) home
improvement installment sales contracts and installment
loan agreements (the 'Home Improvement Contracts'). The
Mortgage Loans and the Home Improvement Contracts are
collectively referred to herein as the 'Loans.' Loans
may, as specified in the related Prospectus Supplement,
have various payment characteristics, including balloon
or other irregular payment features, and may accrue
interest at a fixed rate or an adjustable rate. As
specified in the related Prospectus Supplement, the
Mortgage Loans will and the Home Improvement Contracts
may be secured by mortgages and deeds of trust or other
similar security instruments creating a lien on a
Mortgaged Property, which may be subordinated to one or
more senior liens on the Mortgaged Property, as
described in the related Prospectus Supplement. As
specified in the related Prospectus Supplement, Home
Improvement Contracts may be unsecured or secured by
purchase money security interests in the Home
Improvements financed thereby. The Mortgaged Properties
and the Home Improvements are collectively referred to
herein as the
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'Properties.' The related Prospectus Supplement will
describe certain characteristics of the Loans for a
Series, including, without limitation, and to the extent
relevant: (a) the aggregate unpaid principal balance of
the Loans (or the aggregate unpaid principal balance
included in the Trust Fund for the related Series);
(b) the range and weighted average Loan Rate on the
Loans and in the case of adjustable rate Loans, the
range and weighted average of the Current Loan Rates and
the Lifetime Rate Caps, if any; (c) the range and the
average outstanding principal balance of the Loans;
(d) the weighted average original and remaining
term-to-stated maturity of the Loans and the range of
original and remaining terms-to-stated maturity, if
applicable; (e) the range and Combined Loan-to-Value
Ratios or Loan-to-Value Ratios, as applicable, of the
Loans, computed in the manner described in the related
Prospectus Supplement; (f) the percentage (by principal
balance as of the Cut-off Date) of Loans that accrue
interest at adjustable or fixed interest rates; (g) any
enhancement relating to the Loans; (h) the percentage
(by principal balance as of the Cut-off Date) of Loans
that are secured by Mortgaged Properties, Home
Improvements or are unsecured; (i) the geographic
distribution of any Mortgaged Properties securing the
Loans; (j) the use and type of each Mortgaged Property
securing a Loan; (k) the lien priority of the Loans; and
(l) the delinquency status and year of origination of
the Loans.
(2) Private Securities.................. Primary Assets for a Series may consist, in whole or in
part, of Private Securities which include (a)
pass-through certificates representing beneficial
interests in loans of the type that would otherwise be
eligible to be Loans (the 'Underlying Loans') or
(b) collateralized obligations secured by Underlying
Loans. Such pass-through certificates or collateralized
obligations will have previously been (a) offered and
distributed to the public pursuant to an effective
registration statement or (b) purchased in a transaction
not involving any public offering from a person who is
not an affiliate of the issuer of such securities at the
time of sale (nor an affiliate thereof at any time
during the three preceding months); provided a period of
three years has elapsed since the later of the date the
securities were acquired from the issuer or an affiliate
thereof. Although individual Underlying Loans may be
insured or guaranteed by the United States or an agency
or instrumentality thereof, they need not be, and the
Private Securities themselves will not be so insured or
guaranteed. See 'The Trust Funds -- Private Securities.'
Unless otherwise specified in the Prospectus Supplement
relating to a Series of Securities, payments on the
Private Securities will be distributed directly to the
Trustee as registered owner of such Private Securities.
The related Prospectus Supplement for a Series will
specify (such disclosure may be on an approximate basis,
as described above and will be as of the date specified
in the related Prospectus Supplement) to the extent
relevant and to the extent such information is
reasonably available to the Depositor and the Depositor
reasonably believes such information to be reliable:
(i) the aggregate approximate principal amount and type
of any Private Securities to be included in the
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Trust Fund for such Series; (ii) certain characteristics
of the Underlying Loans including (A) the payment
features of such Underlying Loans (i.e., whether they
are fixed rate or adjustable rate and whether they
provide for fixed level payments, negative amortization
or other payment features), (B) the approximate
aggregate principal amount of such Underlying Loans
which are insured or guaranteed by a governmental
entity, (C) the servicing fee or range of servicing fees
with respect to such Underlying Loans, (D) the minimum
and maximum stated maturities of such Underlying Loans
at origination, (E) the lien priority of such Underlying
Loans, and (F) the delinquency status and year of
origination of such Underlying Loans; (iii) the maximum
original term-to-stated maturity of the Private
Securities; (iv) the weighted average term-to-stated
maturity of the Private Securities; (v) the
pass-through or certificate rate or ranges thereof for
the Private Securities; (vi) the sponsor or depositor of
the Private Securities (the 'PS Sponsor'), the servicer
of the Private Securities (the 'PS Servicer') and the
trustee of the Private Securities (the 'PS Trustee');
(vii) certain characteristics of enhancement, if any,
such as reserve funds, insurance policies, letters of
credit or guarantees, relating to the Loans underlying
the Private Securities, or to such Private Securities
themselves; (viii) the terms on which the Underlying
Loans may, or are required to, be repurchased prior to
stated maturity; and (ix) the terms on which substitute
Underlying Loans may be delivered to replace those
initially deposited with the PS Trustee. See 'THE TRUST
FUNDS -- The Loans -- Additional Information' herein.
B. Collection and Distribution Accounts... Unless otherwise provided in the related Prospectus
Supplement, all payments on or with respect to the
Primary Assets for a Series will be remitted directly to
an account (the 'Collection Account') to be established
for such Series with the Trustee or the Servicer, in the
name of the Trustee. Unless otherwise provided in the
related Prospectus Supplement, the Trustee shall be
required to apply a portion of the amount in the
Collection Account, together with reinvestment earnings
from eligible investments specified in the related
Prospectus Supplement, to the payment of certain amounts
payable to the Servicer under the related Agreement and
any other person specified in the Prospectus Supplement,
and to deposit a portion of the amount in the Collection
Account into a separate account (the 'Distribution
Account') to be established for such Series, each in the
manner and at the times established in the related
Prospectus Supplement. All amounts deposited in such
Distribution Account will be available, unless otherwise
specified in the related Prospectus Supplement, for
(i) application to the payment of principal of and
interest on such Series of Securities on the next
Distribution Date, (ii) the making of adequate provision
for future payments on certain Classes of Securities and
(iii) any other purpose specified in the related
Prospectus Supplement. After applying the funds in the
Collection Account as described above, any funds
remaining in the Collection Account may be paid over to
the Servicer, the Depositor, any provider of Enhancement
with
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respect to such Series (an 'Enhancer') or any other
person entitled thereto in the manner and at the times
established in the related Prospectus Supplement.
C. Pre-Funding and Capitalized
Interest Accounts....................... If specified in the related Prospectus Supplement, a
Trust Fund will include one or more segregated trust
accounts (each, a 'Pre-Funding Account') established and
maintained with the Trustee for the related Series. If
so specified, on the closing date for such Series, a
portion of the proceeds of the sale of the Securities of
such Series (such amount, the 'Pre-Funded Amount') will
be deposited in the Pre-Funding Account and may be used
to purchase additional Primary Assets during the period
of time, not to exceed three months, specified in the
related Prospectus Supplement (the 'Pre-Funding
Period'). The Primary Assets to be so purchased will be
required to have certain characteristics specified in
the related Prospectus Supplement. If any Pre-Funded
Amount remains on deposit in the Pre-Funding Account at
the end of the Pre-Funding Period, such amount will be
applied in the manner specified in the related
Prospectus Supplement to prepay the Notes and/or the
Certificates of the applicable Series. The amount
initially deposited in a pre-funding account for a
Series of Securities will not exceed twenty-five percent
of the aggregate principal amount of such Series of
Securities.
If a Pre-Funding Account is established, one or more
segregated trust accounts (each, a 'Capitalized Interest
Account') may be established and maintained with the
Trustee for the related Series. On the closing date for
such Series, a portion of the proceeds of the sale of
the Securities of such Series will be deposited in the
Capitalized Interest Account and used to fund the
excess, if any, of (x) the sum of (i) the amount of
interest accrued on the Securities of such Series and
(ii) if specified in the related Prospectus Supplement,
certain fees or expenses during the Pre-Funding Period
such as trustee fees and credit enhancement fees, over
(y) the amount of interest available therefor from the
Primary Assets in the Trust Fund. Any amounts on deposit
in the Capitalized Interest Account at the end of the
Pre-Funding Period that are not necessary for such
purposes will be distributed to the person specified in
the related Prospectus Supplement.
Enhancement............................... If stated in the Prospectus Supplement relating to a
Series, the Depositor will obtain an irrevocable letter
of credit, surety bond, certificate insurance policy,
insurance policy or other form of credit support
(collectively, 'Enhancement') in favor of the Trustee on
behalf of the Holders of such Series and any other
person specified in such Prospectus Supplement from an
institution acceptable to the rating agency or agencies
identified in the related Prospectus Supplement as
rating such Series of Securities (collectively, the
'Rating Agency') for the purposes specified in such
Prospectus Supplement. The Enhancement will support the
payments on the Securities and may be used for other
purposes, to the extent and under the conditions
specified in such Prospectus Supplement. See
'Enhancement.' Enhancement for a Series may include one
or
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more of the following types of Enhancement, or such
other type of Enhancement specified in the related
Prospectus Supplement.
A. Subordinate Securities................. If stated in the related Prospectus Supplement,
Enhancement for a Series may consist of one or more
Classes of Subordinate Securities.
The rights of Holders of such Subordinate Securities to
receive distributions on any Distribution Date will be
subordinate in right and priority to the rights of
holders of Senior Securities of the Series, but only to
the extent described in the related Prospectus
Supplement.
B. Insurance.............................. If stated in the related Prospectus Supplement,
Enhancement for a Series may consist of special hazard
insurance policies, bankruptcy bonds and other types of
insurance supporting payments on the Securities.
C. Reserve Funds.......................... If stated in the Prospectus Supplement, the Depositor
may deposit cash, a letter or letters of credit,
short-term investments, or other instruments acceptable
to the Rating Agency in one or more reserve funds to be
established in the name of the Trustee (each a 'Reserve
Fund'), which will be used, as specified in such
Prospectus Supplement, by the Trustee to make required
payments of principal of or interest on the Securities
of such Series, to make adequate provision for future
payments on such Securities or for any other purpose
specified in the Agreement, with respect to such Series,
to the extent that funds are not otherwise available. In
the alternative or in addition to such deposit, a
Reserve Fund for a Series may be funded through
application of all or a portion of the excess cash flow
from the Primary Assets for such Series, to the extent
described in the related Prospectus Supplement.
D. Minimum Principal Payment Agreement.... If stated in the Prospectus Supplement relating to a
Series of Securities, the Depositor will enter into a
minimum principal payment agreement (the 'Minimum
Principal Payment Agreement') with an entity meeting the
criteria of the Rating Agency, pursuant to which such
entity will provide funds in the event that aggregate
principal payments on the Primary Assets for such Series
are not sufficient to make certain payments, as provided
in the related Prospectus Supplement. See
'ENHANCEMENT -- Minimum Principal Payment Agreement.'
E. Deposit Agreement...................... If stated in the Prospectus Supplement, the Depositor
and the Trustee will enter into a guaranteed investment
contract or an investment agreement (the 'Deposit
Agreement') pursuant to which all or a portion of
amounts held in the Collection Account, the Distribution
Account or in any Reserve Fund will be invested with the
entity specified in such Prospectus Supplement. The
Trustee will be entitled to withdraw amounts so
invested, plus interest at a rate equal to the Assumed
Reinvestment Rate, in the manner specified in the
Prospectus Supplement. See 'ENHANCEMENT -- Deposit
Agreement.'
Servicing................................. The Servicer will be responsible for servicing, managing
and making collections on the Loans for a Series. In
addition, the
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Servicer, if so specified in the related Prospectus
Supplement, will act as custodian and will be
responsible for maintaining custody of the Loans and
related documentation on behalf of the Trustee. Advances
with respect to delinquent payments of principal or
interest on a Loan will be made by the Servicer only to
the extent described in the related Prospectus
Supplement. Such advances will be intended to provide
liquidity only and, unless otherwise specified in the
related Prospectus Supplement, reimbursable to the
Servicer from scheduled payments of principal and
interest, late collections, or from the proceeds of
liquidation of the related Loans or from other
recoveries relating to such Loans (including any
insurance proceeds or payments from other credit
support). In performing these functions, the Servicer
will exercise the same degree of skill and care that it
customarily exercises with respect to similar
receivables or Loans owned or serviced by it. Under
certain limited circumstances, the Servicer may resign
or be removed, in which event either the Trustee or a
third-party servicer will be appointed as successor
servicer. The Servicer will receive a periodic fee as
servicing compensation (the 'Servicing Fee') and may, as
specified herein and in the related Prospectus
Supplement, receive certain additional compensation. See
'SERVICING OF LOANS -- Servicing Compensation and
Payment of Expenses' herein.
Federal Income Tax Considerations
A. Debt Securities and REMIC Residual
Securities............................. If (i) an election is made to treat all or a portion of
a Trust Fund for a Series as a 'real estate mortgage
investment conduit' (a 'REMIC') or (ii) so provided in
the related Prospectus Supplement, a Series of
Securities will include one or more Classes of taxable
debt obligations under the Internal Revenue Code of
1986, as amended (the 'Code'). Stated interest with
respect to such Classes of Securities will be reported
by a Holder in accordance with the Holder's method of
accounting except that, in the case of Securities
constituting 'regular interests' in a REMIC ('Regular
Interests'), such interest will be required to be
reported on the accrual method regardless of a Holder's
usual method of accounting. Securities that are Compound
Interest Securities, Zero Coupon Securities or Interest
Only Securities will, and certain other Classes of
Securities may, be issued with original issue discount
that is not de minimis. In such cases, the Holder will
be required to include original issue discount in gross
income as it accrues, which may be prior to the receipt
of cash attributable to such income. If a Security is
issued at a premium, the Holder may be entitled to make
an election to amortize such premium on a constant yield
method.
In the case of a REMIC election, a Class of Securities
may be treated as REMIC 'residual interests' ('Residual
Interest'). A Holder of a Residual Interest will be
required to include in its income its pro rata share of
the taxable income of the REMIC. In certain
circumstances, the Holder of a Residual Interest may
have REMIC taxable income or tax liability attributable
to REMIC taxable income for a particular period in
excess of cash distributions for such period or have an
after-tax return that is less than the after-tax return
on comparable debt instruments. In addition, a portion
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(or, in some cases, all) of the income from a Residual
Interest (i) may not be subject to offset by losses from
other activities or investments, (ii) for a Holder that
is subject to tax under the Code on unrelated business
taxable income, may be treated as unrelated business
taxable income and (iii) for a foreign holder, may not
qualify for exemption from or reduction of withholding.
In addition, (i) Residual Interests are subject to
transfer restrictions and (ii) certain transfers of
Residual Interests will not be recognized for federal
income tax purposes. Further, individual holders are
subject to limitations on the deductibility of expenses
of the REMIC. See 'CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.'
B. Non-REMIC Pass-Through Securities...... If so specified in the related Prospectus Supplement,
the Trust Fund for a Series will be treated as a grantor
trust and will not be classified as an association
taxable as a corporation for federal income tax purposes
and Holders of Securities of such Series ('Pass-Through
Securities') will be treated as owning directly rights
to receive certain payments of interest or principal, or
both on the Primary Assets held in the Trust Fund for
such Series. All income with respect to a Stripped
Security (as defined herein) will be accounted for as
original issue discount and, unless otherwise specified
in the related Prospectus Supplement, will be reported
by the Trustee on an accrual basis, which may be prior
to the receipt of cash associated with such income.
C. Owner Trust Securities................. If so specified in the Prospectus Supplement, the Trust
Fund will be treated as a partnership for purposes of
federal and state income tax. Each Noteholder, by the
acceptance of a Note of a given Series, will agree to
treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a Certificate of
a given Series, will agree to treat the related Trust as
a partnership in which such Certificateholder is a
partner for federal income and state tax purposes.
Alternative characterizations of such Trust and such
Certificates are possible, but would not result in
materially adverse tax consequences to
Certificateholders. See 'CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.'
ERISA Considerations...................... A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
('ERISA'), or Section 4975 of the Code should carefully
review with its own legal advisors whether the purchase
or holding of Securities will constitute a prohibited
transaction or cause the assets of the Trust Fund to be
considered 'plan assets,' thereby subjecting operation
of the Trust Fund to the prohibited transaction rules
and fiduciary investment standards of ERISA, unless some
exception or exemption is applicable. See 'ERISA
CONSIDERATIONS.'
Legal Investment.......................... Unless otherwise specified in the related Prospectus
Supplement, Securities of each Series offered by this
Prospectus and the related Prospectus Supplement will
not constitute 'mortgage related securities' under the
Secondary Mortgage Market Enhancement Act of 1984
('SMMEA'). Investors whose investment authority is
subject to legal restrictions should consult their own
legal advisors
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to determine whether and to what extent the Securities
constitute legal investments for them. See 'LEGAL
INVESTMENT.'
Use of Proceeds........................... The Depositor will use the net proceeds from the sale of
each Series for one or more of the following purposes:
(i) to purchase the related Primary Assets, (ii) to
repay indebtedness which has been incurred to obtain
funds to acquire such Primary Assets, (iii) to
establish any Reserve Funds described in the related
Prospectus Supplement and (iv) to pay costs of
structuring and issuing such Securities, including the
costs of obtaining Enhancement, if any. If so specified
in the related Prospectus Supplement, the purchase of
the Primary Assets for a Series will be effected by an
exchange of Securities with the Seller of such Primary
Assets. See 'USE OF PROCEEDS.'
Ratings................................... It will be a requirement for issuance of any Series that
the Securities offered by this Prospectus and the
related Prospectus Supplement be rated by at least one
Rating Agency in one of its four highest applicable
rating categories. The rating or ratings applicable to
Securities of each Series offered hereby and by the
related Prospectus Supplement will be as set forth in
the related Prospectus Supplement. A securities rating
should be evaluated independently of similar ratings on
different types of securities. A securities rating is
not a recommendation to buy, hold or sell securities and
does not address the effect that the rate of prepayments
on Loans or Underlying Loans relating to Private
Securities, as applicable, for a Series may have on the
yield to investors in the Securities of such Series. See
'RISK FACTORS -- Ratings Are Not Recommendations.'
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
NO SECONDARY MARKET
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Holders with liquidity of
investment or will continue for the life of the Securities of such Series. The
Underwriter(s) specified in the related Prospectus Supplement expects to make a
secondary market in the Securities, but has no obligation to do so.
PRIMARY ASSETS ARE ONLY SOURCE OF REPAYMENT
The Depositor does not have, nor is it expected to have, any significant
assets. The Securities of a Series will be payable solely from the assets of the
Trust Fund for such Securities. There will be no recourse to the Depositor or
any other person for any default on the Notes or any failure to receive
distributions on the Certificates. Further, unless otherwise stated in the
related Prospectus Supplement, at the times set forth in the related Prospectus
Supplement, certain Primary Assets and/or any balance remaining in the
Collection Account or Distribution Account immediately after making all payments
due on the Securities of such Series and other payments specified in the related
Prospectus Supplement, may be promptly released or remitted to the Depositor,
the Servicer, the Enhancer or any other person entitled thereto and will no
longer be available for making payments to Holders. Consequently, Holders of
Securities of each Series must rely solely upon payments with respect to the
Primary Assets and the other assets constituting the Trust Fund for a Series of
Securities, including, if applicable, any amounts available pursuant to any
Enhancement for such Series, for the payment of principal of and interest on the
Securities of such Series.
Holders of Notes will be required under the Indenture to proceed only
against the Primary Assets and other assets constituting the related Trust Fund
in the case of a default with respect to such Notes and may not proceed against
any assets of the Depositor. There is no assurance that the market value of the
Primary Assets or any other assets for a Series will at any time be equal to or
greater than the aggregate principal amount of the Securities of such Series
then outstanding, plus accrued interest thereon. Moreover, upon an event of
default under the Indenture for a Series of Notes and a sale of the assets in
the Trust Fund or upon a sale of the assets of a Trust Fund for a Series of
Certificates, the Trustee, the Servicer, if any, the Enhancer and any other
service provider specified in the related Prospectus Supplement generally will
be entitled to receive the proceeds of any such sale to the extent of unpaid
fees and other amounts owing to such persons under the related Agreement prior
to distributions to Holders of Securities. Upon any such sale, the proceeds
thereof may be insufficient to pay in full the principal of and interest on the
Securities of such Series.
The only obligations, if any, of the Depositor with respect to the
Securities of any Series will be pursuant to certain representations and
warranties. See 'THE AGREEMENTS -- Assignment of Primary Assets' herein. The
Depositor does not have, and is not expected in the future to have, any
significant assets with which to meet any obligation to repurchase Primary
Assets with respect to which there has been a breach of any representation or
warranty. If, for example, the Depositor were required to repurchase a Primary
Asset, its only sources of funds to make such repurchase would be from funds
obtained from the enforcement of a corresponding obligation, if any, on the part
of the originator of the Primary Assets, the Servicer or the Seller, as the case
may be, or from a Reserve Fund established to provide funds for such
repurchases.
LIMITED PROTECTION AGAINST LOSSES
Although any Enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Securities entitled to the benefit thereof, the
amount of such Enhancement will be limited, as set forth in the related
Prospectus Supplement, and will decline and could be depleted under certain
circumstances prior to the payment in full of the related Series of Securities,
and as a result Holders may suffer losses. See 'ENHANCEMENT.'
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YIELD MAY VARY
The yield to maturity experienced by a Holder of Securities may be affected
by the rate of payment of principal of the Loans or Underlying Loans relating to
the Private Securities, as applicable. The timing of principal payments of the
Securities of a Series will be affected by a number of factors, including the
following: (i) the extent of prepayments of the Loans or Underlying Loans
relating to the Private Securities, as applicable, which prepayments may be
influenced by a variety of factors; (ii) the manner of allocating principal
payments among the Classes of Securities of a Series as specified in the related
Prospectus Supplement; and (iii) the exercise by the party entitled thereto of
any right of optional termination. See 'DESCRIPTION OF THE SECURITIES --
Weighted Average Life of the Securities.' Prepayments may also result
from repurchases of Loans or Underlying Loans, as applicable, due to
material breaches of the Seller's or the Depositor's warranties.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate. See 'DESCRIPTION OF THE SECURITIES -- Payments of
Interest.'
PROPERTY VALUES MAY BE INSUFFICIENT
If the Mortgages in a Trust Fund are primarily junior liens subordinate to
the rights of the mortgagee under the related senior mortgage or mortgages, the
proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such junior mortgage only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, 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 at or prior to the
foreclosure sale or undertake the obligation to make payments on the senior
mortgages in the event the mortgagor is in default thereunder. The Trust Fund
will not have any source of funds to satisfy the senior mortgages or make
payments due to the senior mortgagees.
There are several factors that could adversely affect the value of
Properties such that the outstanding balance of the related Loan, together with
any senior financing on the Properties, would equal or exceed the value of the
Properties. Among the factors that could adversely affect the value of the
Properties are an overall decline in the residential real estate market in the
areas in which the Properties are located or a decline in the general condition
of the Properties as a result of failure of borrowers to maintain adequately the
Properties or of natural disasters that are not necessarily covered by
insurance, such as earthquakes and floods. Any such decline could extinguish the
value of a junior interest in a Property before having any effect on the related
senior interest therein. If such a decline occurs, the actual rates of
delinquencies, foreclosure and losses on the junior Loans could be higher than
those currently experienced in the mortgage lending industry in general.
PRE-FUNDING MAY ADVERSELY AFFECT INVESTMENT
If a Trust Fund includes a Pre-Funding Account and the principal balance of
additional Loans delivered to the Trust Fund during the Pre-Funding Period is
less than the original Pre-Funded Amount, the Holders of the Securities of the
related Series will receive a prepayment of principal as and to the extent
described in the related Prospectus Supplement. Any such principal prepayment
may adversely affect the yield to maturity of the applicable Securities. Since
prevailing interest rates are subject to fluctuation, there can be no assurance
that investors will be able to reinvest such a prepayment at yields equaling or
exceeding the yields on the related Securities. It is possible that the yield on
any such reinvestment will be lower, and may be significantly lower, than the
yield on the related Securities.
The ability of a Trust Fund to invest in subsequent Loans during the related
Pre-Funding Period will be dependant on the ability of the Seller to originate
or acquire Loans that satisfy the requirements for transfer to the Trust Fund.
