<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 21, 2000)
$278,968,000
(APPROXIMATE)
BEAR STEARNS ASSET BACKED SECURITIES, INC.
DEPOSITOR
EMC MORTGAGE CORPORATION
SELLER AND MASTER SERVICER
ASSET-BACKED CERTIFICATES, SERIES 2000-2
DISTRIBUTIONS ARE PAYABLE ON THE 25TH DAY OF EACH MONTH,
COMMENCING IN DECEMBER 2000.
-------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-11 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 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>
<CAPTION>
ORIGINAL ORIGINAL
CERTIFICATE CERTIFICATE
PRINCIPAL PASS-THROUGH PRINCIPAL PASS-THROUGH
BALANCE RATE BALANCE(1) RATE
<S> <C> <C> <C> <C> <C>
Class AF-1 $109,475,000 7.47% Class AV-1 $41,070,000 Adjustable
Class AF-2 $ 37,760,000 Adjustable Class M-1 $20,469,000 8.04%
Class AF-3 $ 17,109,000 7.34% Class M-2 $17,545,000 8.28%
Class AF-4 $ 19,749,000 7.81% Class B $15,791,000 9.00%
Class A-IO $ 23,908,000* 8.00%
</TABLE>
* Notional
The pass-through rates for the certificates bearing fixed rates of interest
will be subject to increase after the optional termination date and, except
in the case of the Class AF-3 and Class AF-4 Certificates, to an interest rate
cap as described in this prospectus supplement under 'Description of the
Certificates -- Pass-Through Rates.'
The pass-through rates for the certificates bearing adjustable rates of interest
will adjust monthly, will be subject to an interest rate cap and, in the case
of the Class AV-1 Certificates, will be subject to increase after the optional
termination date, 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.
The Class M-1, Class M-2 and Class B Certificates, which classes are sometimes
called 'subordinated certificates,' are subordinated to the other classes of
offered certificates (which other classes of offered certificates are
sometimes called 'senior certificates'). Subordination provides a form of
credit enhancement for the senior certificates. In addition, among the
subordinated certificates, certificates with lower priority are subordinated
to classes with higher priority as described in this prospectus supplement.
Certain excess interest received from the mortgage loans will be applied to
payments of principal on the certificates to establish and maintain a required
level of subordination.
Delinquencies and losses realized upon liquidation of mortgage loans in the
pool may adversely affect the yield to investors in the certificates, and to
investors in the subordinated certificates in particular.
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 November 1, 2000.
If the trust fund includes foreclosed real estate owned by the trust fund,
then the proceeds from the exercise of the right of optional termination may
not be sufficient to pay certificateholders what they would otherwise be
entitled to be paid.
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,
Clearstream, Luxembourg and the Euroclear System on or about November 30, 2000.
The offered certificates will be offered in Europe and the United States of
America.
BEAR, STEARNS & CO. INC.
November 21, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
------
Summary.............................. S-4
Risk Factors......................... S-11
The Mortgage Pool.................... S-20
Servicing of the Mortgage Loans...... S-36
Description of the Certificates...... S-42
Yield, Prepayment and Maturity
Considerations..................... S-57
Use of Proceeds...................... S-67
Federal Income Tax Consequences...... S-67
State Taxes.......................... S-68
ERISA Considerations................. S-68
Method of Distribution............... S-70
Legal Matters........................ S-70
Ratings.............................. S-70
Index of Defined Terms............... S-71
Annex I: Global Clearance, Settlement
and Tax Documentation Procedures... A-1
PROSPECTUS
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..................... 77
Plan of Distribution................. 77
Legal Matters........................ 77
Glossary of Terms.................... 78
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-71 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 78 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, YOU SHOULD 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 IS CONTAINED IN OUR FORWARD-LOOKING STATEMENTS.
THE CERTIFICATES
Asset-Backed Certificates, Series 2000-2, represent beneficial ownership
interests 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.
ORIGINATORS
United Companies Financial Corporation, with respect to approximately 85.77% of
the mortgage loans, Wells Fargo Home Mortgage, Inc., with respect to
approximately 5.77% of the mortgage loans, and 14 other originators, with
respect to approximately 8.46% of the mortgage loans.
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
Wells Fargo Bank Minnesota, National Association, a national banking
association.
See 'Description of the Certificates -- The Trustee' 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.
CUT-OFF DATE
The close of business on November 1, 2000.
CLOSING DATE
On or about November 30, 2000.
THE MORTGAGE LOANS
The aggregate principal balance of the mortgage loans as of the cut-off date is
$292,418,587.37. The mortgage loans will be divided into three separate groups
based in part on whether the interest rate on the mortgage loan is fixed or
adjustable. Each group of mortgage loans is referred to as a 'loan group.' Loan
group I and loan group II will consist solely of fixed rate mortgage loans that
are secured by first and second liens on mortgaged properties. The fixed rate
mortgage loans will be allocated to either loan group I or loan group II based
on whether or not the mortgage loan conforms to certain requirements of Freddie
Mac. Loan group III will
S-4
<PAGE>
consist solely of adjustable rate mortgage loans that are secured by first liens
on mortgaged properties.
TOTAL POOL
The following table summarizes the characteristics of all of the mortgage loans
in the trust fund as of the cut-off date:
<TABLE>
<S> <C>
Number of Mortgage Loans..... 4,885
Aggregate Principal
Balance..................... $292,418,587.37
Average Principal Balance.... $59,860.51
Range of Principal
Balances.................... $680.39 to $485,753.82
Range of Mortgage Rates...... 6.15% to 17.90%
Weighted Average Mortgage
Rate........................ 10.09%
Weighted Average Combined
Loan-to-Value Ratio......... 81.41%
Weighted Average Scheduled
Remaining Term
to Maturity................. 285 months
Range of Scheduled Remaining
Terms to Maturity........... 2 months to 355 months
Type of Mortgaged Properties
Single-family dwellings... 81.54%
Manufactured housing
(treated as real
property)................ 10.51%
2-4 family dwellings...... 3.18%
Planned unit
developments............. 1.60%
Land...................... 1.64%
Condominiums.............. 0.89%
Townhouse................. 0.64%
Owner-occupied............... 96.78%
First liens.................. 97.05%
Second liens................. 2.95%
State Concentrations
California................ 7.35%
Louisiana................. 6.71%
New York.................. 6.05%
Ohio...................... 5.59%
North Carolina............ 5.08%
Balloon loans................ 1.20%
31-60 days delinquent........ 3.93%
</TABLE>
LOAN GROUP I
The following table summarizes the characteristics of the mortgage loans in loan
group I as of the cut-off date:
<TABLE>
<S> <C>
Number of Mortgage Loans..... 2,289
Aggregate Principal
Balance..................... $142,175,372.30
Average Principal Balance.... $62,112.44
Range of Principal
Balances.................... $1,221.19 to $248,586.46
Range of Mortgage Rates...... 6.40% to 17.90%
Weighted Average Mortgage
Rate........................ 9.77%
Weighted Average Combined
Loan-to-Value Ratio......... 81.03%
Weighted Average Scheduled
Remaining Term
to Maturity................. 282 months
Range of Scheduled Remaining
Terms to Maturity........... 2 months to 354 months
Type of Mortgaged Properties
Single-family dwellings... 76.44%
Manufactured housing
(treated as real
property)................ 17.37%
2-4 family dwellings...... 3.38%
Planned unit
developments............. 1.25%
Townhouse................. 0.85%
Condominiums.............. 0.71%
Owner-occupied............... 95.34%
First liens.................. 96.53%
Second liens................. 3.47%
State Concentrations
Louisiana................. 7.52%
New York.................. 6.87%
Florida................... 6.25%
California................ 6.12%
Ohio...................... 5.22%
Balloon loans................ 2.24%
31-60 days delinquent........ 3.82%
</TABLE>
LOAN GROUP II
The following table summarizes the characteristics of the mortgage loans in loan
group II as of the cut-off date:
<TABLE>
<S> <C>
Number of Mortgage Loans..... 1,981
Aggregate Principal
Balance..................... $96,905,349.98
Average Principal Balance.... $48,917.39
Range of Principal
Balances.................... $680.39 to $417,318.51
Range of Mortgage Rates...... 6.15% to 16.00%
Weighted Average Mortgage
Rate........................ 10.29%
Weighted Average Combined
Loan-to-Value Ratio......... 81.71%
Weighted Average Scheduled
Remaining Term
to Maturity................. 263 months
Range of Scheduled Remaining
Terms to Maturity........... 3 months to 355 months
Type of Mortgaged Properties
Single-family dwellings... 84.80%
Manufactured housing
(treated as real
property)................ 5.17%
Land...................... 4.93%
2-4 family dwellings...... 2.80%
Planned unit
developments............. 1.19%
Condominiums.............. 0.72%
Townhouse................. 0.38%
Owner-occupied............... 98.83%
First liens.................. 96.17%
Second liens................. 3.83%
State Concentrations
North Carolina............ 8.64%
California................ 7.99%
Louisiana................. 7.48%
New York.................. 6.79%
Ohio...................... 6.24%
Balloon loans................ 0.33%
31-60 days delinquent........ 3.34%
</TABLE>
S-5
<PAGE>
LOAN GROUP III
The following table summarizes the characteristics of the mortgage loans in loan