The ability of the Seller to originate or acquire such Loans will be affected by
a variety of social and economic factors, including the prevailing level of
market interest rates, unemployment levels and consumer perceptions of general
economic conditions.
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Although subsequent Loans must satisfy the characteristics described in the
related Prospectus Supplement, such Loans may have been originated more recently
than the Loans originally transferred to the Trust Fund and may be of a lesser
credit quality. As a result, the addition of subsequent Loans may adversely
affect the performance of the related Securities.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONDITIONS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of
clean-up. In several states, such a lien has priority over the lien of an
existing mortgage or owner's interest against 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 that require remedy at a property,
if agents or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was caused by a prior owner. A lender also risks such liability
on foreclosure of the Mortgaged Property.
CONSUMER PROTECTION LAWS MAY AFFECT LOANS
Applicable state laws generally regulate interest rates and other charges
and require certain disclosures. In addition, other state laws, public policy
and general principles of equity relating to the protection of consumers, unfair
and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Loans. Depending on the provisions
of the applicable law and the specific facts and circumstances involved,
violations of these laws, policies and principles may limit the ability of the
Servicer to collect all or part of the principal of or interest on the Loans,
may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the owner of the Loan to damages and administrative
enforcement.
The Loans are also subject to Federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public assistance
or the exercise of any right under the Consumer Credit Protection Act, in
the extension of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
The Home Improvement Contracts are also subject to the Preservation of
Consumers' Claims and Defenses regulations of the Federal Trade Commission and
other similar federal and state statutes and regulations (collectively, the
'Holder in Due Course Rules'), which protect the homeowner from defective
craftsmanship or incomplete work by a contractor. These laws permit the obligor
to withhold payment if the work does not meet the quality and durability
standards agreed to by the homeowner and the contractor. The Holder in Due
Course Rules have the effect of subjecting any assignee of the seller in a
consumer credit transaction to all claims and defenses which the obligor in the
credit sale transaction could assert against the seller of the goods.
Violations of certain provisions of these Federal laws may limit the ability
of the Servicer to collect all or part of the principal of or interest on the
Loans and in addition could subject the Trust Fund to damages and administrative
enforcement. See 'CERTAIN LEGAL ASPECTS OF LOANS.'
CONTRACTS WILL NOT BE STAMPED
In order to give notice of the right, title and interest of Securityholders
to the Home Improvement Contracts, the Depositor will cause a UCC-1 financing
statement to be executed by the Depositor or the Seller identifying the Trustee
as the secured party and identifying all Home Improvement Contracts as
collateral. Unless otherwise specified in the related Prospectus Supplement, the
Home Improvement Contracts will not be stamped or otherwise marked to reflect
their assignment to the Trust Fund. Therefore, if, through negligence,
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fraud or otherwise, a subsequent purchaser were able to take physical possession
of the Home Improvement Contracts without notice of such assignment, the
interest of Securityholders in the Home Improvement Contracts could be defeated.
See 'CERTAIN LEGAL ASPECTS OF LOANS -- The Home Improvement Contracts.'
RATINGS ARE NOT RECOMMENDATIONS
It will be a condition to the issuance of a Series of Securities that they
be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating would be based
on, among other things, the adequacy of the value of the Primary Assets and any
Enhancement with respect to such Series. Such rating should not be deemed a
recommendation to purchase, hold or sell Securities, inasmuch as it does not
address market price or suitability for a particular investor. There is also no
assurance that any such rating will remain in effect for any given period of
time or may not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Primary Assets,
such rating might also be lowered or withdrawn, among other reasons, because of
an adverse change in the financial or other condition of an Enhancer or a change
in the rating of such Enhancer's long term debt.
DESCRIPTION OF THE SECURITIES
GENERAL
Each Series of Notes will be issued pursuant to an indenture (the
'Indenture') between the related Trust Fund and the entity named in the related
Prospectus Supplement as trustee (the 'Trustee') with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to separate agreements (each, a 'Pooling and Servicing
Agreement' or a 'Trust Agreement') among the Depositor, the Servicer, if the
Series relates to Loans, and the Trustee. A form of Pooling and Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. A Series may consist of both Notes and
Certificates.
The Seller may agree to reimburse the Depositor for certain fees and
expenses of the Depositor incurred in connection with the offering of the
Securities.
The following summaries describe certain provisions in the Agreements common
to each Series of Securities. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreements and the Prospectus Supplement relating to each
Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
Each Series of Securities will consist of one or more Classes of Securities,
one or more of which may be Compound Interest Securities, Variable Interest
Securities, PAC Securities, Zero Coupon Securities, Principal Only Securities,
Interest Only Securities or Participating Securities. A Series may also include
one or more Classes of Subordinate Securities. The Securities of each Series
will be issued only in fully registered form, without coupons, in the authorized
denominations for each Class specified in the related Prospectus Supplement.
Upon satisfaction of the conditions, if any, applicable to a Class of a Series,
as described in the related Prospectus Supplement, the transfer of the
Securities may be registered and the Securities may be exchanged at the office
of the Trustee specified in the Prospectus Supplement without the payment of any
service charge other than any tax or governmental charge payable in connection
with such registration of transfer or exchange. If specified in the related
Prospectus Supplement, one or more Classes of a Series may be available in
book-entry form only.
Unless otherwise provided in the related Prospectus Supplement, payments of
principal of and interest on a Series of Securities will be made on the
Distribution Dates specified in the Prospectus Supplement relating to such
Series by check mailed to Holders of such Series, registered as such at the
close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer (at
the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
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presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by the
Trustee, or a paying agent on behalf of the Trustee, as specified in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, all payments with respect to the Primary Assets for a Series,
together with reinvestment income thereon, amounts withdrawn from any Reserve
Fund, and amounts available pursuant to any other Enhancement will be deposited
directly into the Collection Account. If provided in the related Prospectus
Supplement, such amounts may be net of certain amounts payable to the related
Servicer and any other person specified in the Prospectus Supplement. Such
amounts thereafter will be deposited into the Distribution Account and will be
available to make payments on the Securities of such Series on the next
Distribution Date. See 'THE TRUST FUNDS -- Collection and Distribution
Accounts.'
VALUATION OF THE PRIMARY ASSETS
If specified in the related Prospectus Supplement for a Series of Notes,
each Primary Asset included in the related Trust Fund for a Series will be
assigned an initial 'Asset Value.' Unless otherwise specified in the related
Prospectus Supplement, at any time the Asset Value of the Primary Assets will be
equal to the product of the Asset Value Percentage as set forth in the Indenture
and the lesser of (a) the stream of remaining regularly scheduled payments on
the Primary Assets, net, unless otherwise provided in the related Prospectus
Supplement, of certain amounts payable as expenses, together with income earned
on each such scheduled payment received through the day preceding the next
Distribution Date at the Assumed Reinvestment Rate, if any, discounted to
present value at the highest interest rate on the Notes of such Series over
periods equal to the interval between payments on the Notes, and (b) the then
principal balance of the Primary Assets. Unless otherwise specified in the
related Prospectus Supplement, the initial Asset Value of the Primary Assets
will be at least equal to the principal amount of the Notes of the related
Series at the date of issuance thereof.
The 'Assumed Reinvestment Rate,' if any, for a Series will be the highest
rate permitted by the Rating Agency or a rate insured by means of a surety bond,
guaranteed investment contract, Deposit Agreement or other arrangement
satisfactory to the Rating Agency. If the Assumed Reinvestment Rate is so
insured, the related Prospectus Supplement will set forth the terms of such
arrangement.
PAYMENTS OF INTEREST
The Securities of each Class by their terms entitled to receive interest
will bear interest (calculated, unless otherwise specified in the related
Prospectus Supplement, on the basis of a 360 day year of twelve 30-day months)
from the date and at the rate per annum specified, or calculated in the method
described, in the related Prospectus Supplement. Interest on such Securities of
a Series will be payable on the Distribution Date specified in the related
Prospectus Supplement. The rate of interest on Securities of a Series may be
variable or may change with changes in the annual percentage rates of the Loans
or Underlying Loans relating to the Private Securities, as applicable included
in the related Trust Fund and/or as prepayments occur with respect to such Loans
or Underlying Loans, as applicable. Principal Only Securities may not be
entitled to receive any interest distributions or may be entitled to receive
only nominal interest distributions. Any interest on Zero Coupon Securities that
is not paid on the related Distribution Date will accrue and be added to the
principal thereof on such Distribution Date.
Interest payable on the Securities on a Distribution Date will include all
interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
PAYMENTS OF PRINCIPAL
On each Distribution Date for a Series, principal payments will be made to
the Holders of the Securities of such Series on which principal is then payable,
to the extent set forth in the related Prospectus Supplement. Such payments will
be made in an aggregate amount determined as specified in the related Prospectus
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Supplement and will be allocated among the respective Classes of a Series in the
manner, at the times and in the priority (which may, in certain cases, include
allocation by random lot) set forth in the related Prospectus Supplement.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date with respect to each Class of Notes is
the date no later than which the principal thereof will be fully paid and with
respect to each Class of a Series of Certificates will be the date on which the
entire aggregate principal balance of such Class is expected to be reduced to
zero, in each case calculated on the basis of the assumptions applicable to such
Series described in the related Prospectus Supplement. The Final Scheduled
Distribution Date for each Class of a Series will be specified in the related
Prospectus Supplement. Since payments on the Primary Assets will be used to make
distributions in reduction of the outstanding principal amount of the
Securities, it is likely that the actual final Distribution Date of any such
Class will occur earlier, and may occur substantially earlier, than its Final
Scheduled Distribution Date.
Furthermore, with respect to a Series of Certificates, unless otherwise
specified in the related Prospectus Supplement, as a result of delinquencies,
defaults and liquidations of the Primary Assets in the Trust Fund, the actual
final Distribution Date of any Certificate may occur later than its Final
Scheduled Distribution Date. No assurance can be given as to the actual
prepayment experience with respect to a Series. See 'Weighted Average Life of
the Securities' below.
SPECIAL REDEMPTION
If so specified in the Prospectus Supplement relating to a Series of
Securities having other than monthly Distribution Dates, one or more Classes of
Securities of such Series may be subject to special redemption, in whole or in
part, on the day specified in the related Prospectus Supplement (a 'Special
Redemption Date') if, as a consequence of prepayments on the Loans or Underlying
Loans, as applicable, relating to such Securities or low yields then available
for reinvestment the entity specified in the related Prospectus Supplement
determines, based on assumptions specified in the applicable Agreement that the
amount available for the payment of interest that will have accrued on such
Securities (the 'Available Interest Amount') through the designated interest
accrual date specified in the related Prospectus Supplement is less than the
amount of interest that will have accrued on such Securities to such date. In
such event and as further described in the related Prospectus Supplement, the
Trustee will redeem a principal amount of outstanding Securities of such Series
as will cause the Available Interest Amount to equal the amount of interest that
will have accrued through such designated interest accrual date for such Series
of Securities outstanding immediately after such redemption.
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION
The Depositor or the Servicer may, at its option, redeem, in whole or in
part, one or more Classes of Notes or purchase one or more Classes of
Certificates of any Series, on any Distribution Date under the circumstances, if
any, specified in the Prospectus Supplement relating to such Series.
Alternatively, if so specified in the related Prospectus Supplement for a Series
of Certificates, the Depositor, the Servicer, or another entity designated in
the related Prospectus Supplement may, at its option, cause an early termination
of a Trust Fund by repurchasing all of the Primary Assets from such Trust Fund
on or after a date specified in the related Prospectus Supplement, or on or
after such time as the aggregate outstanding principal amount of the
Certificates or Primary Assets, as specified in the related Prospectus
Supplement is less than the amount or percentage specified in the related
Prospectus Supplement. Notice of such redemption, purchase or termination must
be given by the Depositor or the Trustee prior to the related date. The
redemption, purchase or repurchase price will be set forth in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, in the
event that a REMIC election has been made, the Trustee shall receive a
satisfactory opinion of counsel that the optional redemption, purchase or
termination will be conducted so as to constitute a 'qualified liquidation'
under Section 860F of the Code.
In addition, the Prospectus Supplement may provide other circumstances under
which Holders of Securities of a Series could be fully paid significantly
earlier than would otherwise be the case if payments or distributions were
solely based on the activity of the related Primary Assets.
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WEIGHTED AVERAGE LIFE OF THE SECURITIES
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of such
security will be repaid to the investor. Unless otherwise specified in the
related Prospectus Supplement, the weighted average life of the Securities of a
Class will be influenced by the rate at which the amount financed under the
Loans or Underlying Loans relating to the Private Securities, as applicable,
included in the Trust Fund for a Series is paid, which may be in the form of
scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to a
prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the Loans
or Underlying Loans relating to the Private Securities, as applicable, included
in the related Trust Fund are made at rates corresponding to various percentages
of the prepayment standard or model specified in such Prospectus Supplement.
There is, however, no assurance that prepayment of the Loans or Underlying
Loans relating to the Private Securities, as applicable, included in the related
Trust Fund will conform to any level of any prepayment standard or model
specified in the related Prospectus Supplement. The rate of principal
prepayments on pools of loans may be influenced by a variety of factors,
including job related factors such as transfers, layoffs or promotions and
personal factors such as divorce, disability or prolonged illness. Economic
conditions, either generally or within a particular geographic area or industry,
also may affect the rate of principal prepayments. Demographic and social
factors may influence the rate of principal prepayments in that some borrowers
have greater financial flexibility to move or refinance than do other borrowers.
The deductibility of mortgage interest payments, servicing decisions and other
factors also affect the rate of principal prepayments. As a result, there can be
no assurance as to the rate or timing of principal prepayments of the Loans or
Underlying Loans either from time to time or over the lives of such Loans or
Underlying Loans.
The rate of prepayments of conventional housing loans and other receivables
has fluctuated significantly in recent years. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Loans or
Underlying Loans relating to the Private Securities, as applicable, for a
Series, such loans are likely to prepay at rates higher than if prevailing
interest rates remain at or above the interest rates borne by such loans. In
this regard, it should be noted that the Loans or Underlying Loans, as
applicable, for a Series may have different interest rates. In addition, the
weighted average life of the Securities may be affected by the varying
maturities of the Loans or Underlying Loans relating to the Private Securities,
as applicable. If any Loans or Underlying Loans relating to the Private
Securities, as applicable, for a Series have actual terms-to-stated maturity of
less than those assumed in calculating the Final Scheduled Distribution Date of
the related Securities, one or more Classes of the Series may be fully paid
prior to their respective Final Scheduled Distribution Date, even in the absence
of prepayments and a reinvestment return higher than the Assumed Reinvestment
Rate.
THE TRUST FUNDS
GENERAL
The Notes of each Series will be secured by the pledge of the assets of the
related Trust Fund, and the Certificates of each Series will represent interests
in the assets of the related Trust Fund. The Trust Fund of each Series will
include assets purchased from the Seller composed of (i) the Primary Assets,
(ii) amounts available from the reinvestment of payments on such Primary Assets
at the Assumed Reinvestment Rate, if any, specified in the related Prospectus
Supplement, (iii) any Enhancement, (iv) any Property that secured a Loan but
which is acquired by foreclosure or deed in lieu of foreclosure or repossession
and (v) the amount, if any, initially deposited in the Collection Account or
Distribution Account for a Series as specified in the related Prospectus
Supplement.
The Securities will be non-recourse obligations of the related Trust Fund.
The assets of the Trust Fund specified in the related Prospectus Supplement for
a Series of Securities, unless otherwise specified in the
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related Prospectus Supplement, will serve as collateral only for that Series of
Securities. Holders of a Series of Notes may only proceed against such
collateral securing such Series of Notes in the case of a default with respect
to such Series of Notes and may not proceed against any assets of the Depositor
or the related Trust Fund not pledged to secure such Notes.
The Primary Assets for a Series will be sold by the Seller to the Depositor
or purchased by the Depositor in the open market or in privately negotiated
transactions, which may include transactions with affiliates and will be
transferred by the Depositor to the Trust Fund. Loans relating to a Series will
be serviced by the Servicer, which may be the Seller, specified in the related
Prospectus Supplement, pursuant to a Pooling and Servicing Agreement, with
respect to a Series of Certificates or a servicing agreement (each, a 'Servicing
Agreement') between the Trust Fund and Servicer, with respect to a Series of
Notes.
As used herein, 'Agreement' means, with respect to a Series of Certificates,
the Pooling and Servicing Agreement or Trust Agreement, and with respect to a
Series of Notes, the Indenture and the Servicing Agreement, as the context
requires.
If so specified in the related Prospectus Supplement, a Trust Fund relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a 'Trust Agreement') between the Depositor and the trustee of
such Trust Fund specified in the related Prospectus Supplement.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Primary Assets and other assets contemplated
herein and in the related Prospectus Supplement and the proceeds thereof,
issuing Securities and making payments and distributions thereon and certain
related activities. No Trust Fund is expected to have any source of capital
other than its assets and any related Enhancement.
Primary Assets included in the Trust Fund for a Series may consist of any
combination of Loans and Private Securities, to the extent and as specified in
the related Prospectus Supplement.
THE LOANS
Mortgage Loans. The Primary Assets for a Series may consist, in whole or in
part, of closed-end home equity loans (the 'Mortgage Loans') secured by
mortgages primarily on Single Family Properties which may be subordinated to
other mortgages on the same Mortgaged Property. The Mortgage Loans may have
fixed interest rates or adjustable interest rates and may provide for other
payment characteristics as described below and in the related Prospectus
Supplement.
Unless otherwise described in the related Prospectus Supplement, the full
principal amount of a Mortgage Loan is advanced at origination of the loan and
generally is repayable in equal (or substantially equal) installments of an
amount sufficient to fully amortize such loan at its stated maturity. As more
fully described in the related Prospectus Supplement, interest on each Mortgage
Loan is calculated on the basis of the outstanding principal balance of such
loan multiplied by the Loan Rate thereon and further multiplied by a fraction,
the numerator of which is the number of days in the period elapsed since the
preceding payment of interest was made and the denominator is the number of days
in the annual period for which interest accrues on such loan. Unless otherwise
described in the related Prospectus Supplement the original terms to stated
maturity of Mortgage Loans will not exceed 360 months.
The Mortgaged Properties will include Single Family Property (i.e., one- to
four-family residential housing, including Condominium Units and Cooperative
Dwellings) and mixed-use property. Mixed-use properties will consist of
structures of no more than three stories, which include one to four residential
dwelling units and space used for retail, professional or other commercial uses.
Such uses, which will not involve more than 50% of the space in the structure,
may include doctor, dentist or law offices, real estate agencies, boutiques,
newsstands, convenience stores or other similar types of uses intended to cater
to individual customers as specified in the related Prospectus Supplement. The
properties may be located in suburban or metropolitan districts. Any such
non-residential use will be in compliance with local zoning laws and
regulations. The Mortgaged Properties may consist of detached individual
dwellings, individual condominiums, townhouses, duplexes, row houses, individual
units in planned unit developments and other attached dwelling units. Each
Single Family Property will be located on land owned in fee simple by the
borrower or on land leased by the borrower for a term at
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least ten years (unless otherwise provided in the related Prospectus Supplement)
greater than the term of the related Loan. Attached dwellings may include
owner-occupied structures where each borrower owns the land upon which the unit
is built, with the remaining adjacent land owned in common or dwelling units
subject to a proprietary lease or occupancy agreement in a cooperatively owned
apartment building.
Unless otherwise specified in the related Prospectus Supplement, Mortgages
on Cooperative Dwellings consist of a lien on the shares issued by such
Cooperative Dwelling and the proprietary lease or occupancy agreement relating
to such Cooperative Dwelling.
The aggregate principal balance of Mortgage Loans secured by Mortgaged
Properties that are owner-occupied will be disclosed in the related Prospectus
Supplement. Unless otherwise specified in the Prospectus Supplement, the sole
basis for a representation that a given percentage of the Mortgage Loans are
secured by Single Family Property that is owner-occupied will be either (i) the
making of a representation by the Mortgagor at origination of the Mortgage Loan
either that the underlying Mortgaged Property will be used by the Mortgagor for
a period of at least six months every year or that the Mortgagor intends to use
the Mortgaged Property as a primary residence, or (ii) a finding that the
address of the underlying Mortgaged Property is the Mortgagor's mailing address
as reflected in the Servicer's records. To the extent specified in the related
Prospectus Supplement, the Mortgaged Properties may include non-owner occupied
investment properties and vacation and second homes.
Unless otherwise specified in the related Prospectus Supplement, the initial
Combined Loan-to-Value Ratio of a Loan is computed in the manner described in
the related Prospectus Supplement, taking into account the amounts of any
related senior mortgage loans.
Home Improvement Contracts. The Primary Assets for a Series may consist, in
whole or part, of home improvement installment sales contracts and installment
loan agreements (the 'Home Improvement Contracts') originated by a home
improvement contractor in the ordinary course of business. As specified in the
related Prospectus Supplement, the Home Improvement Contracts will either be
unsecured or secured by the Mortgages primarily on Single Family Properties
which are generally subordinate to other mortgages on the same Mortgaged
Property or by purchase money security interests in the Home Improvements
financed thereby. Unless otherwise specified in the applicable Prospectus
Supplement, the Home Improvement Contracts will be fully amortizing and may have
fixed interest rates or adjustable interest rates and may provide for other
payment characteristics as described below and in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, the home
improvements (the 'Home Improvements') securing the Home Improvement Contracts
include, but are not limited to, replacement windows, house siding, new roofs,
swimming pools, satellite dishes, kitchen and bathroom remodeling goods and
solar heating panels. The initial Loan-to-Value Ratio of a Home Improvement
Contract will be computed in the manner described in the related Prospectus
Supplement.
Additional Information. The selection criteria which will apply with respect
to the Loans, including, but not limited to, the Combined Loan-to-Value Ratios
or Loan-to-Value Ratios, as applicable, original terms to maturity and
delinquency information, will be specified in the related Prospectus Supplement.
The Loans for a Series may include Loans that do not amortize their entire
principal balance by their stated maturity in accordance with their terms and
require a balloon payment of the remaining principal balance at maturity, as
specified in the related Prospectus Supplement. As further described in the
related Prospectus Supplement, the Loans for a Series may include Loans that do
not have a specified stated maturity.
The Loans will be conventional contracts or contracts insured by the Federal
Housing Administration ('FHA') or partially guaranteed by the Veterans
Administration ('VA'). Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. Such Loans will be insured under various
FHA programs. These programs generally limit the principal amount and interest
rates of the mortgage loans insured. Loans insured by the FHA generally require
a minimum down payment of approximately 5% of the original principal amount of
the loan. No FHA-insured Loans relating to a Series may have an interest rate or
original principal amount exceeding the applicable FHA limits at the time of
origination of such loan.
The insurance premiums for Loans insured by the FHA are collected by lenders
approved by the Department of Housing and Urban Development ('HUD') and are paid
to the FHA. The regulations governing FHA single-family mortgage insurance
programs provide that insurance benefits are payable either upon
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foreclosure (or other acquisition of possession) and conveyance of the mortgaged
premises to HUD or upon assignment of the defaulted Loan to HUD. With respect to
a defaulted FHA-insured Loan, the Servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by circumstances beyond the mortgagor's control, the
Servicer is expected to make an effort to avoid foreclosure by entering, if
feasible, into one of a number of available forms of forbearance plans with the
mortgagor. Such plans may involve the reduction or suspension of regular
mortgage payments for a specified period, with such payments to be made upon or
before the maturity date of the mortgage, or the recasting of payments due under
the mortgage up to or beyond the maturity date. In addition, when a default
caused by such circumstances is accompanied by certain other criteria, HUD may
provide relief by making payments to the Servicer in partial or full
satisfaction of amounts due under the Loan (which payments are to be repaid by
the mortgagor to HUD) or by accepting assignment of the loan from the Servicer.
With certain exceptions, at least three full monthly installments must be due
and unpaid under the Loan and HUD must have rejected any request for relief from
the mortgagor before the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, 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. The Servicer of each FHA-insured Loan will be obligated
to purchase any such debenture issued in satisfaction of such Loan upon default
for an amount equal to the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Loan adjusted to reimburse the
Servicer for certain costs and expenses and to deduct certain amounts received
or retained by the Servicer after default. When entitlement to insurance
benefits results from foreclosure (or other acquisition of possession) and
conveyance to HUD, the Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Loan, bears
interest from a date 30 days after the mortgagor's first uncorrected failure to
perform any obligation to make any payment due under the Loan and, upon
assignment, from the date of assignment to the date of payment of the claim, in
each case at the same interest rate as the applicable HUD debenture interest
rate as described above.