group III as of the cut-off date:
<TABLE>
<S> <C>
Number of Mortgage Loans..... 615
Aggregate Principal
Balance..................... $53,337,865.09
Average Principal Balance.... $86,728.24
Range of Principal
Balances.................... $10,840.30 to $485,753.82
Mortgage Interest Rates
Current Weighted Average
Mortgage Rate............ 10.55%
Range of Current Mortgage
Rates.................... 7.99% to 15.58%
Weighted Average Maximum
Mortgage Rate............ 16.27%
Range of Maximum Mortgage
Rates.................... 11.63% to 21.58%
Weighted Average Minimum
Mortgage Rate............ 9.18%
Range of Minimum Mortgage
Rates.................... 2.00% to 15.58%
Weighted Average Gross
Margin...................... 6.09%
Range of Gross Margins....... 3.20% to 8.15%
Weighted Average
Loan-to-Value Ratio......... 81.86%
Weighted Average Scheduled
Remaining Term
to Maturity................. 332 months
Range of Scheduled Remaining
Terms to Maturity........... 98 months to 355 months
Type of Mortgaged Properties
Single-family dwellings... 89.20%
2-4 family dwellings...... 3.36%
Planned unit
developments............. 3.27%
Manufactured housing
(treated as real
property)................ 1.89%
Condominiums.............. 1.70%
Townhouse................. 0.57%
Owner-occupied............... 96.87%
First liens.................. 100%
State Concentrations
Georgia................... 10.14%
California................ 9.47%
Ohio...................... 5.39%
Michigan.................. 5.07%
31-60 days delinquent........ 5.32%
</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, as described herein.
Approximately 86.06% of the mortgage loans in loan group III are mortgage loans
that initially have a fixed rate of interest for two or three 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 three certificate groups. The Class AF-1
Certificates will represent interests principally in loan group I and are
sometimes referred to herein as the class A-I group. The Class AF-2, Class AF-3
and Class AF-4 Certificates will represent interests principally in loan
group II and are sometimes referred to herein as the class A-II group. The Class
AV-1 Certificates will represent interests principally in loan group III and are
sometimes referred to herein as the class A-III group. The Class A-IO
Certificates will represent interests in both loan group I and loan group II,
and the Class M-1, Class M-2 and Class B Certificates will each represent
subordinated interests in loan group I, loan group II and loan group III.
The trust will also issue Class XP and Class B-IO Certificates and a class of
residual certificates designated as the Class R Certificates, none of which are
offered by this prospectus supplement.
The last scheduled distribution date for the offered certificates, other than
the Class A-IO Certificates, is August 25, 2030 and for the Class A-IO
Certificates is May 25, 2003.
RECORD DATE
For each class of offered certificates which bears a fixed rate of interest and
the first distribution date, the closing date and for any distribution date
thereafter, the last business day of the month preceding the month of a
distribution date. For each class of offered certificates which bears an
adjustable rate, 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 Clearstream Luxembourg or the Euroclear System, in Europe.
See 'Description of Certificates -- Book-Entry Certificates' in this prospectus
supplement.
S-6
<PAGE>
PASS-THROUGH RATES
The pass-through rate for each class of offered certificates bearing a fixed
rate of interest is the respective per annum fixed rate as set forth and
described on the cover of this prospectus supplement. On any distribution date,
the pass-through rate for each such class, other than the Class AF-3 and AF-4
Certificates, will be subject to an interest rate cap.
The interest rate cap for the Class A-IO Certificates, called the A-IO net rate
cap, is equal to weighted average of the net mortgage rates of the mortgage
loans in both loan group I and loan group II.
The interest rate cap for the Class AF-1 Certificates, is equal to
(a) through the applicable accrual period for such class relating to the
distribution date in May, 2003,
(I) (A) (1) the weighted average of the net mortgage rates of the mortgage
loans in loan group I and loan group II multiplied by (2) the excess
of the aggregate principal balance of the mortgage loans in loan
group I and loan group II over the notional amount of the Class A-IO
Certificates, plus
(B) (1) the excess of the weighted average of the net mortgage rates
of the mortgage loans in loan group I and loan group II over the
interest rate of the Class A-IO Certificates, multiplied by (2) the
notional amount of the Class A-IO Certificates; divided by
(II) the principal balance of the mortgage loans in loan group I and loan
group II, and
(b) thereafter, the weighted average of the net mortgage rates of the mortgage
loans in loan group I, called the group I net rate cap.