Loans designated in the related Prospectus Supplement as guaranteed by the
VA will be partially guaranteed by the VA under the Serviceman's Readjustment
Act of 1944, as amended (a 'VA Guaranty'). The Serviceman's Readjustment Act of
1944, as amended, permits a veteran (or in certain instances the spouse of a
veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration.
The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. The
liability on the guaranty is reduced or increased pro rata with any reduction or
increase in the amount of indebtedness, but in no event will the amount payable
on the guaranty exceed the amount of the original guaranty. The VA may, at its
option and without regard to the guaranty, make full payment to a mortgage
holder of unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed Loan, the Servicer is, absent
exceptional circumstances, authorized to announce its intention to foreclose
only when the default has continued for three months. Generally, a claim for the
guaranty is submitted after liquidation of the Mortgaged Property.
The amount payable under the guaranty will be the percentage of the
VA-insured Loan originally guaranteed applied to indebtedness outstanding as of
the applicable date of computation specified in the VA regulations. Payments
under the guaranty will be equal to the unpaid principal amount of the loan,
interest accrued on the unpaid balance of the loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guaranty may in no event exceed
the amount of the original guaranty.
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The related Prospectus Supplement for each Series will provide information
with respect to the Loans that are Primary Assets as of the Cut-off Date,
including, among other things, and to the extent relevant: (a) the aggregate
unpaid principal balance of the Loans; (b) the range and weighted average Loan
Rate on the Loans, and, in the case of adjustable rate Loans, the range and
weighted average of the current Loan Rates and the Lifetime Rate Caps, if any;
(c) the range and average outstanding principal balance of the Loans; (d) the
weighted average original and remaining term-to-stated maturity of the Loans and
the range of original and remaining terms-to-stated maturity, if applicable; (e)
the range and weighted average of Combined Loan-to-Value Ratios or Loan-to-Value
Ratios for the Loans, as applicable; (f) the percentage (by outstanding
principal balance as of the Cut-off Date) of Loans that accrue interest at
adjustable or fixed interest rates; (g) any special hazard insurance policy or
bankruptcy bond or other enhancement relating to the Loans; (h) the percentage
(by principal balance as of the Cut-off Date) of Loans that are secured by
Mortgaged Properties, Home Improvements or are unsecured; (i) the geographic
distribution of any Mortgaged Properties securing the Loans; (j) the percentage
of Loans (by principal balance as of the Cut-off Date) that are secured by
Single Family Properties, shares relating to Cooperative Dwellings, Condominium
Units, investment property and vacation or second homes; (k) the lien priority
of the Loans; and (l) the delinquency status and year of origination of the
Loans. The related Prospectus Supplement will also specify any other limitations
on the types or characteristics of Loans for a Series.
If information of the nature described above respecting the Loans is not
known to the Depositor at the time the Securities are initially offered,
approximate or more general information of the nature described above will be
provided in the Prospectus Supplement and additional information will be set
forth in a Current Report on Form 8-K to be available to investors on the date
of issuance of the related Series and to be filed with the Commission within 15
days after the initial issuance of such Securities.
PRIVATE SECURITIES
General. Primary Assets for a Series may consist, in whole or in part, of
Private Securities which include pass-through certificates representing
beneficial interests in loans of the type that would otherwise be eligible to be
Loans (the 'Underlying Loans') or (b) collateralized obligations secured by
Underlying Loans. Such pass-through certificates or collateralized obligations
will have previously been (a) offered and distributed to the public pursuant to
an effective registration statement or (b) purchased in a transaction not
involving any public offering from a person who is not an affiliate of the
issuer of such securities at the time of sale (nor an affiliate thereof at any
time during the three preceding months); provided a period of three years
elapsed since the later of the date the securities were acquired from the issuer
or an affiliate thereof. Although individual Underlying Loans may be insured or
guaranteed by the United States or an agency or instrumentality thereof, they
need not be, and Private Securities themselves will not be so insured or
guaranteed.
Private Securities will have been issued pursuant to a pooling and servicing
agreement, a trust agreement or similar agreement (a 'PS Agreement'). The
seller/servicer of the Underlying Loans will have entered into the PS Agreement
with the trustee under such PS Agreement (the 'PS Trustee'). The PS Trustee or
its agent, or a custodian, will possess the Underlying Loans. Underlying Loans
will be serviced by a servicer (the 'PS Servicer') directly or by one or more
sub-servicers who may be subject to the supervision of the PS Servicer.
The sponsor of the Private Securities (the 'PS Sponsor') will be a financial
institution or other entity engaged generally in the business of lending; a
public agency or instrumentality of a state, local or federal government; or a
limited purpose corporation organized for the purpose of, among other things,
establishing trusts and acquiring and selling loans to such trusts, and selling
beneficial interests in such trusts. If so specified in the Prospectus
Supplement, the PS Sponsor may be an affiliate of the Depositor. The obligations
of the PS Sponsor will generally be limited to certain representations and
warranties with respect to the assets conveyed by it to the related trust.
Unless otherwise specified in the related Prospectus Supplement, the PS Sponsor
will not have guaranteed any of the assets conveyed to the related trust or any
of the Private Securities issued under the PS Agreement. Additionally, although
the Underlying Loans may be guaranteed by an agency or instrumentality of the
United States, the Private Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Securities on the dates specified in the related Prospectus Supplement. The
Private Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal and interest
distributions will be made on the Private Securities by the PS Trustee or the PS
Servicer. The PS Sponsor or the PS Servicer may have the right to
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repurchase the Underlying Loans after a certain date or under other
circumstances specified in the related Prospectus Supplement.
The Underlying Loans may be fixed rate, level payment, fully amortizing
loans or adjustable rate loans or loans having balloon or other irregular
payment features. Such Underlying Loans will be secured by mortgages on
Mortgaged Properties.
Credit Support Relating to Private Securities. Credit support in the form of
Reserve Funds, subordination of other private securities issued under the PS
Agreement, guarantees, letters of credit, cash collateral accounts, insurance
policies or other types of credit support may be provided with respect to the
Underlying Loans or with respect to the Private Securities themselves. The type,
characteristics and amount of credit support will be a function of certain
characteristics of the Underlying Loans and other factors and will have been
established for the Private Securities on the basis of requirements of the
nationally recognized statistical rating organization that rated the Private
Securities.
Additional Information. The Prospectus Supplement for a Series for which the
Primary Assets include Private Securities will specify (such disclosure may be
on an approximate basis and will be as of the date specified in the related
Prospectus Supplement), to the extent relevant and to the extent such
information is reasonably available to the Depositor and the Depositor
reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Private Securities to be included
in the Trust Fund for such Series; (ii) certain characteristics of the
Underlying Loans including (A) the payment features of such Underlying Loans
(i.e., whether they are fixed rate or adjustable rate and whether they provide
for fixed level payments or other payment features), (B) the approximate
aggregate principal balance, if known, of such Underlying Loans insured or
guaranteed by a governmental entity, (C) the servicing fee or range of servicing
fees with respect to the Underlying Loans, (D) the minimum and maximum stated
maturities of such Underlying Loans at origination, (E) the lien priority of
such Underlying Loans, and (F) the delinquency status and year of origination of
such Underlying Loans; (iii) the maximum original term-to-stated maturity of the
Private Securities; (iv) the weighted average term-to-stated maturity of the
Private Securities; (v) the pass-through or certificate rate or ranges thereof
for the Private Securities; (vi) the PS Sponsor, the PS Servicer (if other than
the PS Sponsor) and the PS Trustee for such Private Securities; (vii) certain
characteristics of credit support if any, such as Reserve Funds, insurance
policies, letters of credit or guarantees relating to such Loans underlying the
Private Securities or to such Private Securities themselves; (viii) the terms on
which Underlying Loans may, or are required to, be purchased prior to their
stated maturity or the stated maturity of the Private Securities; and (ix) the
terms on which Underlying Loans may be substituted for those originally
underlying the Private Securities.
If information of the nature described above representing the Private
Securities is not known to the Depositor at the time the Securities are
initially offered, approximate or more general information of the nature
described above will be provided in the Prospectus Supplement and the additional
information, if available, will be set forth in a Current Report on Form 8-K to
be available to investors on the date of issuance of the related Series and to
be filed with the Commission within 15 days of the initial issuance of such
Securities.
COLLECTION AND DISTRIBUTION ACCOUNTS
A separate Collection Account will be established by the Trustee or the
Servicer, in the name of the Trustee, for each Series of Securities for receipt
of the amount of cash, if any, specified in the related Prospectus Supplement to
be initially deposited therein by the Depositor, all amounts received on or with
respect to the Primary Assets and, unless otherwise specified in the related
Prospectus Supplement, income earned thereon. Certain amounts on deposit in such
Collection Account and certain amounts available pursuant to any Enhancement, as
provided in the related Prospectus Supplement, will be deposited in a related
Distribution Account, which will also be established by the Trustee for each
such Series of Securities, for distribution to the related Holders. Unless
otherwise specified in the related Prospectus Supplement, the Trustee will
invest the funds in the Collection and Distribution Accounts in Eligible
Investments maturing, with certain exceptions, not later, in the case of funds
in the Collection Account, than the day preceding the date such funds are due to
be deposited in the Distribution Account or otherwise distributed and, in the
case of funds in the Distribution Account, than the day preceding the next
Distribution Date for the related Series of Securities. Eligible Investments
include, among other investments, obligations of the United States and certain
agencies thereof, federal funds, certificates of deposit, commercial paper,
demand and time deposits and banker's acceptances,
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certain repurchase agreements of United States government securities and certain
guaranteed investment contracts, in each case, acceptable to the Rating Agency.
Notwithstanding any of the foregoing, amounts may be deposited and withdrawn
pursuant to any Deposit Agreement or Minimum Principal Payment Agreement as
specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, a Trust Fund will include
one or more segregated trust accounts (each, a 'Pre-Funding Account')
established and maintained with the Trustee for the related Series. If so
specified, on the closing date for such Series, a portion of the proceeds of the
sale of the Securities of such Series (such amount, the 'Pre-Funded Amount')
will be deposited in the Pre-Funding Account and may be used to purchase
additional Primary Assets during the period of time specified in the related
Prospectus Supplement (the 'Pre-Funding Period'). The Primary Assets to be so
purchased will be required to have certain characteristics specified in the
related Prospectus Supplement. If any Pre-Funded Amount remains on deposit in
the Pre-Funding Account at the end of the Pre-Funding Period, such amount will
be applied in the manner specified in the related Prospectus Supplement to
prepay the Notes and/or the Certificates of the applicable Series.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a 'Capitalized Interest Account') may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period, over the
amount of interest available therefor from the Primary Assets in the Trust Fund.
Any amounts on deposit in the Capitalized Interest Account at the end of the
Pre-Funding Period that are not necessary for such purposes will be distributed
to the person specified in the related Prospectus Supplement.
ENHANCEMENT
If stated in the Prospectus Supplement relating to a Series of Securities,
simultaneously with the Depositor's assignment of the Primary Assets to the
Trustee, the Depositor will obtain an irrevocable letter of credit, surety bond
or insurance policy, issue Subordinate Securities or obtain any other form of
enhancement or combination thereof (collectively, 'Enhancement') in favor of the
Trustee on behalf of the Holders of the related Series or designated Classes of
such Series from an institution or by other means acceptable to the Rating
Agency. The Enhancement will support the payment of principal and interest on
the Securities, and may be applied for certain other purposes to the extent and
under the conditions set forth in such Prospectus Supplement. Enhancement for a
Series may include one or more of the following forms, or such other form as may
be specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, any of such Enhancement may be structured so as
to protect against losses relating to more than one Trust Fund, in the manner
described therein.
SUBORDINATE SECURITIES
If specified in the related Prospectus Supplement, Enhancement for a Series
may consist of one or more Classes of Subordinate Securities. The rights of
holders of such Subordinate Securities to receive distributions on any
Distribution Date will be subordinate in right and priority to the rights of
Holders of Senior Securities of the Series, but only to the extent described in
the related Prospectus Supplement.
INSURANCE
If stated in the related Prospectus Supplement, Enhancement for a Series may
consist of special hazard insurance policies, bankruptcy bonds and other types
of insurance relating to the Primary Assets, as described below and in the
related Prospectus Supplement.
Pool Insurance Policy. If so specified in the Prospectus Supplement relating
to a Series of Securities, the Depositor will obtain a pool insurance policy for
the Loans in the related Trust Fund. The pool insurance policy will cover any
loss (subject to the limitations described in a related Prospectus Supplement)
by reason of default, but will not cover the portion of the principal balance of
any Loan that is required to be covered by any primary
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mortgage insurance policy. The amount and terms of any such coverage will be set
forth in the related Prospectus Supplement.
Special Hazard Insurance Policy. Although the terms of such policies vary to
some degree, a special hazard insurance policy typically provides that, where
there has been damage to Property securing a defaulted or foreclosed Loan (title
to which has been acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained with respect to such Property, or in
connection with partial loss resulting from the application of the coinsurance
clause in a standard hazard insurance policy, the special hazard insurer will
pay the lesser of (i) the cost of repair or replacement of such Property or
(ii) upon transfer of such Property to the special hazard insurer, the unpaid
principal balance of such Loan at the time of acquisition of such Property by
foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of
claim settlement and certain expenses incurred by the Servicer with respect to
such Property. If the unpaid principal balance plus accrued interest and certain
expenses is paid by the special hazard insurer, the amount of further coverage
under the special hazard insurance policy will be reduced by such amount less
any net proceeds from the sale of such Property. Any amount paid as the cost of
repair of such Property will reduce coverage by such amount. Special hazard
insurance policies typically do not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, flood (if
the mortgaged property is in a federally designated flood area), chemical
contamination and certain other risks.
Restoration of the Property with the proceeds described under (i) above is
expected to satisfy the condition under any pool insurance policy that such
Property be restored before a claim under such pool insurance policy may be
validly presented with respect to the defaulted Loan secured by such Property.
The payment described under (ii) above will render unnecessary presentation of a
claim in respect of such Loan under any pool insurance policy. Therefore, so
long as such pool insurance policy remains in effect, the payment by the special
hazard insurer of the cost of repair or of the unpaid principal balance of the
related Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to Holders of the Securities, but will affect the
relative amounts of coverage remaining under the special hazard insurance policy
and pool insurance policy.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the bankruptcy
court may establish the value of the Property securing the related Loan at an
amount less than the then-outstanding principal balance of such Loan. The amount
of the secured debt could be reduced to such value, and the holder of such Loan
thus would become an unsecured creditor to the extent the outstanding principal
balance of such Loan exceeds the value so assigned to the Property by the
bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding. See 'CERTAIN LEGAL ASPECTS OF
LOANS.' If so provided in the related Prospectus Supplement, the Depositor or
other entity specified in the related Prospectus Supplement will obtain a
bankruptcy bond or similar insurance contract (the 'bankruptcy bond') covering
losses resulting from proceedings with respect to borrowers under the Bankruptcy
Code. The bankruptcy bond will cover certain losses resulting from a reduction
by a bankruptcy court of scheduled payments of principal of and interest on a
Loan or a reduction by such court of the principal amount of a Loan and will
cover certain unpaid interest on the amount of such a principal reduction from
the date of the filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related Prospectus Supplement for all Loans in the Trust Fund for such
Series. Such amount will be reduced by payments made under such bankruptcy bond
in respect of such Loans, unless otherwise specified in the related Prospectus
Supplement, and will not be restored.
RESERVE FUNDS
If so specified in the Prospectus Supplement relating to a Series of
Securities, the Depositor will deposit into one or more funds to be established
with the Trustee as part of the Trust Fund for such Series or for the benefit of
any Enhancer with respect to such Series (the 'Reserve Funds') cash, a letter or
letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of the Rating Agency rating any Series of the
Securities in the amount specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, a Reserve Fund for a Series may be
funded over time through application of all or a portion of the excess cash flow
from the Primary Assets for such Series, to the extent described in the related
Prospectus Supplement. If applicable, the initial amount of the Reserve Fund and
the Reserve Fund maintenance requirements for a Series of Securities will be
described in the related Prospectus Supplement.
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Amounts withdrawn from any Reserve Fund will be applied by the Trustee to
make payments on the Securities of a Series, to pay expenses, to reimburse any
Enhancer or for any other purpose, in the manner and to the extent specified in
the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments maturing no later than the day specified in the related
Prospectus Supplement.
MINIMUM PRINCIPAL PAYMENT AGREEMENT
If stated in the Prospectus Supplement relating to a Series of Securities,
the Depositor will enter into a Minimum Principal Payment Agreement with an
entity meeting the criteria of the Rating Agency pursuant to which such entity
will provide certain payments on the Securities of such Series in the event that
aggregate scheduled principal payments and/or prepayments on the Primary Assets
for such Series are not sufficient to make certain payments on the Securities of
such Series, as provided in the Prospectus Supplement.
DEPOSIT AGREEMENT
If specified in a Prospectus Supplement, the Depositor and the Trustee for
such Series of Securities will enter into a Deposit Agreement with the entity
specified in such Prospectus Supplement on or before the sale of such Series of
Securities. The purpose of a Deposit Agreement would be to accumulate available
cash for investment so that such cash, together with income thereon, can be
applied to future distributions on one or more Classes of Securities. The
Prospectus Supplement for a Series of Securities pursuant to which a Deposit
Agreement is used will contain a description of the terms of such Deposit
Agreement.
SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans comprising the Primary
Assets in the Trust Fund will be provided by the Servicer directly pursuant to
the related Servicing Agreement or Pooling and Servicing Agreement, as the case
may be, with respect to a Series of Securities.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Servicer will make reasonable efforts to collect all payments required
to be made under the Loans and will, consistent with the terms of the related
Agreement for a Series and any applicable Enhancement, follow such collection
procedures as it follows with respect to comparable loans held in its own
portfolio. Consistent with the above, the Servicer may, in its discretion,
(i) waive any assumption fee, late payment charge, or other charge in connection
with a Loan and (ii) to the extent provided in the related Agreement arrange
with an obligor a schedule for the liquidation of delinquencies by extending the
Due Dates for Scheduled Payments on such Loan.
If specified in the related Prospectus Supplement, the Servicer, to the
extent permitted by law, will establish and maintain escrow or impound accounts
('Escrow Accounts') with respect to Loans in which payments by obligors to pay
taxes, assessments, mortgage and hazard insurance premiums, and other comparable
items will be deposited. Loans may not require such payments under the loan
related documents, in which case the Servicer would not be required to establish
any Escrow Account with respect to such Loans. Withdrawals from the Escrow
Accounts are to be made to effect timely payment of taxes, assessments and
mortgage and hazard insurance, to refund to obligors amounts determined to be
overages, to pay interest to obligors on balances in the Escrow Account to the
extent required by law, to repair or otherwise protect the property securing the
related Loan and to clear and terminate such Escrow Account. The Servicer will
be responsible for the administration of the Escrow Accounts and generally will
make advances to such accounts when a deficiency exists therein.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT
Unless otherwise specified in the related Prospectus Supplement, the Trustee
or the Servicer will establish a separate account (the 'Collection Account') in
the name of the Trustee. Unless otherwise indicated in the related Prospectus
Supplement, the Collection Account will be an account maintained (i) at a
depository
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institution, the long-term unsecured debt obligations of which at the time of
any deposit therein are rated by each Rating Agency rating the Securities of
such Series at levels satisfactory to each Rating Agency or (ii) in an account
or accounts the deposits in which are insured to the maximum extent available by
the FDIC or which are secured in a manner meeting requirements established by
each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, the funds
held in the Collection Account may be invested, pending remittance to the
Trustee, in Eligible Investments. If so specified in the related Prospectus
Supplement, the Servicer will be entitled to receive as additional compensation
any interest or other income earned on funds in the Collection Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Depositor, the Trustee or the Seller, as appropriate, will deposit
into the Collection Account for each Series on the Business Day following the
Closing Date any amounts representing Scheduled Payments due after the related
Cut-off Date but received by the Servicer on or before the Closing Date, and
thereafter, within two business days after the date of receipt thereof, the
following payments and collections received or made by it (other than, unless
otherwise provided in the related Prospectus Supplement, in respect of principal
of and interest on the related Primary Assets due on or before such Cut-off
Date):
(i) All payments on account of principal, including prepayments, on such
Primary Assets;
(ii) All payments on account of interest on such Primary Assets after
deducting therefrom, at the discretion of the Servicer but only to the
extent of the amount permitted to be withdrawn or withheld from the
Collection Account in accordance with the related Agreement, the Servicing
Fee in respect of such Primary Assets;
(iii) All amounts received by the Servicer in connection with the
liquidation of Primary Assets or property acquired in respect thereof,
whether through foreclosure, sale, repossession or otherwise, including
payments in connection with such Primary Assets received from the obligor,
other than amounts required to be paid or refunded to the obligor pursuant
to the terms of the applicable loan documents or otherwise pursuant to law
('Liquidation Proceeds'), exclusive of, in the discretion of the Servicer,
but only to the extent of the amount permitted to be withdrawn from the
Collection Account in accordance with the related Agreement, the Servicing
Fee, if any, in respect of the related Primary Asset;
(iv) All proceeds under any title insurance, hazard insurance or other
insurance policy covering any such Primary Asset, other than proceeds to be
applied to the restoration or repair of the related Property or released to
the obligor in accordance with the related Agreement;
(v) All amounts required to be deposited therein from any applicable
Reserve Fund for such Series pursuant to the related Agreement;
(vi) All Advances made by the Servicer required pursuant to the related
Agreement; and (vii) All repurchase prices of any such Primary Assets
repurchased by the Depositor, the Servicer or the Seller pursuant to the
related Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is permitted, from time to time, to make withdrawals from the
Collection Account for each Series for the following purposes:
(i) to reimburse itself for Advances for such Series made by it pursuant
to the related Agreement; the Servicer's right to reimburse itself is
limited to amounts received on or in respect of particular Loans (including,
for this purpose, Liquidation Proceeds and amounts representing proceeds of
insurance policies covering the related Property) which represent late
recoveries of Scheduled Payments respecting which any such Advance was made;
(ii) to the extent provided in the related Agreement, to reimburse
itself for any Advances for such Series that the Servicer determines in good
faith it will be unable to recover from amounts representing late recoveries
of Scheduled Payments respecting which such Advance was made or from
Liquidation Proceeds or the proceeds of insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for liquidation
expenses and for amounts expended by it in good faith in connection with the
restoration of damaged Property and, in the event deposited in the
Collection Account and not previously withheld, and to the extent that
Liquidation Proceeds after such reimbursement exceed the outstanding
principal balance of the related Loan, together with accrued and unpaid
interest thereon to the Due Date for such Loan next succeeding the date of
its receipt of such
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Liquidation Proceeds, to pay to itself out of such excess the amount of any
unpaid Servicing Fee and any assumption fees, late payment charges, or other
charges on the related Loan;
(iv) in the event it has elected not to pay itself the Servicing Fee out
of the interest component of any Scheduled Payment, late payment or other
recovery with respect to a particular Loan prior to the deposit of such
Scheduled Payment, late payment or recovery into the Collection Account, to
pay to itself the Servicing Fee, as adjusted pursuant to the related
Agreement, from any such Scheduled Payment, late payment or such other
recovery, to the extent permitted by the related Agreement;
(v) to reimburse itself for expenses incurred by and recoverable by or
reimbursable to it pursuant to the related Agreement;
(vi) to pay to the applicable person with respect to each Primary Asset
or REO Property acquired in respect thereof that has been repurchased or
removed from the Trust Fund by the Depositor, the Servicer or the Seller
pursuant to the related Agreement, all amounts received thereon and not
distributed as of the date on which the related repurchase price was
determined;
(vii) to make payments to the Trustee of such Series for deposit into
the Distribution Account, if any, or for remittance to the Holders of such
Series in the amounts and in the manner provided for in the related
Agreement; and
(viii) to clear and terminate the Collection Account pursuant to the
related Agreement.
In addition, if the Servicer deposits in the Collection Account for a Series
any amount not required to be deposited therein, it may, at any time, withdraw
such amount from such Collection Account.
ADVANCES AND LIMITATIONS THEREON
The related Prospectus Supplement will describe the circumstances, if any,
under which the Servicer will make Advances with respect to delinquent payments
on Loans. If specified in the related Prospectus Supplement, the Servicer will
be obligated to make Advances, and such obligation may be limited in amount, or
may not be activated until a certain portion of a specified Reserve Fund is
depleted. Advances are intended to provide liquidity and, except to the extent
specified in the related Prospectus Supplement, not to guarantee or insure
against losses. Accordingly, any funds advanced are recoverable by the Servicer
out of amounts received on particular Loans which represent late recoveries of
principal or interest, proceeds of insurance policies or Liquidation Proceeds
respecting which any such Advance was made. If an Advance is made and
subsequently determined to be nonrecoverable from late collections, proceeds of
insurance policies, or Liquidation Proceeds from the related Loan, the Servicer
may be entitled to reimbursement from other funds in the Collection Account or
Distribution Account, as the case may be, or from a specified Reserve Fund as
applicable, to the extent specified in the related Prospectus Supplement.
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
Standard Hazard Insurance; Flood Insurance. Except as otherwise specified in
the related Prospectus Supplement, the Servicer will be required to maintain or
to cause the obligor on each Loan to maintain a standard hazard insurance policy
providing coverage of the standard form of fire insurance with extended coverage
for certain other hazards as is customary in the state in which the related
Property is located. The standard hazard insurance policies will provide for
coverage at least equal to the applicable state standard form of fire insurance
policy with extended coverage for property of the type securing the related
Loans. In general, the standard form of fire and extended coverage policy will
cover physical damage to or destruction of, the related Property caused by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion,
subject to the conditions and exclusions particularized in each policy. Because
the standard hazard insurance policies relating to the Loans will be
underwritten by different hazard insurers and will cover Properties located in
various states, such policies will not contain identical terms and conditions.
The basic terms, however, generally will be determined by state law and
generally will be similar. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides
and mudflows), nuclear reaction, 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. Uninsured risks not covered
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by a special hazard insurance policy or other form of Enhancement will adversely
affect distributions to Holders. When a Property securing a Loan is located in a
flood area identified by HUD pursuant to the Flood Disaster Protection Act of
1973, as amended, the Servicer will be required to cause flood insurance to be
maintained with respect to such Property, to the extent available.
The standard hazard insurance policies covering Properties securing Loans
typically will contain a 'coinsurance' clause which, in effect, will require the
insured at all times to carry hazard insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the Property, including
the improvements on any Property, in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified percentage,
such clause will provide that the hazard insurer's liability in the event of
partial loss will not exceed the greater of (i) the actual cash value (the
replacement cost less physical depreciation) of the Property, including the
improvements, if any, damaged or destroyed or (ii) such proportion of the loss,
without deduction for depreciation, as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such Property and
improvements. Since the amount of hazard insurance to be maintained on the
improvements securing the Loans declines as the principal balances owing thereon
decrease, and since the value of the Properties will fluctuate in value over
time, the effect of this requirement in the event of partial loss may be that
hazard insurance proceeds will be insufficient to restore fully the damage to
the affected Property.
Unless otherwise specified in the related Prospectus Supplement, coverage
will be in an amount at least equal to the greater of (i) the amount necessary
to avoid the enforcement of any co-insurance clause contained in the policy or
(ii) the outstanding principal balance of the related Loan. Unless otherwise
specified in the related Prospectus Supplement, the Servicer will also maintain
on REO Property that secured a defaulted Loan and that has been acquired upon
foreclosure, deed in lieu of foreclosure, or repossession, a standard hazard
insurance policy in an amount that is at least equal to the maximum insurable
value of such REO Property. No earthquake or other additional insurance will be
required of any obligor or will be maintained on REO Property acquired in
respect of a defaulted Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and shall require such additional
insurance.
Any amounts collected by the Servicer under any such policies of insurance
(other than amounts to be applied to the restoration or repair of the Property,
released to the obligor in accordance with normal servicing procedures or used
to reimburse the Servicer for amounts to which it is entitled to reimbursement)
will be deposited in the Collection Account. In the event that the Servicer
obtains and maintains a blanket policy insuring against hazard losses on all of
the Loans, written by an insurer then acceptable to each Rating Agency which
assigns a rating to such Series, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a standard hazard insurance
policy for each Loan or related REO Property. This blanket policy may contain a
deductible clause, in which case the Servicer will be required, in the event
that there has been a loss that would have been covered by such policy absent
such deductible clause, to deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of the application of such
deductible clause.
REALIZATION UPON DEFAULTED LOANS
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Properties
securing the related Loans as come into and continue in default and as to which
no satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer will
follow such practices and procedures as it deems necessary or advisable and as
are normal and usual in its servicing activities with respect to comparable
loans serviced by it. However, the Servicer will not be required to expend its
own funds in connection with any foreclosure or towards the restoration of the
Property unless it determines that (i) such restoration or foreclosure will
increase the Liquidation Proceeds in respect of the related Loan available to
the Holders after reimbursement to itself for such expenses and (ii) such
expenses will be recoverable by it either through Liquidation Proceeds or the
proceeds of insurance. Notwithstanding anything to the contrary herein, in the
case of a Trust Fund for which a REMIC election has been made, the Servicer will
be required to liquidate any Property acquired through foreclosure within two
years after the acquisition of the beneficial ownership of such Property. While
the holder of a Property acquired through foreclosure can often maximize its
recovery by providing financing to a new
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purchaser, the Trust Fund, if applicable, will have no ability to do so and
neither the Servicer nor the Depositor will be required to do so.
The Servicer may arrange with the obligor on a defaulted Loan a modification
of such Loan (a 'Modification') to the extent provided in the related Prospectus
Supplement. Such Modifications may only be entered into if they meet the
underwriting policies and procedures employed by the Servicer in servicing
receivables for its own account and meet the other conditions set forth in the
related Prospectus Supplement.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement for a
Series, when any Property is about to be conveyed by the obligor, the Servicer
will, to the extent it has knowledge of such prospective conveyance and prior to
the time of the consummation of such conveyance, exercise its rights to
accelerate the maturity of the related Loan under the applicable 'due-on-sale'
clause, if any, unless it reasonably believes that such clause is not
enforceable under applicable law or if the enforcement of such clause would
result in loss of coverage under any primary mortgage insurance policy. In such
event, the Servicer is authorized to accept from or enter into an assumption
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 Loan and
pursuant to which the original obligor is released from liability and such
person is substituted as the obligor and becomes liable under the Loan. Any fee
collected in connection with an assumption will be retained by the Servicer as
additional servicing compensation. The terms of a Loan may not be changed in
connection with an assumption.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Except as otherwise provided in the related Prospectus Supplement, the
Servicer will be entitled to a periodic fee as servicing compensation (the
'Servicing Fee') in an amount to be determined as specified in the related
Prospectus Supplement. The Servicing Fee may be fixed or variable, as specified
in the related Prospectus Supplement. In addition, unless otherwise specified in
the related Prospectus Supplement, the Servicer will be entitled to servicing
compensation in the form of assumption fees, late payment charges and similar
items, or excess proceeds following disposition of Property in connection with
defaulted Loans.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay certain expenses incurred in connection with the servicing of
the Loans, including, without limitation, the payment of the fees and expenses
of the Trustee and independent accountants, payment of insurance policy premiums
and the cost of credit support, if any, and payment of expenses incurred in
preparation of reports to Holders.
When an obligor makes a principal prepayment in full between Due Dates on
the related Loan, the obligor will generally be required to pay interest on the
amount prepaid only to the date of prepayment. If and to the extent provided in
the related Prospectus Supplement in order that one or more Classes of the
Holders of a Series will not be adversely affected by any resulting shortfall in
interest, the amount of the Servicing Fee may be reduced to the extent necessary
to include in the Servicer's remittance to the Trustee for deposit into the
Distribution Account an amount equal to one month's interest on the related Loan
(less the Servicing Fee). If the aggregate amount of such shortfalls in a month
exceeds the Servicing Fee for such month, a shortfall to Holders may occur.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be entitled to reimbursement for certain expenses incurred by it
in connection with the liquidation of defaulted Loans. The related Holders will
suffer no loss by reason of such expenses to the extent expenses are covered
under related insurance policies or from excess Liquidation Proceeds. If claims
are either not made or paid under the applicable insurance policies or if
coverage thereunder has been exhausted, the related Holders will suffer a loss
to the extent that Liquidation Proceeds, after reimbursement of the Servicer's
expenses, are less than the outstanding principal balance of and unpaid interest
on the related Loan which would be distributable to Holders. In addition, the
Servicer will be entitled to reimbursement of expenditures incurred by it in
connection with the restoration of property securing a defaulted Loan, such
right of reimbursement being prior to the rights of the Holders to receive any
related proceeds of insurance policies, Liquidation Proceeds or amounts derived
from other Enhancement. The Servicer is generally also entitled to reimbursement
from the Collection Account for Advances.
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Unless otherwise specified in the related Prospectus Supplement, the rights
of the Servicer to receive funds from the Collection Account for a Series,
whether as the Servicing Fee or other compensation, or for the reimbursement of
Advances, expenses or otherwise, are not subordinate to the rights of Holders of
such Series.
EVIDENCE AS TO COMPLIANCE
If so specified in the related Prospectus Supplement, the applicable
Agreement for each Series will provide that each year, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that
such firm has examined certain documents and records relating to the servicing
of the Loans by the Servicer and that, on the basis of such examination, such
firm is of the opinion that the servicing has been conducted in compliance with
such Agreement, except for (i) such exceptions as such firm believes to be
immaterial and (ii) such other exceptions as are set forth in such statement.
If so specified in the related Prospectus Supplement, the applicable
Agreement for each Series will also provide for delivery to the Trustee for such
Series of an annual statement signed by an officer of the Servicer to the effect
that the Servicer has fulfilled its obligations under such Agreement throughout
the preceding calendar year.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer for each Series will be identified in the related Prospectus
Supplement. The Servicer may be an affiliate of the Depositor and may have other
business relationships with the Depositor and its affiliates.
If an Event of Default occurs under either a Servicing Agreement or a
Pooling and Servicing Agreement, the Servicer may be replaced by the Trustee or
a successor Servicer. Unless otherwise specified in the related Prospectus
Supplement, such Events of Default and the rights of the Trustee upon such a
default under the Agreement for the related Series will be substantially similar
to those described under 'THE AGREEMENTS -- Events of Default; Rights Upon Event
of Default -- Pooling and Servicing Agreement; Servicing Agreement' herein.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer does not have the right to assign its rights and delegate its duties
and obligations under the related Agreement for each Series unless the successor
Servicer accepting such assignment or delegation (i) services similar loans in
the ordinary course of its business, (ii) is reasonably satisfactory to the
Trustee for the related Series, (iii) has a net worth of not less than the
amount specified in the related Prospectus Supplement, (iv) would not cause any
Rating Agency's rating of the Securities for such Series in effect immediately
prior to such assignment, sale or transfer to be qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer and (v) executes and
delivers to the Trustee an agreement, in form and substance reasonably
satisfactory to the Trustee, which contains an assumption by such Servicer of
the due and punctual performance and observance of each covenant and condition
to be performed or observed by the Servicer under the related Agreement from and
after the date of such agreement. No such assignment will become effective until
the Trustee or a successor Servicer has assumed the servicer's obligations and
duties under the related Agreement. To the extent that the Servicer transfers
its obligations to a wholly-owned subsidiary or affiliate, such subsidiary or
affiliate need not satisfy the criteria set forth above; however, in such
instance, the assigning Servicer will remain liable for the servicing
obligations under the related Agreement. Any entity into which the Servicer is
merged or consolidated or any successor corporation resulting from any merger,
conversion or consolidation will succeed to the Servicer's obligations under the
related Agreement provided that such successor or surviving entity meets the
requirements for a successor Servicer set forth above.
Except to the extent otherwise provided therein, each Agreement will provide
that neither the Servicer, nor any director, officer, employee or agent of the
Servicer, will be under any liability to the related Trust Fund, the Depositor
or the Holders for any action taken or for failing to take any action in good
faith pursuant to the related Agreement, or for errors in judgment; provided,
however, that neither the Servicer nor any such person will be protected against
any breach of warranty or representations made under such Agreement or the
failure to perform its obligations in compliance with any standard of care set
forth in such Agreement, or liability which would otherwise be imposed by reason
of willful misfeasance, bad faith or negligence in the performance of their
duties or by reason of reckless disregard of their obligations and duties
thereunder. Each Agreement will further provide that the Servicer and any
director, officer, employee or agent of the Servicer is entitled to
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indemnification from the related Trust Fund and will be held harmless against
any loss, liability or expense incurred in connection with any legal action
relating to the Agreement or the Securities, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the related Agreement will
provide that the Servicer is not under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its servicing
responsibilities under such Agreement which, in its opinion, may involve it in
any expense or liability. The Servicer may, in its discretion, undertake any
such action which it may deem necessary or desirable with respect to the related
Agreement and the rights and duties of the parties thereto and the interests of
the Holders thereunder. In such event the legal expenses and costs of such
action and any liability resulting therefrom may be expenses, costs, and
liabilities of the Trust Fund and the Servicer may be entitled to be reimbursed
therefor out of the Collection Account.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the related Agreements.
ASSIGNMENT OF PRIMARY ASSETS
General. At the time of issuance of the Securities of a Series, the
Depositor will transfer, convey and assign to the Trust Fund all right, title
and interest of the Depositor in the Primary Assets and other property to be
transferred to the Trust Fund for a Series. Such assignment will include all
principal and interest due on or with respect to the Primary Assets after the
Cut-off Date specified in the related Prospectus Supplement (except for any
Retained Interests). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
Assignment of Loans. Unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Loan, deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus Supplement
a custodian on behalf of the Trustee (the 'Custodian'), the Mortgage Note
endorsed without recourse to the order of the Trustee or in blank, the original
Mortgage with evidence of recording indicated thereon (except for any Mortgage
not returned from the public recording office, in which case a copy of such
Mortgage will be delivered, together with a certificate that the original of
such Mortgage was delivered to such recording office) and an assignment of the
Mortgage in recordable form. The Trustee, or, if so specified in the related
Prospectus Supplement, the Custodian, will hold such documents in trust for the
benefit of the Holders.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will as to each Home Improvement Contract deliver or cause to be
delivered to the Trustee (or the Custodian) the original Home Improvement
Contract and copies of documents and instruments related to each Home
Improvement Contract and, other than in the case of unsecured Home Improvement
Contracts, the security interest in the property securing such Home Improvement
Contract. In order to give notice of the right, title and interest of
Securityholders to the Home Improvement Contracts, the Depositor will cause a
UCC-1 financing statement to be executed by the Depositor or the Seller
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Home Improvement Contracts will not be stamped or
otherwise marked to reflect their assignment to the Trust. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Home Improvement Contracts without notice of such
assignment, the interest of Securityholders in the Home Improvement Contracts
could be defeated. See 'CERTAIN LEGAL ASPECTS OF LOANS -- The Home Improvement
Contracts.'
With respect to Loans secured by Mortgages, if so specified in the related
Prospectus Supplement, the Depositor will, at the time of issuance of the
Securities, cause assignments to the Trustee of the Mortgages relating to the
Loans for a Series to be recorded in the appropriate public office for real
property records, except in states where, in the opinion of counsel acceptable
to the Trustee, such recording is not required to protect the Trustee's interest
in the related Loans. If specified in the related Prospectus Supplement, the
Depositor will cause such assignments to be so recorded within the time after
issuance of the Securities as is specified in the related Prospectus Supplement,
in which event, the Agreement may, as specified in the related Prospectus
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Supplement, require the Depositor to repurchase from the Trustee any Loan the
related Mortgage of which is not recorded within such time, at the price
described below with respect to repurchases by reason of defective
documentation. Unless otherwise provided in the related Prospectus Supplement,
the enforcement of the repurchase obligation would constitute the sole remedy
available to the Holders or the Trustee for the failure of a Mortgage to be
recorded.
Each Loan will be identified in a schedule appearing as an exhibit to the
related Agreement (the 'Loan Schedule'). Such Loan Schedule will specify with
respect to each Loan: the original principal amount and unpaid principal balance
as of the Cut-off Date; the current interest rate; the current Scheduled Payment
of principal and interest; the maturity date, if any, of the related Mortgage
Note; if the Loan is an adjustable rate Loan, the Lifetime Rate Cap, if any, and
the current index.
Assignment of Private Securities. The Depositor will cause Private
Securities to be registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its nominee or correspondent) will have
possession of any certificated Private Securities. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will not be in possession of or
be assignee of record of any underlying assets for a Private Security. See 'THE
TRUST FUNDS -- Private Securities' herein. Each Private Security will be
identified in a schedule appearing as an exhibit to the related Agreement (the
'Certificate Schedule'), which will specify the original principal amount,
outstanding principal balance as of the Cut-off Date, annual pass-through rate
or interest rate and maturity date for each Private Security conveyed to the
Trust Fund. In the Agreement, the Depositor will represent and warrant to the
Trustee regarding the Private Securities: (i) that the information contained in
the Certificate Schedule is true and correct in all material respects; (ii)
that, immediately prior to the conveyance of the Private Securities, the
Depositor had good title thereto, and was the sole owner thereof (subject to any
Retained Interest); (iii) that there has been no other sale by it of such
Private Securities; and (iv) that there is no existing lien, charge, security
interest or other encumbrance (other than any Retained Interest) on such Private
Securities.
Repurchase and Substitution of Non-Conforming Primary Assets. Unless
otherwise provided in the related Prospectus Supplement, if any document in the
file relating to the Primary Assets delivered by the Depositor to the Trustee
(or Custodian) is found by the Trustee within 90 days of the execution of the
related Agreement (or promptly after the Trustee's receipt of any document
permitted to be delivered after the Closing Date) to be defective in any
material respect and the Depositor or Seller does not cure such defect within 90
days, or within such other period specified in the related Prospectus
Supplement, the Depositor or Seller will, not later than 90 days or within such
other period specified in the related Prospectus Supplement, after the Trustee's
notice to the Depositor or the Seller, as the case may be, of the defect,
repurchase the related Primary Asset or any property acquired in respect thereof
from the Trustee at a price equal to, unless otherwise specified in the related
Prospectus Supplement, (a) the lesser of (i) the outstanding principal balance
of such Primary Asset and (ii) the Trust Fund's federal income tax basis in the
Primary Asset and (b) accrued and unpaid interest to the date of the next
scheduled payment on such Primary Asset at the rate set forth in the related
Agreement, provided, however, the purchase price shall not be limited in (i)
above to the Trust Fund's federal income tax basis if the repurchase at a price
equal to the outstanding principal balance of such Primary Asset will not result
in any prohibited transaction tax under Section 860F(a) of the Code.
If provided in the related Prospectus Supplement, the Depositor or Seller,
as the case may be, may, rather than repurchase the Primary Asset as described
above, remove such Primary Asset from the Trust Fund (the 'Deleted Primary
Asset') and substitute in its place one or more other Primary Assets (each, a
'Qualifying Substitute Primary Asset') provided, however, that (i) with respect
to a Trust Fund for which no REMIC election is made, such substitution must be
effected within 120 days of the date of initial issuance of the Securities and
(ii) with respect to a Trust Fund for which a REMIC election is made, after a
specified time period, the Trustee must have received a satisfactory opinion of
counsel that such substitution will not cause the Trust Fund to lose its status
as a REMIC or otherwise subject the Trust Fund to a prohibited transaction tax.
Unless otherwise specified in the related Prospectus Supplement, any
Qualifying Substitute Primary Asset will have, on the date of substitution, (i)
an outstanding principal balance, after deduction of all Scheduled Payments due
in the month of substitution, not in excess of the outstanding principal balance
of the Deleted Primary Asset (the amount of any shortfall to be deposited to the
Collection Account in the month of substitution for distribution to Holders),
(ii) an interest rate not less than (and not more than 2% greater than) the
interest rate of the Deleted Primary Asset, (iii) a remaining term-to-stated
maturity not greater than (and not
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more than two years less than) that of the Deleted Primary Asset, and will
comply with all of the representations and warranties set forth in the
applicable Agreement as of the date of substitution.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the sole
remedies available to the Holders or the Trustee for a material defect in a
document for a Primary Asset.
The Depositor or another entity will make representations and warranties
with respect to Primary Assets for a Series. If the Depositor or such entity
cannot cure a breach of any such representations and warranties in all material
respects within the time period specified in the related Prospectus Supplement
after notification by the Trustee of such breach, and if such breach is of a
nature that materially and adversely affects the value of such Primary Asset,
the Depositor or such entity is obligated to repurchase the affected Primary
Asset or, if provided in the related Prospectus Supplement, provide a Qualifying
Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations,
if any, of the responsible originator or Seller of such Primary Assets. See
'RISK FACTORS -- Primary Assets Are Only Source of Repayment.'
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Agreement for such
Series to institute any proceeding with respect to such Agreement, unless such
Holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Securities evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series 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 has neglected or refused to institute any such proceeding.
REPORTS TO HOLDERS
The Trustee or other entity specified in the related Prospectus Supplement
will prepare and forward to each Holder on each Distribution Date, or as soon
thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
(i) the amount of principal distributed to Holders of the related
Securities and the outstanding principal balance of such Securities
following such distribution;
(ii) the amount of interest distributed to Holders of the related
Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included in such
distribution, (b) any remaining overdue accrued interest with respect to
such Securities or (c) any current shortfall in amounts to be distributed as
accrued interest to Holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled principal
included in such distribution, (b) any remaining overdue principal amounts
with respect to such Securities, (c) any current shortfall in receipt of
scheduled principal payments on the related Primary Assets or (d) any
realized losses or Liquidation Proceeds to be allocated as reductions in the
outstanding principal balances of such Securities;
(v) the amount received under any related Enhancement, and the remaining
amount available under such Enhancement;
(vi) the amount of any delinquencies with respect to payments on the
related Primary Assets;
(vii) the book value of any REO Property acquired by the related Trust
Fund; and
(viii) such other information as specified in the related Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related Prospectus
Supplement, will furnish to each Holder of record at any time during such
calendar year (a) the aggregate of amounts reported pursuant to (i), (ii), and
(iv)(d) above for such calendar year and (b) such information specified in the
related Agreement to enable Holders to prepare their tax returns including,
without limitation, the amount of original issue discount accrued on the
Securities, if applicable. Information in the Distribution Date and annual
statements provided to the Holders will not have been examined and reported upon
by an independent public accountant. However, the Servicer will provide to
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the Trustee a report by independent public accountants with respect to the
Servicer's servicing of the Loans. See 'SERVICING OF LOANS -- Evidence as to
Compliance' herein.
If so specified in the Prospectus Supplement for a Series of Securities,
such Series or one or more Classes of such Series will be issued in book-entry
form. In such event, owners of beneficial interests in such Securities will not
be considered Holders and will not receive such reports directly from the
Trustee. The Trustee will forward such reports only to the entity or its nominee
which is the registered holder of the global certificate which evidences such
book-entry securities. Beneficial owners will receive such reports from the
participants and indirect participants of the applicable book-entry system in
accordance with the practices and procedures of such entities.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Servicing Agreement. Unless otherwise
specified in the related Prospectus Supplement, Events of Default under the
Pooling and Servicing Agreement for each Series of Certificates relating to
Loans include (i) any failure by the Servicer to deposit amounts in the
Collection Account and Distribution Account to enable the Trustee to distribute
to Holders of such Series any required payment, which failure continues
unremedied for the number of days specified in the related Prospectus Supplement
after the giving of written notice of such failure to the Servicer by the
Trustee for such Series, or to the Servicer and the Trustee by the Holders of
such Series evidencing not less than 25% of the aggregate voting rights of the
Securities for such Series, (ii) any failure by the Servicer duly to observe or
perform in any material respect any other of its covenants or agreements in the
applicable Agreement which continues unremedied for the number of days specified
in the related Prospectus Supplement after the giving of written notice of such
failure to the Servicer by the Trustee, or to the Servicer and the Trustee by
the Holders of such Series evidencing not less than 25% of the aggregate voting
rights of the Securities for such Series, and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by the Servicer indicating its
insolvency, reorganization or inability to pay its obligations.
So long as an Event of Default remains unremedied under the applicable
Agreement for a Series of Securities relating to the servicing of Loans, unless
otherwise specified in the related Prospectus Supplement, the Trustee for such
Series or Holders of Securities of such Series evidencing not less than 51% of
the aggregate voting rights of the Securities for such Series may terminate all
of the rights and obligations of the Servicer as servicer under the applicable
Agreement (other than its right to recovery of other expenses and amounts
advanced pursuant to the terms of such Agreement which rights the Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Agreement
and will be entitled to reasonable servicing compensation not to exceed the
applicable servicing fee, together with other servicing compensation in the form
of assumption fees, late payment charges or otherwise as provided in such
Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth specified in
the related Prospectus Supplement to act as successor Servicer under the
provisions of the applicable Agreement. The successor Servicer would be entitled
to reasonable servicing compensation in an amount not to exceed the Servicing
Fee as set forth in the related Prospectus Supplement, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise, as provided in such Agreement.
During the continuance of any Event of Default of a Servicer under an
Agreement for a Series of Securities, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Holders of such Series, and, unless
otherwise specified in the related Prospectus Supplement, Holders of Securities
evidencing not less than 51% of the aggregate voting rights of the Securities
for such Series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Holders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
therein or thereby. The Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the nonassenting Holders.
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Indenture. Unless otherwise specified in the related Prospectus Supplement,
Events of Default under the Indenture for each Series of Notes include: (i) a
default for thirty (30) days or more in the payment of any principal of or
interest on any Note of such Series; (ii) failure to perform any other covenant
of the Depositor or the Trust Fund in the Indenture which continues for a period
of sixty (60) 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 Depositor 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 sixty (60) 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 Depositor
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, either 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 Zero
Coupon 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 Notes of such Series.
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 distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds 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 other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, 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 involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, 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 distribution to the
Noteholders may 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.
Unless otherwise specified in the related Prospectus Supplement, 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 which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any of
the Holders of Notes of such Series, unless such Holders offered to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the Holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the Holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default
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with respect thereto, except a default in the payment of principal or interest
or a default in respect of a covenant or provision of the Indenture that cannot
be modified without the waiver or consent of all the Holders of the outstanding
Notes of such Series affected thereby.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or trust
company named as the Trustee for each Series of Securities will be set forth in
the related Prospectus Supplement. The entity serving as Trustee may have normal
banking relationships with the Depositor or the Servicer. In addition, for the
purpose of meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint co-trustees or separate trustees of all
or any part of the Trust Fund relating to a Series of Securities. In the event
of such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the Agreement relating to such Series will be
conferred or imposed upon the Trustee and each such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the Trustee, which
agents will have any or all of the rights, powers, duties and obligations of the
Trustee conferred on them by such appointment; provided that the Trustee will
continue to be responsible for its duties and obligations under the Agreement.
DUTIES OF THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any Primary Asset or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the Holders
or the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure to
act, or for its own misconduct; provided, however, that the Trustee will not be
personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the Holders in an
Event of Default. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the Agreement, or in the exercise of any of its rights or powers, if it
has reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Depositor, resign at any time,
in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) if the Trustee ceases to be eligible to continue as such
under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
Holders of Securities evidencing over 50% of the aggregate voting rights of the
Securities in the Trust Fund upon written notice to the Trustee and to the
Depositor. 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.
AMENDMENT OF AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Agreement for
each Series of Securities may be amended by the Depositor, the Servicer (with
respect to a Series relating to Loans), and the Trustee with respect to such
Series, without notice to or consent of the Holders (i) to cure any ambiguity,
(ii) to correct any defective provisions or to correct or supplement any
provision therein, (iii) to add to the duties of the Depositor, the Trust Fund
or Servicer, (iv) to add any other provisions with respect to matters or
questions arising under
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such Agreement or related Enhancement, (v) to add or amend any provisions of
such Agreement as required by a Rating Agency in order to maintain or improve
the rating of the Securities (it being understood that none of the Depositor,
the Seller, the Servicer or Trustee is obligated to maintain or improve such
rating), or (vi) to comply with any requirements imposed by the Code; provided
that any such amendment except pursuant to clause (vi) above will not adversely
affect in any material respect the interests of any Holders of such Series, as
evidenced by an opinion of counsel. Any such amendment except pursuant to clause
(vi) of the preceding sentence shall be deemed not to adversely affect in any
material respect the interests of any Holder if the Trustee receives written
confirmation from each Rating Agency rating such Securities that such amendment
will not cause such Rating Agency to reduce the then current rating thereof.
Unless otherwise specified in the Prospectus Supplement, the Agreement for each
Series may also be amended by the Trustee, the Servicer, if applicable, and the
Depositor with respect to such Series with the consent of the Holders possessing
not less than 66 2/3% of the aggregate outstanding principal amount of the
Securities of such Series or, if only certain Classes of such Series are
affected by such amendment, 66 2/3% of the aggregate outstanding principal
amount of the Securities of each Class of such Series affected thereby, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Agreement or modifying in any manner the rights of
Holders of such Series; provided, however, that no such amendment may
(a) reduce the amount or delay the timing of payments on any Security without
the consent of the Holder of such Security; or (b) reduce the aforesaid
percentage of the aggregate outstanding principal amount of Securities of each
Class, the Holders of which are required to consent to any such amendment
without the consent of the Holders of 100% of the aggregate outstanding
principal amount of each Class of Securities affected thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of determining
allocation of voting rights with respect to a Series.
LIST OF HOLDERS
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the Agreement, which request is accompanied by a copy of the communication which
such Holders propose to transmit, the Trustee will afford such Holders access
during business hours to the most recent list of Holders of that Series held by
the Trustee.
No Agreement will provide for the holding of any annual or other meeting of
Holders.
BOOK-ENTRY SECURITIES
If specified in the Prospectus Supplement for a Series of Securities, such
Series or one or more Classes of such Series may be issued in book-entry form.
In such event, beneficial owners of such Securities will not be considered
'Holders' under the Agreements and may exercise the rights of Holders only
indirectly through the participants in the applicable book-entry system.
REMIC ADMINISTRATOR
For any Series with respect to which a REMIC election is made, preparation
of certain reports and certain other administrative duties with respect to the
Trust Fund may be performed by a REMIC administrator, who may be an affiliate of
the Depositor.
TERMINATION
Pooling and Servicing Agreement; Trust Agreement. The obligations created by
the Pooling and Servicing Agreement or Trust Agreement for a Series will
terminate upon the distribution to Holders of all amounts distributable to them
pursuant to such Agreement after the earlier of (i) the later of (a) the final
payment or other liquidation of the last Primary Asset remaining in the Trust
Fund for such Series and (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure or repossession in respect of any
Primary Asset or (ii) the repurchase, as described below, by the Servicer or
other entity specified in the related Prospectus Supplement from the Trustee for
such Series of all Primary Assets and other property at that time
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subject to such Agreement. The Agreement for each Series permits, but does not
require, the Servicer or other entity specified in the related Prospectus
Supplement to purchase from the Trust Fund for such Series all remaining Primary
Assets at a price equal to, unless otherwise specified in the related Prospectus
Supplement, 100% of the aggregate Principal Balance of such Primary Assets plus,
with respect to any property acquired in respect of a Primary Asset, if any, the
outstanding Principal Balance of the related Primary Asset at the time of
foreclosure, less, in either case, related unreimbursed Advances (in the case of
the Primary Assets, only to the extent not already reflected in the computation
of the aggregate Principal Balance of such Primary Assets) and unreimbursed
expenses (that are reimbursable pursuant to the terms of the Pooling and
Servicing Agreement) plus, in either case, accrued interest thereon at the
weighted average rate on the related Primary Assets through the last day of the
Due Period in which such repurchase occurs; provided, however, that if an
election is made for treatment as a REMIC under the Code, the repurchase price
may equal the greater of (a) 100% of the aggregate Principal Balance of such
Primary Assets, plus accrued interest thereon at the applicable net rates on the
Primary Assets through the last day of the month of such repurchase and (b) the
aggregate fair market value of such Primary Assets plus the fair market value of
any property acquired in respect of a Primary Asset and remaining in the Trust
Fund. The exercise of such right will effect early retirement of the Securities
of such Series, but such entity's right to so purchase is subject to the
aggregate Principal Balance of the Primary Assets at the time of repurchase
being less than a fixed percentage, to be set forth in the related Prospectus
Supplement, of the aggregate Principal Balance of the Primary Assets as of the
Cut-off Date. In no event, however, will the trust created by the Agreement
continue beyond the expiration of 21 years from the death of the last survivor
of certain persons identified therein. For each Series, the Servicer or the
Trustee, as applicable, will give written notice of termination of the Agreement
to each Holder, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency specified in the notice of
termination. If so provided in the related Prospectus Supplement for a Series,
the Depositor or another entity may effect an optional termination of the Trust
Fund under the circumstances described in such Prospectus Supplement. See
'DESCRIPTION OF THE SECURITIES -- Optional Redemption, Purchase or Termination'
herein.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans, home improvement installment sales contracts and home
improvement installment loan agreements which are general in nature. Because
certain of such legal aspects are governed by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete nor
reflect the laws of any particular state, nor encompass the laws of all states
in which the properties securing the Loans are situated.
MORTGAGES
The Loans for a Series will, and certain Home Improvement Contracts for a
Series may, be secured by either mortgages or deeds of trust or deeds to secure
debt (such Mortgage Loans and Home Improvement Contracts are hereinafter
referred to in this section as 'mortgage loans'), depending upon the prevailing
practice
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in the state in which the property subject to a mortgage loan is located. The
filing of a mortgage, deed of trust or deed to secure debt creates a lien or
title interest upon the real property covered by such instrument and represents
the security for the repayment of an obligation that is customarily evidenced by
a promissory note. It is not prior to the lien for real estate taxes and
assessments or other charges imposed under governmental police powers and may
also be subject to other liens pursuant to the laws of the jurisdiction in which
the Mortgaged Property is located. Priority with respect to such instruments
depends on their terms, the knowledge of the parties to the mortgage and
generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage, the mortgagor, who is the
borrower/property owner or the land trustee (as described below), and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower/property owner is the
beneficiary; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. A deed of trust transaction
normally has three parties: the trustor, who is the borrower/property owner; the
beneficiary, who is the lender; and the trustee, a third-party grantee. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure payment
of the obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
FORECLOSURE ON MORTGAGES
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, pursuant to a power of sale provided in
the mortgage. Foreclosure of a mortgage by advertisement is essentially similar
to foreclosure of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a nonjudicial
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 certain states, such foreclosure also may
be accomplished by judicial action in the manner provided for foreclosure of
mortgages. In some states, the trustee must record a notice of default and send
a copy to the borrower-trustor and to any person who has recorded a request for
a copy of a notice of default and notice of sale. In addition, the trustee in
some states must provide notice to any other individual having an interest in
the real property, including any junior lienholders. If the deed of trust is not
reinstated within any applicable cure period, a notice of sale must be posted in
a public place and, in most states, published for a specified period of time in
one or more newspapers. In addition, some state laws require that a copy of the
notice of sale be posted on the property and sent to all parties having an
interest of record in the property. The trustor, borrower, or any 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. Generally, state law controls the
amount of foreclosure expenses and costs, including attorney's fees, which may
be recovered by a lender. If the deed of trust is not reinstated, a notice of
sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the property, recorded
and sent to all parties having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the
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mortgagor's default was neither willful nor in bad faith or the mortgagee's
action established a waiver, fraud, bad faith, or oppressive or unconscionable
conduct such as to warrant a court of equity to refuse affirmative relief to the
mortgagee. Under certain circumstances a court of equity may relieve the
mortgagor from an entirely technical default where such default was not willful.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring up to
several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
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 potential third party purchasers at the
sale 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 an amount which may be equal to the unpaid
principal amount of the mortgage note secured by the mortgage or deed of trust
plus accrued and unpaid interest and the expenses of foreclosure, in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such a judgment is available. 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, paying taxes 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. Any loss may be reduced by the
receipt of any mortgage guaranty insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the trustor or mortgagor and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. The
right of redemption should be distinguished from the equity of redemption, which
is a non-statutory right that must be exercised prior to the foreclosure sale.
In some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized 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. The exercise of a
right of redemption would defeat the title of any purchaser at a foreclosure
sale, or of any purchaser from the lender subsequent to foreclosure or sale
under a deed of trust. Consequently the practical effect of a right of
redemption is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run. In some states, there is no right
to redeem property after a trustee's sale under a deed of trust.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES
The mortgage loans comprising or underlying the Primary Assets included in
the Trust Fund for a Series will be secured by mortgages or deeds of trust which
may be second or more junior mortgages to other mortgages held by other lenders
or institutional investors. The rights of the Trust Fund (and therefore the
Holders), as mortgagee under a junior mortgage, are subordinate to those of the
mortgagee under the senior mortgage, including the prior rights of the senior
mortgagee to receive hazard insurance and condemnation proceeds and to cause the
property securing the mortgage loan to be sold upon default of the mortgagor,
thereby extinguishing the junior mortgagee's lien unless the junior mortgagee
asserts its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. In most states,
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absent a provision in the mortgage or deed of trust, no notice of default is
required to be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders confers
on the mortgagee the right both to receive all proceeds collected under any
hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
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, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the net amount realized
upon the public sale of the real property and the amount due to the lender.
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, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. Finally, other statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure sale to
the excess of the outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws, the Federal
Soldiers' and Sailors' Relief Act and state laws affording relief to debtors,
may interfere with or affect the ability of the secured lender to realize upon
collateral and/or enforce a deficiency judgment. For example, with respect to
federal bankruptcy law, the filing of a petition acts as a stay against the
enforcement of remedies for collection of a debt. Moreover, a court with federal
bankruptcy jurisdiction may permit a debtor through a Chapter 13 Bankruptcy Code
rehabilitative plan to cure a monetary default with respect to a loan on a
debtor's residence by paying arrearages within a reasonable time period and
reinstating the original loan payment schedule even though the lender
accelerated the loan and the lender has taken all steps to realize upon his
security (provided no sale of the property has yet occurred) prior to the filing
of the debtor's Chapter 13 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 loan default by permitting
the obligor to pay arrearages over a number of years.
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Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan may be modified if the borrower has filed a petition
under Chapter 13. These courts have suggested that such modifications may
include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule 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. Federal bankruptcy law and limited case law
indicate that the foregoing modifications could not be applied to the terms of a
loan secured by property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of the
security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded from
foreclosing without authorization from the bankruptcy court. The lender's lien
may be transferred to other collateral and/or be limited in amount to the value
of the lender's interest in the collateral as of the date of the bankruptcy. The
loan term may be extended, the interest rate may be adjusted to market rates and
the priority of the loan may be subordinated to bankruptcy court-approved
financing. The bankruptcy court can, in effect, invalidate due-on-sale clauses
through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the lender's
security. This may delay or interfere with the enforcement of rights in respect
of a defaulted Loan. In addition, substantive requirements are imposed upon
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. The laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal laws impose specific statutory
liabilities upon lenders who originate loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans.
DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of the loan
if the borrower sells or transfers, whether voluntarily or involuntarily, all or
part of the real property securing the loan without the lender's prior written
consent. The enforceability of these clauses has been the subject of legislation
or litigation in many states, and in some cases, typically involving single
family residential mortgage transactions, their enforceability has been limited
or denied. In any event, 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
exceptions. As a result, due-on-sale clauses have become generally enforceable
except in those states whose legislatures exercised their authority to regulate
the enforceability of such clauses with respect to mortgage loans that were
(i) originated or assumed during the 'window period' under the Garn-St Germain
Act which ended in all cases not later than October 15, 1982, and
(ii) originated by lenders other than national banks, federal savings
institutions and federal credit unions. FHLMC has taken the position in its
published mortgage servicing standards that, out of a total of eleven 'window
period states,' five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, 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.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations, upon 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
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loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security, courts
have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his 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 of 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 realize upon his
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing 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 security agreements 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, in cases involving the
sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. The regulations of the Office of Thrift Supervision (the
'OTS') prohibit the imposition of a prepayment penalty or equivalent fee for or
in connection with the acceleration of a loan by exercise of a due-on-sale
clause. A mortgagee to whom a prepayment in full has been tendered may be
compelled to give either a release of the mortgage or an instrument assigning
the existing mortgage. The absence of a restraint on prepayment, particularly
with respect to mortgage loans having higher mortgage rates, may increase the
likelihood of refinancing or other early retirements of such mortgage loans.
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. Similar federal statutes
were in effect with respect to mortgage loans made during the first three months
of 1980. The OTS, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. Title V authorizes any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state law, or by
certifying that the voters of such state have voted in favor of any provision,
constitutional or otherwise, which expressly rejects an application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. 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.
THE HOME IMPROVEMENT CONTRACTS
General. The Home Improvement Contracts, other than those Home Improvement
Contracts that are unsecured or secured by mortgages on real estate (such Home
Improvement Contracts are hereinafter referred to in this section as
'contracts') generally are 'chattel paper' or constitute 'purchase money
security interests' each as defined in the Uniform Commercial Code (the 'UCC').
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related Agreement,
the Depositor will transfer physical possession of the contracts to the Trustee
or a designated custodian or may retain possession of the contracts as custodian
for the Trustee. In addition, the Depositor will make an appropriate filing of a
UCC-1 financing statement in the appropriate states to give notice of the
Trustee's ownership of the contracts. Unless otherwise specified in the related
Prospectus Supplement, the contracts will not be stamped or otherwise marked to
reflect their assignment from the Depositor to the Trustee. Therefore, if
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through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the contracts without notice of such assignment, the
Trustee's interest in the contracts could be defeated.
Security Interests in Home Improvements. The contracts that are secured by
the Home Improvements financed thereby grant to the originator of such contracts
a purchase money security interest in such Home Improvements to secure all or
part of the purchase price of such Home Improvements and related services. A
financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in such Home Improvement must generally be perfected by a timely fixture filing.
In general, under the UCC, a security interest does not exist under the UCC in
ordinary building material incorporated into an improvement on land. Home
Improvement Contracts that finance lumber, bricks, other types of ordinary
building material or other goods that are deemed to lose such characterization,
upon incorporation of such materials into the related property, will not be
secured by a purchase money security interest in the Home Improvement being
financed.
Enforcement of Security Interest in Home Improvements. So long as the Home
Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement securing a contract by voluntary surrender, by
'self-help' repossession that is 'peaceful' (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgement from a debtor for any deficiency on repossession and resale
of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgements, and in many cases the
defaulting borrower would have no assets with which to pay a judgement.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgement.
Consumer Protection Laws. The so-called 'Holder-in-Due-Course' rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
Applicability of Usury Laws. Title V provides that, subject to the following
conditions, state usury limitations shall not apply to any contract which is
secured by a first lien on certain kinds of consumer goods. 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 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
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rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on loans covered by Title V.
INSTALLMENT SALES CONTRACTS
The Loans may also consist of installment sales contracts. Under an
installment sales contract ('Installment Sales Contract') the seller
(hereinafter referred to in this section as the 'lender') retains legal title to
the property and enters into an agreement with the purchaser (hereinafter
referred to in this section as the 'borrower') for the payment of the purchase
price, plus interest, over the term of such contract. Only after full
performance by the borrower of the contract is the lender obligated to convey
title to the property to the purchaser. As with mortgage or deed of trust
financing, during the effective period of the Installment Sales Contract, the
borrower is generally responsible for maintaining the property in good condition
and for paying real estate taxes, assessments and hazard insurance premiums
associated with the property.
The method of enforcing the rights of the lender under an Installment Sales
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of Installment Sales
Contracts generally provide that upon a default by the borrower, the borrower
loses his or her right to occupy the property, the entire indebtedness is
accelerated, and the buyer's equitable interest in the property is forfeited.
The lender in such a situation does not have to foreclose in order to obtain
title to the property, although in some cases a quiet title action is in order
if the borrower has filed the Installment Sales Contract in local land records
and an ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Sales Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Sales Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the borrower
may be granted some grace period during which the Installment Sales Contract may
be reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Sales Contract for the sale of real estate to share in the proceeds
of sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the lender's
procedures for obtaining possession and clear title under an Installment Sales
Contract in a given state are simpler and less time-consuming and costly than
are the procedures for foreclosing and obtaining clear title to a property
subject to one or more liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all
branches of the military on active duty, including draftees and reservists in
military service, (i) are entitled to have interest rates reduced and capped at
6% per annum, on obligations (including Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors and if, in the opinion of the court,
the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a Loan
included in a Trust Fund for a Series is relieved pursuant to the Soldiers' and
Sailors' Civil Relief Act of 1940, none of the Trust Fund, the Servicer, the
Depositor nor the Trustee will be required to advance such amounts, and any loss
in respect thereof may reduce the amounts available to be paid to the Holders of
the Securities of such Series. Unless otherwise specified in the related
Prospectus Supplement, any shortfalls in interest collections on Loans or
Underlying Loans relating to the Private Securities, as applicable, included in
a Trust Fund for a Series resulting from application of the Soldiers' and
Sailors' Civil Relief Act of 1940 will be allocated to each Class of Securities
of such Series that is entitled to receive interest in respect of such Loans or
Underlying Loans in proportion to the interest that each such Class of
Securities would have otherwise been entitled to receive in respect of such
Loans or Underlying Loans had such interest shortfall not occurred.
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THE DEPOSITOR
GENERAL
The Depositor was incorporated in the State of Delaware in June 1995, and is
a wholly-owned subsidiary of The Bear Stearns Companies Inc. The Depositor's
principal executive offices are located at 245 Park Avenue, New York, New York
10167. Its telephone number is (212) 272-4095.
The Depositor will not engage in any activities other than to authorize,
issue, sell, deliver, purchase and invest in (and enter into agreements in
connection with), and/or to engage in the establishment of one or more trusts
which will issue and sell, bonds, notes, debt or equity securities, obligations
and other securities and instruments ('Depositor Securities') collateralized or
otherwise secured or backed by, or otherwise representing an interest in, among
other things, receivables or pass-through certificates, or participations or
certificates of participation or beneficial ownership in one or more pools of
receivables, and the proceeds of the foregoing, that arise in connection with
loans secured by certain first or junior mortgages on real estate or
manufactured housing and any and all other commercial transactions and
commercial, sovereign, student or consumer loans or indebtedness and, in
connection therewith or otherwise, purchasing, acquiring, owning, holding,
transferring, conveying, servicing, selling, pledging, assigning, financing and
otherwise dealing with such receivables, pass-through certificates, or
participations or certificates of participation or beneficial ownership. Article
Third of the Depositor's Certificate of Incorporation limits the Depositor's
activities to the above activities and certain related activities, such as
credit enhancement with respect to such Depositor Securities, and to any
activities incidental to and necessary or convenient for the accomplishment of
such purposes.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series of Securities for one or more of the following purposes:
(i) to purchase the related Primary Assets, (ii) to repay indebtedness which has
been incurred to obtain funds to acquire such Primary Assets, (iii) to establish
any Reserve Funds described in the related Prospectus Supplement and (iv) to pay
costs of structuring and issuing such Securities, including the costs of
obtaining Enhancement, if any. If so specified in the related Prospectus
Supplement, the purchase of the Primary Assets for a Series may be effected by
an exchange of Securities with the Seller of such Primary Assets.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary is based on the opinion of Brown & Wood LLP, special
counsel to the Depositor ('Federal Tax Counsel') as to the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily upon
investors who will hold Securities as 'capital assets' (generally, property held
for investment) within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Prospective investors are
advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the Securities.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness; (ii) an
election is made to treat the Trust Fund relating to a particular Series of
Securities as a real estate mortgage investment conduit ('REMIC') under the
Internal Revenue Code of 1986, as amended (the 'Code'); (iii) the Securities
represent an ownership interest in some or all of the assets included in the
Trust Fund for a Series; or (iv) an election is made to treat the Trust Fund
relating to a particular Series of Certificates as a partnership or a division
of a single holder of all of the equity Securities of a Series.
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The Prospectus Supplement for each Series of Securities will specify how the
Securities will be treated for federal income tax purposes and will discuss
whether a REMIC election, if any, will be made with respect to such Series.
TAXATION OF DEBT SECURITIES
Status of Regular Interest Securities as Real Property Loans. The regular
interests in a REMIC ('Regular Interest Securities') will be 'real estate
assets' for purposes of Section 856(c)(4)(A) of the Code and assets described in
Section 7701(a)(19)(C) of the Code (assets qualifying under one or both of those
sections, applying each section separately, 'qualifying assets') to the extent
that the REMIC's assets are qualifying assets. For purposes of this rule, if at
least 95 percent of the REMIC's assets are qualifying assets, then 100 percent
of the Regular Interest Securities will be qualifying assets. Similarly, income
on the Regular Interest Securities will be treated as 'interest on obligations
secured by mortgages on real property' within the meaning of Section
856(c)(3)(B) of the Code, subject to the limitations of the preceding two
sentences. In addition to Loans, the REMIC's assets will include payments on
Loans held pending distribution to holders of Regular Interest Securities,
amounts in reserve accounts (if any), other credit enhancements (if any) and
possibly buydown funds ('Buydown Funds'). The Loans generally will be qualifying
assets under both of the foregoing sections of the Code. However, Loans that are
not secured by residential real property or real property used primarily for
church purposes may not constitute qualifying assets under Section
7701(a)(19)(c)(v) of the Code. In addition, to the extent that the principal
amount of a Loan exceeds the value of the property securing the Loan, it is
unclear and Federal Tax Counsel is unable to opine whether the Loans will be
qualifying assets. The regulations under Sections 860A through 860G of the Code
(the 'REMIC Regulations') treat credit enhancements as part of the mortgage or
pool of mortgages to which they relate, and therefore credit enhancements
generally should be qualifying assets. Regulations issued in conjunction with
the REMIC Regulations provide that amounts paid on Loans and held pending
distribution to holders of Regular Interest Securities ('cash flow investments')
will be treated as qualifying assets. It is unclear whether reserve funds or
Buydown Funds would also constitute qualifying assets under any of those
provisions.
Interest and Acquisition Discount. Securities representing Regular Interest
Securities are generally taxable to Holders in the same manner as evidences of
indebtedness issued by the REMIC. Stated interest on the Regular Interest
Securities will be taxable as ordinary income and taken into account using the
accrual method of accounting, regardless of the Holder's normal accounting
method. Interest (other than original issue discount) on Securities (other than
Regular Interest Securities) that are characterized as indebtedness for federal
income tax purposes will be includible in income by Holders thereof in
accordance with their usual methods of accounting. Securities characterized as
debt for federal income tax purposes and Regular Interest Securities will be
referred to hereinafter collectively as 'Debt Securities.'
Debt Securities that are Compound Interest Securities will, and certain of
the other Debt Securities may, be issued with 'original issue discount' ('OID').
The following discussion is based in part on the rules governing OID which are
set forth in Sections 1271-1275 of the Code and the Treasury regulations issued
thereunder on February 2, 1994, as amended June 11, 1996 (the 'OID
Regulations'). A Holder should be aware, however, that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such as
the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A Holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a method taking into account an economic accrual of
the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
The issue price of a Debt Security is the first price at which a substantial
amount of Debt Securities of that class are sold to the public (excluding bond
houses, brokers, underwriters or wholesalers). If less than a substantial amount
of a particular class of Debt Securities is sold for cash on or prior to the
Closing Date, the issue price for such class will be treated as the fair market
value of such class on the Closing Date. The issue price of a Debt Security also
includes the amount paid by an initial Debt Security Holder for accrued interest
that relates to a period prior to the issue date of the Debt Security. The
stated redemption price at maturity of a
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Debt Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if such distributions
constitute 'qualified stated interest.'
Under the OID Regulations, interest payments will not qualify as qualified
stated interest unless the interest payments are 'unconditionally payable.' The
OID Regulations state that interest is unconditionally payable if reasonable
legal remedies exist to compel timely payment, or the debt instrument otherwise
provides terms and conditions that make the likelihood of late payment (other
than a late payment that occurs within a reasonable grace period) or nonpayment
of interest a remote contingency, as defined in the OID Regulations. It is
unclear whether the terms and conditions of the Loans underlying the Debt
Securities or the terms and conditions of the Debt Securities are considered
when determining whether the likelihood of late payment or nonpayment of
interest is a remote contingency. Any terms or conditions that do not reflect
arm's length dealing or that the holder does not intend to enforce are not
considered.
Certain Debt Securities will provide for distributions of interest based on
a period that is the same length as the interval between Distribution Dates but
ends prior to each Distribution Date. Any interest that accrues prior to the
Closing Date may be treated under the OID Regulations either (i) as part of the
issue price and the stated redemption price at maturity of the Debt Securities
or (ii) as not included in the issue price or stated redemption price. The OID
Regulations provide a special application of the de minimis rule for debt
instruments with long first accrual periods where the interest payable for the
first period is at a rate which is effectively less than that which applies in
all other periods. In such cases, for the sole purpose of determining whether
original issue discount is de minimis, the OID Regulations provide that the
stated redemption price is equal to the instrument's issue price plus the
greater of the amount of foregone interest or the excess (if any) of the
instrument's stated principal amount over its issue price.
Under the de minimis rule, OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method Holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds such Debt Security, the
sum of the 'daily portions' of such original issue discount. The amount of OID
includible in income by a Holder will be computed by allocating to each day
during a taxable year a pro rata portion of the original issue discount that
accrued during the relevant accrual period. In the case of a Debt Security that
is not a Regular Interest Security and the principal payments on which are not
subject to acceleration resulting from prepayments on the Loans, the amount of
OID includible in income of a Holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the Debt Security and the adjusted issue price of the
Debt Security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to such Debt Security in all
prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a Holder of a debt instrument,
such as certain Classes of the Debt Securities, that is subject to acceleration
due to prepayments on other debt obligations securing such instruments (a
'Pay-Through Security'), is computed by taking into account the anticipated rate
of prepayments assumed in pricing the debt instrument (the 'Prepayment
Assumption'). The amount of OID that will accrue during an accrual period on a
Pay-Through Security is the excess (if any) of the sum of (a) the present value
of all payments remaining to be made on the Pay-Through Security as of the close
of the accrual period and (b) the payments during the accrual period of amounts
included in the stated redemption price of the Pay-Through Security, over the
adjusted issue price of the Pay-Through Security at the beginning of the accrual
period. The present value of the remaining payments is to be determined on the
basis of three factors: (i) the original yield to maturity of the Pay-Through
Security (determined on the basis of compounding at the end of each accrual
period and properly adjusted for the length of the accrual period), (ii) events
which have occurred before the end
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of the accrual period and (iii) the assumption that the remaining payments will
be made in accordance with the original Prepayment Assumption. The effect of
this method is to increase the portions of OID required to be included in income
by a Holder to take into account prepayments with respect to the Loans at a rate
that exceeds the Prepayment Assumption, and to decrease (but not below zero for
any period) the portions of OID required to be included in income by a Holder of
a Pay-Through Security to take into account prepayments with respect to the
Loans at a rate that is slower than the Prepayment Assumption. Although OID will
be reported to Holders of Pay-Through Securities based on the Prepayment
Assumption, no representation is made to Holders that Loans will be prepaid at
that rate or at any other rate.
The Depositor may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it believes
to be appropriate, to take account of realized losses on the Loans, although the
OID Regulations do not provide for such adjustments. If the Internal Revenue
Service were to require that OID be accrued without such adjustments, the rate
of accrual of OID for a Class of Regular Interest Securities could increase.
Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID Regulations, to
calculate OID on such Securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent Holder of a Debt Security will also be required to include OID
in gross income, but such a Holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial Holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to the related Securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Loans, except possibly to the extent that it can
be established that such amounts are uncollectible. As a result, the amount of
income (including OID) reported by a Holder of such a Security in any period
could significantly exceed the amount of cash distributed to such Holder in that
period. The Holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Loan default.
However, the timing and character of such losses or reductions in income are
uncertain and, accordingly, Holders of Securities should consult their own tax
advisors on this point.
Interest-Only Debt Securities. The Trust Fund intends to report income from
interest-only classes of Debt Securities to the Internal Revenue Service and to
holders of interest-only Debt Securities based on the assumption that the stated
redemption price at maturity is equal to the sum of all payments determined
under the applicable prepayment assumption. As a result, such interest-only Debt
Securities Certificates will be treated as having original issue discount.
Variable Rate Debt Securities. Under the OID Regulations, Debt Securities
paying interest at a variable rate (a 'Variable Rate Debt Security') are subject
to special rules. A Variable Rate Debt Security will qualify as a 'variable rate
debt instrument' if (i) its issue price does not exceed the total noncontingent
principal payments due under the Variable Rate Debt Security by more than a
specified de minimis amount, (ii) it provides for stated interest, paid or
compounded at least annually, at (a) one or more qualified floating rates, (b) a
single fixed rate and one or more qualified floating rates, (c) a single
objective rate or (d) a single fixed rate and a single objective rate that is a
qualified inverse floating rate and (iii) it does not provide for any principal
payments that are contingent, as defined in the OID Regulations, except as
provided in (i), above. Because the OID Regulations relating to contingent
payment debt instruments do not apply to REMIC regular interests, principal
payments on the REMIC Regular Certificates should not be considered contingent
for this purpose.
A 'qualified floating rate' is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Security is denominated. A multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate for purposes
of the OID Regulations. However, a variable rate equal to (i) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (ii) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID
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Regulations. In addition, under the OID Regulations, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the Variable Rate Debt Security will be treated as
a single qualified floating rate (a 'Presumed Single Qualified Floating Rate').
Two or more qualified floating rates with values within 25 basis points of each
other as determined on the Variable Rate Debt Security's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a cap or floor, will not be a qualified floating rate for purposes of the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate Debt Security or the restriction will not significantly affect the yield of
the Variable Rate Debt Security.
An 'objective rate' is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the Internal Revenue Service in the future. An interest rate on a REMIC Regular
Certificate that is the weighted average of the interest rates on some or all of
the qualified mortgages held by the REMIC should constitute an objective rate.
Despite the foregoing, a variable rate of interest on a Variable Rate Debt
Security will not constitute an objective rate if it is reasonably expected that
the average value of such rate during the first half of the Variable Rate Debt
Security's term will be either significantly less than or significantly greater
than the average value of the rate during the final half of the Variable Rate
Debt Security's term. Further, an objective rate does not include a rate that is
based on information that is within the control of the issuer (or a party
related to the issuer) or that is unique to the circumstances of the issuer (or
a party related to the issuer). An objective rate will qualify as a 'qualified
inverse floating rate' if such rate is equal to a fixed rate minus a qualified
floating rate and variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the qualified floating rate. The OID
Regulations also provide that if a Variable Rate Debt Security provides for
stated interest at a fixed rate for an initial period of less than one year
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Rate Debt Security's
issue date is intended to approximate the fixed rate, then the fixed rate and
the variable rate together will constitute either a single qualified floating
rate or objective rate, as the case may be (a 'Presumed Single Variable Rate').
If the value of the variable rate and the initial fixed rate are within 25 basis
points of each other as determined on the Variable Rate Debt Security's issue
date, the variable rate will be conclusively presumed to approximate the fixed
rate.
For Variable Rate Debt Securities that qualify as a 'variable rate debt
instrument' under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a 'Single Variable Rate Debt Security'), original issue discount is computed as
described above based on the following: (i) stated interest on the Single
Variable Rate Debt Security which is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually will constitute
qualified stated interest, (ii) by assuming that the variable rate on the Single
Variable Debt Security is a fixed rate equal to: (a) in the case of a Single
Variable Rate Debt Security with a qualified floating rate or a qualified
inverse floating rate, the value of, as of the issue date, of the qualified
floating rate or the qualified inverse floating rate or (b) in the case of a
Single Variable Rate Debt Security with an objective rate (other than a
qualified inverse floating rate), a fixed rate which reflects the reasonably
expected yield for such Single Variable Debt Security and (iii) the qualified
stated interest allocable to an accrual period is increased (or decreased) if
the interest actually paid during an accrual period exceeds (or is less than)
the interest assumed to be paid under the assumed fixed rate described in (ii),
above.
In general, any Variable Rate Debt Security other than a Single Variable
Rate Debt Security (a 'Multiple Variable Rate Debt Security') that qualifies as
a 'variable rate debt instrument' will be converted into an 'equivalent' fixed
rate debt instrument for purposes of determining the amount and accrual of
original issue discount and qualified stated interest on the Multiple Variable
Rate Debt Security. The OID Regulations generally require that such a Multiple
Variable Rate Debt Security be converted into an 'equivalent' fixed rate debt
instrument by substituting any qualified floating rate or qualified inverse
floating rate provided for under the terms of the Multiple Variable Rate Debt
Security with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Multiple Variable
Rate Debt Security's issue date. Any objective rate (other than a qualified
inverse floating rate) provided for under the terms of the Multiple Variable
Rate Debt Security is converted into a fixed rate that reflects the yield that
is reasonably expected for the Multiple Variable Rate Debt Security. In the case
of a Multiple Variable Rate Debt Security that qualifies as a 'variable rate
debt instrument' and provides for stated interest at a fixed rate in addition to
either one or more
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qualified floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Multiple Variable Rate Debt Security provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate Debt
Security as of the Multiple Variable Rate Debt Security's issue date is
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the
fixed rate into either a qualified floating rate or a qualified inverse floating
rate, the Multiple Variable Rate Debt Security is then converted into an
'equivalent' fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate Debt Security is converted into an
'equivalent' fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the 'equivalent' fixed rate debt instrument by applying the
original issue discount rules to the 'equivalent' fixed rate debt instrument in
the manner described above. A Holder of the Multiple Variable Rate Debt Security
will account for such original issue discount and qualified stated interest as
if the Holder held the 'equivalent' fixed rate debt instrument. Each accrual
period appropriate adjustments will be made to the amount of qualified stated
interest or original issue discount assumed to have been accrued or paid with
respect to the 'equivalent' fixed rate debt instrument in the event that such
amounts differ from the accrual amount of interest accrued or paid on the
Multiple Variable Rate Debt Security during the accrual period.
If a Variable Rate Debt Security does not qualify as a 'variable rate debt
instrument' under the OID Regulations, then the Variable Rate Debt Security
would be treated as a contingent payment debt obligation. It is not clear under
current law how a Variable Rate Debt Security would be taxed if such Debt
Security were treated as a contingent payment debt obligation since the OID
Regulations relating to contingent payment debt obligations do not apply to
REMIC regular interests.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt
Security with more than a prescribed de minimis amount of 'market discount'
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security, as set forth below, the
Loans underlying such Security) not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the case
of Securities (or, in the case of a Pass-Through Security, as described below,
the Loans underlying such Security) originally issued at a discount, OID in the
relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Security (or, in the case of a Pass-Through Security, the Loans),
the excess of interest paid or accrued to purchase or carry a Security (or, in
the case of a Pass-Through Security, as described below, the underlying Loans)
with market discount over interest received on such Security is allowed as a
current deduction only to the extent such excess is greater than the market
discount that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon the
sale, disposition, or repayment of the Security (or in the case of a
Pass-Through Security, an underlying Loan). A Holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such Holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule will not apply.
Premium. A Holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount.
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Accordingly, it appears that the accrual of premium on a Class of
Pay-Through Securities will be calculated using the prepayment assumption used
in pricing such Class. If a Holder makes an election to amortize premium on a
Debt Security, such election will apply to all taxable debt instruments
(including all REMIC regular interests and all pass-through certificates
representing ownership interests in a trust holding debt obligations) held by
the Holder at the beginning of the taxable year in which the election is made,
and to all taxable debt instruments acquired thereafter by such Holder, and will
be irrevocable without the consent of the Internal Revenue Service. Purchasers
who pay a premium for the Securities should consult their tax advisers regarding
the election to amortize premium and the method to be employed.
Election to Treat all Interest as Original Issue Discount. The OID
Regulations permit a Holder of a Debt Security 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 for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the Holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such Holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a Holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will 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. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Federal Tax Counsel, if a REMIC election is made
with respect to a Series of Securities, then the arrangement by which the
Securities of that Series are issued will be treated as a REMIC as long as all
of the provisions of the applicable Agreement are complied with and the
statutory and regulatory requirements are satisfied. Securities will be
designated as 'Regular Interests' or 'Residual Interests' in a REMIC, as
specified in the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Securities, (i) Securities
held by a domestic building and loan association will constitute 'a regular or a
residual interest in a REMIC' within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist of
cash, government saturates, 'loans secured by an interest in real property,' and
other types of assets described in Code Section 7701(a)(19)(C)); and (ii)
Securities held by a real estate investment trust will constitute 'real estate
assets' within the meaning of Code Section 856(c)(5)(B), and income with respect
to the Securities will be considered 'interest on obligations secured by
mortgages on real property or on interests in real property' within the meaning
of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the REMIC's
assets consist of assets described in (i) or (ii) above, then a Security will
qualify for the tax treatment described in (i) or (ii) in the proportion that
such REMIC assets are qualifying assets.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into account
by Holders of the Residual Interest Securities. In the case of a 'single class
REMIC,' however, the expenses will be allocated, under Treasury regulations,
among the Holders of the Regular Interest Securities and the Holders of the
Residual Interest Securities on a daily basis in proportion to the relative
amounts of income accruing to each Holder on that day. In the case of a Holder
of a Regular Interest Security who is an individual or a 'pass-through interest
holder' (including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other 'miscellaneous itemized deductions' of the Holder,
exceed 2% of such Holder's adjusted gross income. In addition, for taxable years
beginning after December 31, 1990, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (which amount will be adjusted for inflation for
taxable years beginning after 1990) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount, or (ii) 80% of
the amount of itemized deductions otherwise allowable for such taxable year. For
taxable years beginning after December 31, 1997, in the case of a partnership
that has 100 or more partners and elects to be treated as an 'electing large
partnership,' 70 percent of such partnership's
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miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2 percent floor that would otherwise be applicable to individual
partners. The reduction or disallowance of this deduction may have a significant
impact on the yield of the Regular Interest Security to such a Holder. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
which is structured with the principal purpose of avoiding the single class
REMIC rules. Unless otherwise stated in the applicable Prospectus Supplement,
the expenses of the REMIC will be allocated to Holders of the related Residual
Interest Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Tiered REMIC Structures. For certain Series of Securities, two or more
separate elections may be held 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 Securities, Federal Tax Counsel will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing 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 Regular Certificates or 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)(4)(A) of the Code, and
'loans secured by an interest in real property' under Section 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.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any original issue discount
or market discount on loans and other assets, and (ii) deductions, including
stated interest and original issue discount accrued on Regular Interest
Securities, amortization of any premium with respect to Loans, and servicing
fees and other expenses of the REMIC. A Holder of a Residual Interest Security
that is an individual or a 'pass-through interest holder' (including certain
pass-through entities, but not including real estate investment trusts) will be
unable to deduct servicing fees payable on the Loans or other administrative
expenses of the REMIC for a given taxable year, to the extent that such
expenses, when aggregated with such Holder's other miscellaneous itemized
deductions for that year, do not exceed two percent of such Holder's adjusted
gross income. For taxable years beginning after December 31, 1997, in the case
of a partnership that has 100 or more partners and elects to be treated as an
'electing large partnership,' 70 percent of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2
percent floor that would otherwise be applicable to individual partners.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Startup
Day (generally, the day that the interests are issued). Such aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which Holders of Pay-Through Securities
accrue original issue discount (i.e., under the constant yield method taking
into account the Prepayment Assumption). The REMIC will deduct OID on the
Regular Interest Securities in the same manner that the Holders of the Regular
Interest Securities include such discount in income, but without regard to the
de minimis rules. See 'Taxation of Debt Securities' above. However, a
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REMIC that acquires loans at a market discount must include such market discount
in income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject to
a 100% tax on any net income derived from a 'prohibited transaction.' For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions
include: (i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC pursuant
to the Code; or (iv) the receipt of any fees or other compensation for services
rendered by the REMIC. It is anticipated that a REMIC will not engage in any
prohibited transactions in which it would recognize a material amount of net
income. In addition, subject to a number of exceptions, a tax is imposed at the
rate of 100% on amounts contributed to a REMIC after the close of the
three-month period beginning on the Startup Day. The Holders of Residual
Interest Securities will generally be responsible for the payment of any such
taxes imposed on the REMIC. To the extent not paid by such Holders or otherwise,
however, such taxes will be paid out of the Trust Fund and will be allocated pro
rata to all outstanding Classes of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a residual interest (a 'Residual
Interest Security') will take into account the 'daily portion' of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such Holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the Holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The Holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the loans held by the REMIC were issued or
acquired at a discount, since mortgage prepayments cause recognition of discount
income, while the corresponding portion of the prepayment could be used in whole
or in part to make principal payments on REMIC Regular Interests issued without
any discount or at an insubstantial discount. (If this occurs, it is likely that
cash distributions will exceed taxable income in later years.) Taxable income
may also be greater in earlier years of certain REMIC issues as a result of the
fact that interest expense deductions, as a percentage of outstanding principal
on REMIC Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder may
take into account currently is limited to the Holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Security will initially equal such Holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the Holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
Holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC
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generated by the same REMIC. The ability of Holders of Residual Interest
Securities to deduct net losses may be subject to additional limitations under
the Code, as to which such Holders should consult their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a Holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the Holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A Holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such Holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling Holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a Holder of a
Residual Interest Security consisting of 'excess inclusion' income may not be
offset by other deductions or losses, including net operating losses, on such
Holder's federal income tax return. Further, if the Holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Holder's excess inclusion income will
be treated as unrelated business taxable income of such Holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as 'portfolio
interest' and is subject to certain additional limitations. See 'Tax Treatment
of Foreign Investors.'
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Date multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of a Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price (calculated in a manner analogous to the determination of the issue price
of a Regular Interest Security), increased by the aggregate of the daily
accruals for prior calendar quarters, and decreased (but not below zero) by the
amount of loss allocated to a Holder and the amount of distributions made on the
Residual Interest Security before the beginning of the quarter. The long-term
federal rate, which is announced monthly by the Treasury Department, is an
interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Provisions governing the relationship between excess inclusions and the
alternative minimum tax provide that (i) the alternative minimum taxable income
of a taxpayer is based on the taxpayer's regular taxable income computed without
regard to the rule that taxable income cannot be less than the amount of excess
inclusions, (ii) the alternative minimum taxable income of a taxpayer for a
taxable year cannot be less than the amount of excess inclusions for that year,
and (iii) the amount of any alternative minimum tax net operating loss is
computed without regard to any excess inclusions. While these provisions are
generally effective for tax years beginning after December 31, 1986, a taxpayer
may elect to have these provisions apply only with respect to tax years
beginning after August 20, 1996.
The Code provides that to the extent provided in regulations, as an
exception to the general rule described above, the entire amount of income
accruing on a Residual Interest Security will be treated as an excess inclusion
if the Residual Interest Securities in the aggregate are considered not to have
'significant value.' The Treasury Department has not yet provided regulations in
this respect.
Under the REMIC Regulations, in certain circumstances, transfers of Residual
Interest Securities may be disregarded. See ' -- Restrictions on Ownership and
Transfer of Residual Interest Securities' and ' -- Tax Treatment of Foreign
Investors' below.
Restrictions on Ownership and Transfer of Residual Interest Securities. As a
condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any
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'Disqualified Organization.' Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by Sections
1399 of the Code, if such entity is not subject to tax on its unrelated business
income. Accordingly, the applicable Pooling and Servicing Agreement will
prohibit Disqualified Organizations from owning a Residual Interest Security. In
addition, no transfer of a Residual Interest Security will be permitted unless
the proposed transferee shall have furnished to the Trustee an affidavit
representing and warranting that it is neither a Disqualified Organization nor
an agent or nominee acing on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
For taxable years beginning after December 31, 1997, all partners of certain
electing partnerships having 100 or more partners ('electing large
partnerships') will be treated as disqualified organizations for purposes of the
tax imposed on pass-through entities if such electing large partnerships hold
residual interests in a REMIC. However, the electing large partnership would be
entitled to exclude the excess inclusion income from gross income for purposes
of determining the taxable income of the partners.
Under the REMIC Regulations, if a Residual Interest Security is a
'noneconomic residual interest,' as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all federal
tax purposes unless no significant purpose of the transfer was to impede the
assessment or collection of tax. A Residual Interest Security is a 'noneconomic
residual interest' unless, at the time of the transfer (i) the present value of
the expected future distributions on the Residual Interest Security at least
equals the product of the present value of the anticipated excess inclusions and
the highest rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. If a
transfer of a Residual Interest Security is disregarded, the transferor would be
liable for any federal income tax imposed upon taxable income derived by the
transferee from the REMIC. The REMIC Regulations provide no guidance as to how
to determine if a significant purpose of a transfer is to impede the assessment
or collection of tax. A similar type of limitation exists with respect to
certain transfers of residual interests by foreign persons to United States
persons. See ' -- Tax Treatment of Foreign Investors.'
Mark to Market Rules. Prospective purchasers of a Residual Interest Security
should be aware of Internal Revenue Service regulations (the '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 of a dealer, except to the extent that the
dealer has specifically identified a security as held for investment. The Mark
to Market Regulations provide that for purposes of this mark-to-market
requirement, a 'negative value' Residual Interest Security is not treated as a
security and thus may not be marked to market. In addition, a dealer is not
required to identify such Residual Interest Security as held for investment. In
general, a Residual Interest Security has negative value if, as of the date a
taxpayer acquires the Residual Interest Security, the present value of the tax
liabilities associated with holding the Residual Interest Security exceeds the
sum of (i) the present value of the expected future distributions on the
Residual Interest Security, and (ii) the present value of the anticipated tax
savings associated with holding the Residual Interest Security as the REMIC
generates losses. The amounts and present values of the anticipated tax
liabilities, expected future distributions and anticipated tax savings are all
to be determined using (i) the prepayment and reinvestment assumptions adopted
under Section 1272(a)(6), or that would have been adopted had the REMIC's
regular interests been issued with OID, (ii) any required or permitted clean up
calls, or required qualified liquidation provided for in the REMIC's
organizational documents and (iii) a discount rate equal to the 'applicable
Federal rate' (as specified in Section 1274(d)(1)) that would apply to a debt
instrument issued on the date of acquisition of the Residual Interest Security.
Furthermore, the Temporary Mark to Market Regulations provide the IRS with the
authority to treat any Residual Interest Security having substantially the same
economic effect as a 'negative value' residual interest as a 'negative value'
residual interest.
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The Mark-to-Market Regulations provide that any REMIC Residual Interest
acquired after January 3, 1995 cannot be marked to market, regardless of the
value of such REMIC residual interest. However, holders of positive value REMIC
Residual Interests acquired on or prior to January 3, 1995 may continue to mark
such residual interests to market for the entire economic life of such
interests.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As specified in the related Prospectus Supplement if a REMIC or
partnership election is not made and the Trust Fund is not treated as a division
of a sole owner in the opinion of Federal Tax Counsel, the Trust Fund relating
to a Series of Securities will be classified for federal income tax purposes as
a grantor trust under Subpart E, Part 1 of Subchapter J of Chapter 1 of Subtitle
A of the Code and not as an association taxable as a corporation (the Securities
of such Series, 'Pass-Through Securities'). In some Series there will be no
separation of the principal and interest payments on the Loans. In such
circumstances, a Holder will be considered to have purchased a pro rata
undivided interest in each of the Loans. In other cases ('Stripped Securities'),
sale of the Securities will produce a separation in the ownership of all or a
portion of the principal payments from all or a portion of the interest payments
on the Loans.
Each Holder must report on its federal income tax return its share of the
gross income derived from the Loans (not reduced by the amount payable as fees
to the Trustee and the Servicer and similar fees (collectively, the 'Servicing
Fees')), at the same time and in the same manner as such items would have been
reported under the Holder's tax accounting method had it held its interest in
the Loans directly, received directly its share of the amounts received with
respect to the Loans, and paid directly its share of the Servicing Fees. In the
case of Pass-Through Securities other than Stripped Securities, such income will
consist of a pro rata share of all of the income derived from all of the Loans
and, in the case of Stripped Securities, such income will consist of a pro rata
share of the income derived from each stripped bond or stripped coupon in which
the Holder owns an interest. The Holder of a Security will generally be entitled
to deduct such Servicing Fees under Section 162 or Section 212 of the Code to
the extent that such Servicing Fees represent 'reasonable' compensation for the
services rendered by the Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
Holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such Holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deducible to any extent in computing such Holder's
alternative minimum tax liability. In addition, for taxable years beginning
after December 31, 1990, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation in taxable years
beginning after 1990) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the applicable amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year. For taxable years
beginning after December 31, 1997, in the case of a partnership that has 100 or
more partners and elects to be treated as an 'electing large partnership,' 70
percent of such partnership's miscellaneous itemized deductions will be
disallowed, although the remaining deductions will generally be allowed at the
partnership level and will not be subject to the 2 percent floor that would
otherwise be applicable to individual partners.
Discount or Premium on Pass-Through Securities. The Holder's purchase price
of a Pass-Through Security is to be allocated among the Loans in proportion to
their fair market values, determined as of the time of purchase of the
Securities. In the typical case, the Trustee (to the extent necessary to fulfill
its reporting obligations) will treat each Loan as having a fair market value
proportional to the share of the aggregate principal balances of all of the
Loans that it represents, since the Securities, unless otherwise specified in
the applicable Prospectus Supplement, will have a relatively uniform interest
rate and other common characteristics. To the extent that the portion of the
purchase price of a Pass-Through Security allocated to a Loan (other than to a
right to receive any accrued interest thereon and any undistributed principal
payments) is less than or greater
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than the portion of the principal balance of the Loan allocable to the Security,
the interest in the Loan allocable to the Pass-Through Security will be deemed
to have been acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount represents
OID or market discount. In the case of a Loan with OID in excess of a prescribed
de minimis amount or a Stripped Security, a Holder of a Security will be
required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year in the manner described above. OID
with respect to a Loan could arise, for example, by virtue of the financing of
points by the originator of the Loan, or by virtue of the charging of points by
the originator of the Loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a Loan
will be includible in income, generally in the manner described above, except
that in the case of Pass-Through Securities, market discount is calculated with
respect to the Loans underlying the Security, rather than with respect to the
Security. A Holder that acquires an interest in a Loan originated after July 18,
1984 with more than a de minimis amount of market discount (generally, the
excess of the principal amount of the Loan over the purchaser's allocable
purchase price) will be required to include accrued market discount in income in
the manner set forth above. See ' -- Taxation of Debt Securities; Market
Discount' and ' -- Premium' above.
In the case of market discount on a Pass-Through Security attributable to
Loans originated on or before July 18, 1984, the Holder generally will be
required to allocate the portion of such discount that is allocable to a Loan
among the principal payments on the Loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal payment
is made. Such treatment would generally 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 in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to receive
only a portion of the interest payments on the Loans, a right to receive only
principal payments on the Loans, or a right to receive certain payments of both
interest and principal. Certain Stripped Securities ('Ratio Strip Securities')
may represent a right to receive differing percentages of both the interest and
principal on each Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of 'stripped bonds' with respect to principal
payments and 'stripped coupons' with respect to interest payments. Section 1286
of the Code applies the OID rules to stripped bonds and stripped coupons. For
purposes of computing original issue discount, a stripped bond or a stripped
coupon is treated as a debt instrument issued on he date that such stripped
interest is purchased with an issue price equal to its purchase price or, if
more than one stripped interest is purchased, the ratable share of the purchase
price allocable to such stripped interest.
Servicing Fees in excess of reasonable servicing fees ('excess servicing')
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e. 1% interest on the Loan principal balance) or
the Securities are initially sold with a de minimis discount (assuming no
prepayment assumption is required), any non-de minimis discount arising from a
subsequent transfer of the Securities should be treated as market discount. The
IRS appears to require that reasonable servicing fees be calculated on a Loan by
Loan basis, which could result in some Loans being treated as having more than
100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct guidance
as to how the interest and original issue discount rules are to apply to
Stripped Securities and other Pass-Through Securities. Under the method
described above for Pay-Through Securities (the 'Cash Flow Bond Method'), a
prepayment assumption is used and periodic recalculations are made which take
into account with respect to each accrual period the effect of prepayments
during such period. However, the 1986 Act does not, absent Treasury regulations,
appear specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Loans, rather than
being debt instruments 'secured by' those Loans. Nevertheless, it is believed
that the Cash Flow Bond Method is a reasonable method of reporting income for
such Securities, and it is expected that OID will be reported on that basis
unless otherwise specified in the related Prospectus Supplement. In applying the
calculation to Pass-Through Securities, the Trustee will treat all payments to
be received by a Holder with respect to the underlying Loans as payments on a
single installment obligation. The IRS could, however, assert that original
issue discount must be calculated separately for each Loan underlying a
Security.
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Under certain circumstances, if the Loans prepay at a rate faster than the
Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a
Holder's recognition of income. If, however, the Loans prepay at a rate slower
than the Prepayment Assumption, in some circumstances the use of this method may
decelerate a Holder's recognition of income.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations of
the applicable Code provisions. Among other possibilities, the Internal Revenue
Service could contend that (i) in certain Series, each Security is composed of
an unstripped undivided ownership interest in Loans and an installment
obligation consisting of stripped principal payments; (ii) the Securities are
subject to the contingent payment provisions of the Proposed Regulations; or
(iii) each Stripped Security the payments on which consist primarily or solely
of a specified portion of the interest payments on Loans is composed of an
unstripped undivided ownership interest in Loans and an installment obligation
consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped Securities
and the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Securities for federal income tax
purposes.
Character as Qualifying Loans. In the case of Stripped Securities there is
no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as the Loans. The
IRS could take the position that the Loans' character is not carried over to the
Securities in such circumstances. To the extent the Trust Fund's assets are
qualifying assets, Pass-Through Securities will be, and, although the matter is
not free from doubt, Stripped Securities should be considered to represent 'real
estate assets' within the meaning of Section 856(c)(5)(B) of the Code, and
'loans secured by an interest in real property' within the meaning of Section
7701(a)(19)(C)(v) of the Code; and interest income attributable to the
Securities should be considered to represent 'interest on obligations secured by
mortgages on real property or on interests in real property' with the meaning of
Section 856(c)(3)(B) of the Code. Reserves or funds underlying the Securities
may cause a proportionate reduction in the above-described qualifying status
categories of Securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trust Funds as to which a
partnership election is made, a Holder's tax basis in its Security is the price
such Holder pays for a Security, plus amounts of original issue or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Security is held as a
capital asset. In the case of a Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Regular Interest Security will be taxable as
ordinary income or loss. In addition, gain from the disposition of a Regular
Interest Security that might otherwise be capital gain will be treated as
ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the Holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of such Holder's holding period, over the amount of ordinary income
actually recognized by the Holder with respect to such Regular Interest
Security.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to Trust
Funds as to which a partnership election is made, a Holder, other than a Holder
of a Residual Interest Security, may, under certain circumstances, be subject to
'backup withholding' at a rate of 31% with respect to distributions or the
proceeds of a sale of certificates to or through brokers that represent interest
or original issue discount on the Securities. This withholding generally applies
if the Holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ('TIN'); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other 'reportable
payments' as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such Holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the Holder is not subject to backup withholding. Backup
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withholding will not apply, however, with respect to certain payments made to
Holders, including payments to certain exempt recipients (such as exempt
organizations) and to certain Nonresidents (as defined below). Holders should
consult their tax advisers as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption.
The Trustee will report to the Holders and to the Servicer for each calendar
year the amount of any 'reportable payments' during such year and the amount of
tax withheld, if any, with respect to payments on the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds as to which a
partnership election is made, under the Code, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to be
'effectively connected' with a trade or business conducted in the United States
by a Holder who is not a United States person, as defined below,
('Nonresidents'), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer, or (ii) the recipient
is a controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. Upon receipt of appropriate ownership
statements, the issuer normally will be relieved of obligations to withhold tax
from such interest payments. These provisions supersede the generally applicable
provisions of United States law that would otherwise require the issuer to
withhold at a 30% rate (unless such rate were reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed or
determinable, annual or periodic income paid to Nonresidents. Holders of
Pass-Through Securities and Stripped Securities, including Ratio Strip
Securities, however, may be subject to withholding to the extent that the Loans
were originated on or before July 18, 1984. For these purposes, the term 'United
States person' means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
whose income is includable in gross income for United States federal income
taxation regardless of its source, and (iv) a trust for which one or more United
States fiduciaries have the authority to control all substantial decisions and
for which a court of the United States can exercise primary supervision over the
trust's administration. For years beginning before January 1, 1997, the term
'United States person' shall include a trust whose income in includible in gross
income for United States federal income taxation regardless of source, in lieu
of trusts described in (iv) above, unless the trust elects to have its United
States status determined under the criteria set forth in (iv) above for tax year
ending after August 20, 1996. Recently issued Treasury regulations (the 'Final
Withholding Regulations'), which are generally effective with respect to
payments made after December 31, 2000, consolidate and modify the current
certification requirements and means by which a Holder may claim exemption from
United States federal income tax withholding and provide certain presumptions
regarding the status of Holders when payments to the Holders cannot be reliably
associated with appropriate documentation provided to the payor. All Holders
should consult their tax advisers regarding the application of the Final
Withholding Regulations.
Interest and OID of Holders who are Nonresidents are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder. They will, however, generally be subject to the regular
United States income tax.
Payments to Holders of Residual Interest Securities who are Nonresidents
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Nonresidents should assume that such income
does not qualify for exemption from United States withholding tax as 'portfolio
interest.' It is clear that, to the extent that a payment represents a portion
of REMIC taxable income that constitutes excess inclusion income, a Holder of a
Residual Interest Security will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a Nonresident will be disregarded for all federal tax purposes. A Residual
Interest Security has tax
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avoidance potential unless, at the time of the transfer the transferor
reasonably expects that the REMIC will distribute to the transferee residual
interest holder amounts that will equal at least 30% of each excess inclusion,
and that such amounts will be distributed at or after the time at which the
excess inclusions accrue and not later than the calendar year following the
calendar year of accrual. If a Nonresident transfers a Residual Interest
Security to a United States person, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the owner
of the Residual Interest Security for purposes of the withholding tax provisions
of the Code. See 'Taxation of Holders of Residual Interest Securities -- Excess
Inclusions.'
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion that a Trust Fund for which a
partnership election is made will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes assuming
that no action will be taken that is inconsistent with the treatment of the
Trust as a partnership (such as an election to treat the Trust as a corporation
for federal income tax purposes ('Corporation Election')). If, however, the
Trust has a single owner for federal income tax purposes, it will be treated as
a division of its owner and as such will be disregarded as an entity separate
from its owner for federal income tax purposes, assuming that no Corporation
Election is made. This opinion will be based on the assumption that the terms of
the Trust Agreement and related documents will be complied with, and on
counsel's conclusions that (1) the Trust Fund will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of the
Trust Fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations or the issuance of the Certificates has
been structured as a private placement under an IRS safe harbor, so that the
Trust Fund will not be characterized as a publicly traded partnership taxable as
a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its taxable
income. The Trust Fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Depositor that the
Notes will be classified as debt for federal income tax purposes. The discussion
below assumes this characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all payments
on the Notes are denominated in U.S. dollars, and that the Notes are not Indexed
Securities or Strip Notes. Moreover, the discussion assumes that the interest
formula for the Notes meets the requirements for 'qualified stated interest'
under the OID regulations, and that any OID on the Notes (i.e., any excess of
the principal amount of the Notes over their issue price) does not exceed a de
minimis amount (i.e., 0.25% of their principal amount multiplied by the number
of full years included in their term), all within the meaning of the OID
regulations. If these conditions are not satisfied with respect to any given
Series of Notes, additional tax considerations with respect to such Notes will
be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a Holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
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A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a 'Short-Term Note') may be subject to special
rules. An accrual basis Holder of a Short-Term Note (and certain cash method
Holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis Holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis Holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the Holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the Holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who is
a Holder other than a United States Person, as defined below, (a 'foreign
person') generally will be considered 'portfolio interest', and generally will
not be subject to United States federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the foreign person and the foreign person (i) is not
actually or constructively a '10 percent shareholder' of the Trust or the Seller
(including a Holder of 10% of the outstanding Certificates) or a 'controlled
foreign corporation' with respect to which the Trust or the Seller is a 'related
person' within the meaning of the Code and (ii) provides the Owner Trustee or
other person who is otherwise required to withhold U.S. tax with respect to the
Notes with an appropriate statement (on Form W-8 or a similar form), signed
under penalties of perjury, certifying that the beneficial owner of the Note is
a foreign person and providing the foreign person's name and address. If a Note
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed statement
must be accompanied by a Form W-8 or substitute form provided by the foreign
person that owns the Note. If such interest is not portfolio interest, then it
will be subject to United States federal income and withholding tax at a rate of
30 percent, unless reduced or eliminated pursuant to an applicable tax treaty.
For these purposes, the term 'United States person' means (i) a citizen or
resident of the United States, (ii) a corporation or partnership (including an
entity treated as a corporation or partnership for U.S. federal income tax
purposes) created or organized in or under the laws of the United States or any
State thereof or the District of Columbia (unless, in the case of a partnership,
Treasury regulations are adopted that provide otherwise), (iii) an estate whose
income is includable in gross income for United States federal income taxation
regardless of its source, and (iv) a trust for which one or more United States
persons have the authority to control all substantial decisions and for which a
court of the United States can exercise primary supervision over the trust's
administration. In addition, certain trusts that would otherwise not qualify as
U.S. Persons under the foregoing definition can elect to be treated as U.S.
Persons. Recently adopted Treasury regulations make certain modifications to the
withholding, backup withholding, and information reporting rules described in
the prospectus. These new regulations attempt to unify certification
requirements and modify reliance standards and are generally effective for
payments made after December 31, 2000. Prospective investors are urged to
consult their own tax advisors regarding the affect these regulations may have
on their particular circumstances.
The Final Withholding Regulations consolidate and modify the current
certification requirements and means by which a Non-Resident may claim exemption
from United States federal income tax withholding. All Non-Residents should
consult their tax advisors regarding the application of the Final Withholding
Regulations, which are generally effective with respect to payments made after
December 31, 2000.
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Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each Holder of a Note (other than an exempt Holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the Holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust Fund will be required to withhold
31 percent of the amount otherwise payable to the Holder, and remit the withheld
amount to the IRS as a credit against the Holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion of
Federal Tax Counsel, the IRS successfully asserted that one or more of the Notes
did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust Fund. If so treated, the Trust Fund
might be taxable as a corporation with the adverse consequences described above
(and the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, and most likely in the view of Federal Tax Counsel, the Trust
Fund might be treated as a publicly traded partnership that would not be taxable
as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain Holders. For
example, income to certain tax-exempt entities (including pension funds) would
be 'unrelated business taxable income,' income to foreign holders generally
would be subject to U.S. tax and U.S. tax return filing and withholding
requirements, and individual Holders might be subject to certain limitations on
their ability to deduct their share of the Trust Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Depositor will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust Fund as a partnership for purposes of federal
and state income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by the
Trust Fund, the partners of the partnership being the Certificateholders, and
the Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust Fund, the Certificates, the Notes, the Trust
Fund and the Servicer is not clear because there is no authority on transactions
closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all payments
on the Certificates are denominated in U.S. dollars, none of the Certificates
are Indexed Securities or Strip Certificates, and that a Series of Securities
includes a single Class of Certificates. If these conditions are not satisfied
with respect to any given Series of Certificates, additional tax considerations
with respect to such Certificates will be disclosed in the applicable Prospectus
Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such Holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Loans. The Trust Fund's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of Loans.
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The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). Except as disclosed in the related
Prospectus Supplement, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust Fund for each
month equal to the sum of (i) the interest that accrues on the Certificates in
accordance with their terms for such month, including interest accruing at the
Pass-Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust Fund income attributable to
discount on the Loans that corresponds to any excess of the principal amount of
the Certificates over their initial issue price; (iii) prepayment premium
payable to the Certificateholders for such month; and (iv) any other amounts of
income payable to the Certificateholders for such month. Such allocation will be
reduced by any amortization by the Trust Fund of premium on Loans that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust Fund will be
allocated to the Depositor. Based on the economic arrangement of the parties,
this approach for allocating Trust Fund income should be permissible under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust Fund might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis Holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
Fund income even if they have not received cash from the Trust Fund to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust Fund.
A Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will realize from a Certificate 'unrelated business taxable income' as a result
of the 'Debt Financed Income' rules under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such Holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such Holder over the life of
the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Loan, the Trust Fund
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued with OID
and, therefore, the Trust should not have OID income. However, the purchase
price paid by the Trust Fund for the Loans may be greater or less than the
remaining principal balance of the Loans at the time of purchase. If so, the
Loan will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust Fund will make this calculation on an aggregate
basis, but might be required to recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium, the
Trust Fund will elect to include any such discount in income currently as it
accrues over the life of the Loans or to offset any such premium against
interest income on the Loans. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust Fund will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust Fund are sold or exchanged within a
12-month period. If such a termination occurs, the Trust Fund will be considered
to contribute its assets to a new partnership in exchange for partnership
interests therein, and then dissolve and distribute the new partnership
interests to the partners. The Trust Fund will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust Fund may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust Fund might not be able to comply due to lack of data.
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Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
Holder's cost increased by the Holder's share of Trust Fund income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the Holder's share of the
Notes and other liabilities of the Trust Fund. A Holder acquiring Certificates
at different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Holder's share of
unrecognized accrued market discount on the Loans would generally be treated as
ordinary income to the Holder and would give rise to special tax reporting
requirements. The Trust Fund does not expect to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the Trust Fund will elect to include market discount in
income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a Holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the Certificateholders. The Trust
Fund's method of allocation between transferors and transferees may be revised
to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust Fund's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust Fund were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust Fund will not make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Trust Fund income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust Fund. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust Fund will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust Fund and will report each Certificateholder's allocable share of items of
Trust Fund income and expense to Holders and the IRS on Schedule K-1. The Trust
Fund will provide the Schedule K-1 information to nominees that fail to provide
the Trust Fund with the information statement described below and such nominees
will be required to forward such information to the beneficial owners of the
Certificates. Generally, Holders must file tax returns that are consistent with
the information return filed by the Trust Fund or be subject to penalties unless
the Holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust Fund
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
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foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust Fund information
as to themselves and their ownership of Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Trust Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
The Depositor will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the Certificateholders, and,
under certain circumstances, a Certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the Trust Fund. An
adjustment could also result in an audit of a Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust Fund would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to foreign
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust Fund would be engaged in a trade or business in the United States
for such purposes, the Trust Fund will withhold as if it were so engaged in
order to protect the Trust Fund from possible adverse consequences of a failure
to withhold. The Trust Fund expects to withhold on the portion of its taxable
income that is allocable to a Certificateholder which is a foreign person
pursuant to Section 1446 of the Code, as if such income were effectively
connected to a U.S. trade or business, at a rate of 35% for Holders which are
foreign persons that are taxable as corporations and 39.6% for all other Holders
which are foreign persons. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the Trust Fund to
change its withholding procedures. In determining a Holder's withholding status,
the Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the Holder's
certification of nonforeign status signed under penalties of perjury.
Each Certificateholder which is a foreign person might be required to file a
U.S. individual or corporate income tax return (including, in the case of a
corporation, the branch profits tax) on its share of the Trust Fund's income.
Each Certificateholder which is a foreign person must obtain a taxpayer
identification number from the IRS and submit that number to the Trust Fund on
Form W-8 in order to assure appropriate crediting of the taxes withheld. A
Certificateholder which is a foreign person generally would be entitled to file
with the IRS a claim for refund with respect to taxes withheld by the Trust Fund
taking the position that no taxes were due because the Trust Fund was not
engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust Fund. As a result, Certificateholders
which are foreign persons will be subject to United States federal income tax
and withholding tax at a rate of 30%, unless reduced or eliminated pursuant to
an applicable treaty. In such case, a Certificateholder which is a foreign
person would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
The Final Withholding Regulations consolidate and modify the current
certification requirements and means by which a Non-Resident may claim exemption
from United States federal income tax withholding. All Non-Residents should
consult their tax advisors regarding the application of the Final Withholding
Regulations, which are generally effective with respect to payments made after
December 31, 2000.
Backup Withholding. Distributions made on the Certificates and proceeds from
the sale of the Certificates will be subject to a 'backup' withholding tax of
31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the Holder is an exempt recipient under
applicable provisions of the Code.
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in 'Certain
Federal Income Tax Considerations,' potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in the
Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA')
and Section 4975 of the Code impose certain restrictions on employee benefit
plans subject to ERISA and plans and other arrangements subject to Section 4975
of the Code and on persons who are parties in interest or disqualified persons
('parties in interest') with respect to such plans or arrangements. Certain
employee benefit plans, such as governmental plans and church plans (if no
election has been made under Section 410(d) of the Code), are not subject to the
restrictions of ERISA, and assets of such plans may be invested in the
Securities without regard to the ERISA considerations described below, subject
to other applicable federal and state law. However, any such governmental or
church plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
A fiduciary of an employee benefit plan subject to Title I of ERISA should
consider the fiduciary standards under ERISA in the context of the plan's
particular circumstances before authorizing an investment of a portion of such
plan's assets in the Securities. Accordingly, among other factors, such
fiduciary should consider (i) whether the investment is for the exclusive
benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the diversification requirements of Section 404 of ERISA;
(iii) whether the investment is in accordance with the documents and instruments
governing the plan and (iv) whether the investment is prudent, considering the
nature of the investment, the overall investment policy of the Plan and the
composition of the Plan's portfolio. Fiduciaries of such plans also should
consider ERISA's prohibition on improper delegation of control over, or
responsibility for, plan assets.
In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as of certain plans or other retirement arrangements not subject
to ERISA but subject to Section 4975 of the Code (such as individual retirement
accounts and Keogh plans covering only a sole proprietor or partners) and any
entity, including an insurance company general account, whose underlying assets
include plan assets by reason of such a plan investing in such entity,
(collectively, 'Plans'), should consult with their legal counsel to determine
whether an investment in the Securities will cause the assets of the Trust Fund
to be considered plan assets pursuant to the plan asset regulations set forth at
29 CFR 'SS' 2510.3-101 (the 'Regulation'), thereby subjecting the Trustee and
any entities providing services with respect to the operation of the Trust to
the fiduciary standards of ERISA, and causing the excise tax provisions of
Section 4975 of the Code to apply to the operations of the Trust Fund unless a
statutory or regulatory exception or an administrative exemption granted by the
Department of Labor ('DOL') applies to the purchase, sale, transfer or holding
of the Securities.
The Regulation contains rules for determining what constitutes the assets of
a Plan. The Regulation provides that, as a general rule, the underlying assets
and properties of corporations, partnerships, trusts and certain other entities
in which a Plan acquires an 'equity interest' will be deemed for purposes of
ERISA to be assets of the Plan unless certain exceptions apply.
Under the terms of the Regulation, the Trust Fund may be deemed to hold plan
assets by reason of a Plan's investment in a Security if the Security
constitutes an 'equity interest' within the meaning of the Regulation; such plan
assets would include an undivided interest in the Primary Assets and any other
assets held by the Trust Fund. In such an event, persons providing services with
respect to the operation of the Trust Fund may be parties in interest with
respect to Plans that invest in the Trust, and subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA and of Section 4975 of the Code,
with respect to transactions involving such assets unless such transactions are
subject to a statutory or regulatory exception or an administrative exemption.
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The Regulation treats an entity as holding plan assets if a Plan acquires an
'equity interest' in the entity. Therefore, if such interest is treated as
indebtedness under applicable local law and has no substantial equity features,
ownership of the interest by a Plan will not cause the entity's assets to
constitute plan assets. Generally, a profits interest in a partnership, an
undivided ownership interest in property and a beneficial ownership interest in
a trust are deemed to be 'equity interests' under the Regulation. If Notes of a
particular Series were deemed to be indebtedness under applicable local law
without any substantial equity features, an investing Plan's assets would
include such Notes, but not, by reason of such purchase, the underlying assets
of the Trust Fund. However, without regard to whether the Notes are treated as
an equity interest for such purposes, the purchase, holding or transfer of Notes
by or on behalf of a Plan could be a prohibited transaction if the Depositor or
the Trustee or any of their respective affiliates is, or becomes, a party in
interest or disqualified person with respect to such Plan.
An exception applies if the class of equity interests in question is: (i)
'widely held' (held by 100 or more investors who are independent of the
Depositor and each other); (ii) freely transferable; and (iii) sold as part of
an offering pursuant to (A) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under the Securities
Exchange Act of 1934 or (B) an effective registration statement under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 ('Publicly Offered
Securities'). In addition, the Regulation provides that if at all times more
than 75% of the value of each class of equity interests in the Trust Fund is
held by investors other than benefit plan investors (which is defined as
including both Plans and employee benefit plans not subject to ERISA, including
foreign plans and government plans), the investing Plan's assets will not
include any of the underlying assets of the Trust Fund.
If no exception under the Regulation applies and the assets of the Trust
Fund are treated as plan assets, an exemption may be available for the purchase,
holding and transfer of the Securities. The Department of Labor granted to Bear,
Stearns & Co. Inc., an administrative exemption, Prohibited Transaction
Exemption 90-30 (Application No. D-8207, 55 Fed. Reg. 21461) (1990) (the
'Exemption'), from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by Plans
of Certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption, wherever Bear, Stearns & Co. Inc.
or its affiliate is the sole underwriter, the manager or co-manager of an
underwriting syndicate or the selling or placement agent. The obligations
covered by the Exemption include obligations such as the Primary Assets (other
than Private Securities which are not insured or guaranteed by the United States
or an agency or instrumentality thereof, or Home Improvement Contracts that are
unsecured). If the Trust Fund consists solely of assets covered by the
Exemption, the Exemption will apply to the acquisition, holding and transfer of
the Certificates by a Plan, provided that certain conditions (certain of which
are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(i) The acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated party;
(ii) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
(iii) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc., Moody's Investors Service, Inc., Duff & Phelps
Inc. or Fitch IBCA, Inc. (each, a 'Rating Agency');
(iv) The sum of all payments made to the underwriter in connection with
the distribution of the Certificates represents not more than reasonable
compensation for underwriting the Certificates. The sum of all payments made
to and retained by the seller pursuant to the sale of the obligations to the
trust represents not more than the fair market value of such obligations.
The sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the servicer's services under the
related servicing agreement and reimbursement of the servicer's reasonable
expenses in connection therewith;
(v) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below); and
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(vi) The Plan investing in the Certificates is an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust also must meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the type
which have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest generic rating categories of a Rating Agency for at
least one year prior to the Plan's acquisition of securities; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Securities.
Moreover, the Exemption provides relief from certain self dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire securities in a trust holding receivables on which the
fiduciary (or its affiliate) is an obligor; provided that, among other
requirements: (i) in the case of an acquisition in connection with the initial
issuance of Certificates, at least fifty (50) percent of each Class of
Certificates in which Plans have invested is acquired by persons independent of
the Restricted Group and at least fifty (50) percent of the aggregate interest
in the trust is acquired by persons independent of the Restricted Group; (ii)
such fiduciary (or its affiliate) is an obligor with respect to five (5) percent
or less of the fair market value of the obligations contained in the trust;
(iii) the Plan's investment in Certificates does not exceed twenty-five (25)
percent of all of the Certificates outstanding after the acquisition; and (iv)
no more than twenty-five (25) percent of the assets of any Plan for which the
person serves as fiduciary are invested in certificates representing an interest
in one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Depositor, the underwriters
of the Certificates, the Trustee, the Servicer, any obligor with respect to
obligations included in a Trust Fund constituting more than five (5) percent of
the aggregate unamortized principal balance of the assets in a Trust Fund, or
any affiliate of such parties (the 'Restricted Group').
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption which extends exemptive relief to certain mortgage-backed
securities transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows a portion of the
mortgages ('Loans') supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ('Pre-Funding Period'), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account to the
total principal amount of the Certificates being offered ('Pre-Funding
Limit') must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ('Additional Loans')
must meet the same terms and conditions for eligibility as the original
Loans used to create the Trust, which terms and conditions have been
approved by a Rating Agency.
(3) The transfer of such Additional Loans to the Trust during the
Pre-Funding Period must not result in the Certificates receiving a lower
credit rating from a Rating Agency upon termination of the Pre-Funding
Period than the rating that was obtained at the time of the initial issuance
of the Certificates by the Trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the 'average interest rate') for all of the
Loans in the Trust at the end of the Pre-Funding Period must not be more
than 100 basis points lower than the average interest rate for the Loans
which were transferred to the Trust on the Closing Date.
(5) In order to insure that the characteristics of the Additional Loans
are substantially similar to the original Loans which were transferred to
the Trust: (i) the characteristics of the Additional Loans must be monitored
by an insurer or other credit support provider which is independent of the
Depositor; or (ii) an independent accountant retained by the Depositor must
provide the Depositor with a letter (with copies provided to each Rating
Agency rating the Certificates, the Underwriter and the Trustee) stating
whether or not the characteristics of the Additional Loans conform to the
characteristics described in the Prospectus and Prospectus Supplement
('Offering Documents') and/or Pooling and Servicing Agreement or Sale and
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Servicing Agreement. In preparing such letter, the independent accountant
must use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the Closing Date or earlier, in certain circumstances, if the
amount on deposit in the Pre-Funding Account is reduced below the minimum
level specified in the Agreement or an event of default occurs under the
Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested
only in certain permitted investments ('Permitted Investments').
(8) The Offering Documents must describe: (i) any Pre-Funding Account
and/or Capitalized Interest Account used in connection with a Pre-Funding
Account; (ii) the duration of the Pre-Funding Period; (iii) the percentage
and/or dollar amount of the Pre-Funding Limit for the Trust; and (iv) that
the amounts remaining in the Pre-Funding Account at the end of the
Pre-Funding Period will be remitted to Certificateholders as repayments of
principal.
(9) The Pooling and Servicing Agreement must describe the Permitted
Investments for the Pre-Funding Account and Capitalized Interest Account
and, if not disclosed in the Offering Documents, the terms and conditions
for eligibility of the Additional Loans.
In the event that the Exemption is not applicable, including, for example,
when the Securities issued by the Trust Fund are Notes rather than Certificates,
some other prohibited transaction class exemption issued by the DOL, such as
PTCE 96-23 (relating to investments by in-house asset managers), PTCE 95-60
(relating to insurance company general accounts), PTCE 91-38 (relating to bank
collective funds), PTCE 90-1 (relating to insurance company pooled separate
accounts) and PTCE 84-14 (relating to investments by qualified plan asset
managers) may apply, depending on the circumstances.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the potential application of the
Exemption to the purchase and holding of Certificates and the potential
consequences in their specific circumstances, prior to making an investment in
the Securities. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute 'mortgage-related securities' within the meaning
of SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for them.
PLAN OF DISTRIBUTION
The Depositor may offer each Series of Securities through Bear, Stearns &
Co. Inc. ('Bear Stearns') or one or more other firms that may be designated at
the time of each offering of such Securities. The participation of Bear Stearns
in any offering will comply with Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc. The Prospectus Supplement relating to
each Series of Securities will set forth the specific terms of the offering of
such Series of Securities and of each Class within such Series, the names of the
underwriters, the purchase price of the Securities, the proceeds to the
Depositor from such sale, any securities exchange on which the Securities may be
listed, and, if applicable, the initial public offering prices, the discounts
and commissions to the underwriters and any discounts and concessions allowed or
reallowed to certain dealers. The place and time of delivery of each Series of
Securities will also be set forth in the Prospectus Supplement relating to such
Series. Bear Stearns is an affiliate of the Depositor.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed upon
for the Depositor by Brown & Brown LLP, New York, New York.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms used
in this Prospectus. Unless otherwise provided in a 'Supplemental Glossary' in
the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. The definitions may vary
from those in the related Agreement for a Series and the related Agreement for a
Series generally provides a more complete definition of certain of the terms.
Reference should be made to the related Agreement for a Series for a more
complete definition of such terms.
'ACCRUAL TERMINATION DATE' means, with respect to a Class of Compound
Interest Securities, the Distribution Date specified in the related Prospectus
Supplement.
'ADVANCE' means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Loan, and for any other purposes
specified in the related Prospectus Supplement.
'AGREEMENT' means, with respect to a Series of Certificates, the Pooling and
Servicing Agreement or Trust Agreement, and, with respect to a Series of Notes,
the Indenture and the Servicing Agreement, as the context requires.
'APPRAISED VALUE' means, with respect to property securing a Loan, the
lesser of the appraised value determined in an appraisal obtained at origination
of the Loan or sales price of such property at such time.
'ASSET GROUP' means, with respect to the Primary Assets and other assets
comprising the Trust Fund of a Series, a group of such Primary Assets and other
assets having the characteristics described in the related Prospectus
Supplement.
'ASSUMED REINVESTMENT RATE' means, with respect to a Series, the per annum
rate or rates specified in the related Prospectus Supplement for a particular
period or periods as the 'Assumed Reinvestment Rate' for funds held in any fund
or account for the Series.
'AVAILABLE DISTRIBUTION AMOUNT' means the amount in the Distribution Account
(including amounts deposited therein from any reserve fund or other fund or
account) eligible for distribution to Holders on a Distribution Date.
'BANKRUPTCY CODE' means the federal bankruptcy code, 11 United States Code
101 et seq., and related rules and regulations promulgated thereunder.
'BUSINESS DAY' means a day that, in the City of New York or in the city or
cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
'CERTIFICATE' means the Asset-Backed Certificates.
'CLASS' means a Class of Securities of a Series.
'CLOSING DATE' means, with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which Securities of such Series are
first issued.
'CODE' means the Internal Revenue Code of 1986, as amended, and regulations
(including proposed regulations) or other pronouncements of the Internal Revenue
Service promulgated thereunder.
'COLLECTION ACCOUNT' means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Primary Assets.
'COMBINED LOAN-TO-VALUE RATIO' means, with respect to a Loan, the ratio
determined as set forth in the related Prospectus Supplement taking into account
the amounts of any related senior mortgage loans on the related Mortgaged
Property.
'COMMISSION' means the Securities and Exchange Commission.
'COMPOUND INTEREST SECURITY' means any Security of a Series on which all or
a portion of the interest accrued thereon is added to the principal balance of
such Security on each Distribution Date, through the Accrual Termination Date,
and with respect to which no interest shall be payable until such Accrual
Termination Date, after which interest payments will be made on the Compound
Value thereof.
'COMPOUND VALUE' means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance
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thereof and reduced by any payments of principal previously made on such Class
of Compound Interest Securities.
'CONDOMINIUM' means a form of ownership of real property wherein each owner
is entitled to the exclusive ownership and possession of his or her individual
Condominium Unit and also owns a proportionate undivided interest in all parts
of the Condominium Building (other than the individual Condominium Units) and
all areas or facilities, if any, for the common use of the Condominium Units.
'CONDOMINIUM ASSOCIATION' means the person(s) appointed or elected by the
Condominium Unit owners to govern the affairs of the Condominium.
'CONDOMINIUM BUILDING' means a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to Condominium ownership.
'CONDOMINIUM LOAN' means a Loan secured by a Mortgage on a Condominium Unit
(together with its appurtenant interest in the common elements).
'CONDOMINIUM UNIT' means an individual housing unit in a Condominium
Building.
'COOPERATIVE' means a corporation owned by tenant-stockholders who, through
the ownership of stock, shares or membership securities in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units and which is described in Section 216 of the Code.
'COOPERATIVE DWELLING' means an individual housing unit in a building owned
by a Cooperative.
'COOPERATIVE LOAN' means a housing loan made with respect to a Cooperative
Dwelling and secured by an assignment by the borrower (tenant-stockholder) or
security interest in shares issued by the applicable Cooperative.
'CUT-OFF DATE' means the date designated as such in the related Prospectus
Supplement for a Series.
'DEBT SECURITIES' means Securities characterized as indebtedness for federal
income tax purposes, and Regular Interest Securities.
'DEFERRED INTEREST' means the excess of the interest accrued on the
outstanding principal balance of a Loan during a specified period over the
amount of interest required to be paid by an obligor on such Loan on the related
Due Date.
'DEPOSIT AGREEMENT' means a guaranteed investment contract or reinvestment
agreement providing for the investment of funds held in a fund or account,
guaranteeing a minimum or a fixed rate of return on the investment of moneys
deposited therein.
'DEPOSITOR' means Bear Stearns Asset Backed Securities, Inc.
'DISQUALIFIED ORGANIZATION' means the United States, any State or political
subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
'DISTRIBUTION ACCOUNT' means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
'DISTRIBUTION DATE' means, with respect to a Series or Class of Securities,
each date specified as a distribution date for such Series or Class in the
related Prospectus Supplement.
'DUE DATE' means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
'ELIGIBLE INVESTMENTS' means any one or more of the obligations or
securities described as such in the related Agreement.
'ENHANCEMENT' means the enhancement for a Series, if any, specified in the
related Prospectus Supplement.
'ENHANCER' means the provider of the Enhancement for a Series specified in
the related Prospectus Supplement.
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'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended.
'ESCROW ACCOUNT' means an account, established and maintained by the
Servicer for a Loan, into which payments by borrowers to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items required to be
paid to the mortgagee are deposited.
'FHLMC' means the Federal Home Loan Mortgage Corporation.
'FINAL SCHEDULED DISTRIBUTION DATE' means, with respect to a Class of Notes
of a Series, the date no later than which principal thereof will be fully paid
and with respect to a Class of Certificates of a Series, the date after which no
Certificates of such Class will remain outstanding, in each case based on the
assumptions set forth in the related Prospectus Supplement.
'FNMA' means the Federal National Mortgage Association.
'HOLDER' means the person or entity in whose name a Security is registered.
'HOME IMPROVEMENTS' means the home improvements financed by a Home
Improvement Contract.
'HOME IMPROVEMENT CONTRACT' means any home improvement installment sales
contract and installment loan agreement which may be unsecured or secured by
purchase money security interest in the Home Improvement financed thereby.
'HUD' means the United States Department of Housing and Urban Development.
'INDENTURE' means the indenture relating to a Series of Notes between the
Trust Fund and the Trustee.
'INSURANCE POLICIES' means certain mortgage insurance, hazard insurance and
other insurance policies required to be maintained with respect to Loans.
'INSURANCE PROCEEDS' means amounts paid by the insurer under any of the
Insurance Policies covering any Loan or Mortgaged Property.
'INTEREST ONLY SECURITIES' means a Class of Securities entitled solely or
primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
'IRS' means the Internal Revenue Service.
'LIFETIME RATE CAP' means the lifetime limit if any, on the Loan Rate during
the life of each adjustable rate Loan.
'LIQUIDATION PROCEEDS' means amounts received by the Servicer in connection
with the liquidation of a Loan, net of liquidation expenses.
'LOAN RATE' means, unless otherwise indicated herein or in the Prospectus
Supplement, the interest rate borne by a Loan.
'LOANS' mean Mortgage Loans and/or Home Improvement Contracts, collectively.
A Loan refers to a specific Mortgage Loan or Home Improvement Contract, as the
context requires.
'LOAN-TO-VALUE RATIO' means, with respect to a Loan, the ratio determined as
set forth in the related Prospectus Supplement.
'MINIMUM RATE' means the lifetime minimum Loan Rate during the life of each
adjustable rate Loan.
'MINIMUM PRINCIPAL PAYMENT AGREEMENT' means a minimum principal payment
agreement with an entity meeting the criteria of the Rating Agencies.
'MODIFICATION' means a change in any term of a Loan.
'MORTGAGE' means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
'MORTGAGE LOAN' means a closed-end home equity loan secured by a Mortgaged
Property.
'MORTGAGE NOTE' means the note or other evidence of indebtedness of a
Mortgagor under the Loan.
'MORTGAGOR' means the obligor on a Mortgage Note.
'1986 ACT' means the Tax Reform Act of 1986.
'NOTES' means the Asset-Backed Notes.
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'NOTIONAL AMOUNT' means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
'PAC' ('Planned Amortization Class Securities') means a Class of Securities
of a Series on which payments of principal are made in accordance with a
schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
'PARTICIPATING SECURITIES' means Securities entitled to receive payments of
principal and interest and an additional return on investment as described in
the related Prospectus Supplement.
'PASS-THROUGH SECURITY' means a security representing an undivided
beneficial interest in a pool of assets, including the right to receive a
portion of all principal and interest payments relating to those assets.
'PAY THROUGH SECURITY' means Regular Interest Securities and certain Debt
Securities that are subject to acceleration due to prepayment on the underlying
Primary Assets.
'PERSON' means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
'POOLING AND SERVICING AGREEMENT' means the pooling and servicing agreement
relating to a Series of Certificates among the Depositor, the Servicer (if such
Series relates to Loans) and the Trustee.
'PRIMARY ASSETS' means the Private Securities and/or Loans, as the case may
be, which are included in the Trust Fund for such Series. A Primary Asset refers
to a specific Private Security or Loan, as the case may be.
'PRINCIPAL BALANCE' means, with respect to a Primary Asset and as of a Due
Date, the original principal amount of the Primary Asset, plus the amount of any
Deferred Interest added to such principal amount, reduced by all payments, both
scheduled or otherwise, received on such Primary Asset prior to such Due Date
and applied to principal in accordance with the terms of the Primary Asset.
'PRINCIPAL ONLY SECURITIES' means a Class of Securities entitled solely or
primarily to distributions of principal and identified as such in the Prospectus
Supplement.
'PRIVATE SECURITY' means a participation or pass-through certificate
representing a fractional, undivided interest in Underlying Loans or
collateralized obligations secured by Underlying Loans.
'PROPERTY' means either a Home Improvement or a Mortgaged Property securing
a Loan, as the context requires.
'PS AGREEMENT' means the pooling and servicing agreement, indenture, trust
agreement or similar agreement pursuant to which a Private Security is issued.
'PS SERVICER' means the servicer of the Underlying Loans.
'PS SPONSOR' means, with respect to Private Securities, the sponsor or
depositor under a PS Agreement.
'PS TRUSTEE' means the trustee designated under a PS Agreement.
'QUALIFIED INSURER' means a mortgage guarantee or insurance company duly
qualified as such under the laws of the states in which the Mortgaged Properties
are located, duly authorized and licensed in such states to transact the
applicable insurance business and to write the insurance provided.
'RATING AGENCY' means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Securities upon the original issuance thereof.
'REGULAR INTEREST' means a regular interest in a REMIC.
'REMIC' means a real estate mortgage investment conduit.
'REMIC ADMINISTRATOR' means the Person, if any, specified in the related
Prospectus Supplement for a Series for which a REMIC election is made, to serve
as administrator of the Series.
'REMIC PROVISIONS' means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be in
effect from time to time.
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'REO PROPERTY' means real property which secured a defaulted Loan,
beneficial ownership of which has been acquired upon foreclosure, deed in lieu
of foreclosure, repossession or otherwise.
'RESERVE FUND' means, with respect to a Series, any Reserve Fund established
pursuant to the related Agreement.
'RESIDUAL INTEREST' means a residual interest in a REMIC.
'RETAINED INTEREST' means, with respect to a Primary Asset, the amount or
percentage specified in the related Prospectus Supplement which is not included
in the Trust Fund for the related Series.
'SCHEDULED PAYMENTS' means the scheduled payments of principal and interest
to be made by the borrower on a Primary Asset.
'SECURITIES' means the Notes or the Certificates.
'SELLER' means the seller of the Primary Assets to the Depositor identified
in the related Prospectus Supplement for a Series.
'SENIOR SECURITYHOLDER' means a holder of a Senior Security.
'SENIOR SECURITIES' means a Class of Securities as to which the holders'
rights to receive distributions of principal and interest are senior to the
rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
'SERIES' means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
'SERVICER' means, with respect to a Series relating to Loans, the Person if
any, designated in the related Prospectus Supplement to service Loans for that
Series, or the successors or assigns of such Person.
'SINGLE FAMILY PROPERTY' means property securing a Loan consisting of one to
four-family attached or detached residential housing, including Cooperative
Dwellings.
'STRIPPED SECURITIES' means Pass-Through Securities representing interests
in Primary Assets with respect to which all or a portion of the principal
payments have been separated from all or a portion of the interest payments.
'SUBORDINATE SECURITYHOLDER' means a Holder of a Subordinate Security.
'SUBORDINATED SECURITIES' means a Class of Securities as to which the rights
of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
'TRUSTEE' means the trustee under the applicable Agreement and its
successors.
'TRUST FUND' means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including, without
limitation, the Primary Assets (except any Retained Interests), all amounts in
the Distribution Account, Collection Account or Reserve Funds, distributions on
the Primary Assets (net of servicing fees), and reinvestment earnings on such
net distributions and any Enhancement and all other property and interest held
by or pledged to the Trustee pursuant to the related Agreement for such Series.
'UCC' means the Uniform Commercial Code.
'UNDERLYING LOANS' means loans of the type eligible to be Loans underlying
or securing Private Securities.
'VARIABLE INTEREST SECURITY' means a Security on which interest accrues at a
rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
'ZERO COUPON SECURITY' means a Security entitled to receive payments of
principal only.
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$256,997,000
(APPROXIMATE)
BEAR STEARNS ASSET BACKED SECURITIES, INC.
DEPOSITOR
ASSET-BACKED CERTIFICATES, SERIES 2000-1
EMC MORTGAGE CORPORATION
SELLER AND MASTER SERVICER
------------------------
PROSPECTUS SUPPLEMENT
------------------------
BEAR, STEARNS & CO. INC.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Series 2000-1 Asset-Backed Certificates in any state
where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series 2000-1 Asset-Backed Certificates and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Series 2000-1 Asset-Backed Certificates will be required to deliver a prospectus
supplement and prospectus until April 20, 2000.
JANUARY 21, 2000