The interest rate cap for the Class M-1, Class M-2 and Class B Certificates is
equal to
(a) through the applicable accrual period for each such Class relating to the
Distribution Date in May, 2003, the lesser of
(i) the aggregate groups I and II net rate cap, and
(ii) the weighted average of the net mortgage rates of the mortgage loans
in loan group III, called the group III net rate cap, and
(b) thereafter, the least of
(i) the group I net rate cap,
(ii) the weighted average of the net mortgage rates of the mortgage loans
in loan group II, called the group II net rate cap and
(iii) the group III net rate cap.
After the optional termination date, each fixed pass-through rate as set forth
on the cover of this prospectus supplement will be increased by 0.50% and will
remain subject to the applicable interest rate cap.
The pass-through rate for each class of certificates bearing an adjustable rate
of interest may change from distribution date to distribution date. On any
distribution date, the pass-through rate per annum for each such class will be
equal to the lesser of:
LIBOR plus the pass-through margin of (i) for the Class AF-2 Certificates, 0.15%
and (ii) for the Class AV-1 Certificates, initially 0.25% and after the
optional termination date 0.50%, and
(a) in the case of the Class AF-2 Certificates,
(i) through the applicable accrual period for such class relating to the
distribution date in May, 2003, the aggregate groups I and II net rate
cap, and
(ii) thereafter, the group II net rate cap, and
(b) in the case of the Class AV-I Certificates, the group III net rate cap.
See 'Description of the Certificates -- Pass-Through Rate' and ' -- Calculation
of One-Month LIBOR' in this prospectus supplement.
If on any distribution date, the pass-through rate for a class of offered
certificates is based on its respective net rate cap, if any, 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 that
class not been calculated based on the respective net rate cap. There will be no
carryover of such shortfall to future distribution dates.
See 'Description of the Certificates -- Distributions' in this prospectus
supplement.
S-7
<PAGE>
DISTRIBUTION DATES
The trustee will make distributions on the certificates on the 25th day of each
calendar month beginning in December 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 certificates bearing a fixed rate of interest will
be the calendar month immediately preceding the calendar month in which a
distribution date occurs. The 'accrual period' for the certificates bearing an
adjustable rate of interest 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 certificates bearing a fixed rate of
interest will be based on a 360-day year that consists of twelve 30-day months.
Calculations of interest on the certificates bearing an adjustable rate of
interest will be based on a 360-day year and the actual number of days elapsed
during the related accrual period.
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 or in certain cases the other loan groups, and
until an overcollateralization level has been reached, will include interest
payments on the mortgage loans not needed to pay interest on the certificates.
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.
SUBORDINATION
The issuance of senior certificates and subordinated certificates by the trust
fund is designed to increase the likelihood that senior certificateholders will
receive regular payments of interest and principal. The Class AF-1, Class AF-2,
Class AF-3, Class AF-4, Class A-IO and Class AV-1 Certificates constitute the
'senior certificates,' and the Class M-1, Class M-2 and Class B Certificates
constitute the 'subordinated certificates.'
The certificates that have been designated as senior certificates will have a
payment priority over the certificates that are designated as subordinated
certificates. Among the classes of subordinated certificates
the Class M-1 Certificates will have payment priority over the Class M-2
Certificates, and
the Class M-2 Certificates will have payment priority over the Class B
Certificates
Subordination is designed to provide the holders of certificates having a higher
payment priority with protection against losses realized when the remaining
unpaid principal balance on a mortgage loan exceeds the amount of proceeds
recovered upon the liquidation of that mortgage loan. In general, this loss
protection is accomplished by allocating the realized losses among the
certificates, beginning with the subordinated certificates with the lowest
payment priority, until the principal amount of that subordinated class has been
reduced to zero. Realized losses would then be allocated to the next most junior
class of
S-8
<PAGE>
subordinated certificates, until the principal balance of each class of
subordinated certificates was reduced to zero. Thereafter, realized losses would
be allocated to the senior certificates of the related loan group.
See 'Description of the Certificates -- Distributions' in this prospectus
supplement.
OVERCOLLATERALIZATION AND CROSSCOLLATERALIZATION
The mortgage loans are expected to generate more interest than is needed to pay
interest on the offered certificates because the weighted average interest rate
of the mortgage loans is expected to be higher than the weighted average
pass-through rate on the offered certificates and, as overcollateralization
increases, such higher interest rate is paid on a principal balance of mortgage
loans that is larger than the principal balance of the certificates. Interest
payments received in respect of the mortgage loans in excess of the amount that
is needed to pay interest on the offered certificates and related trust fund
expenses will be used to reduce the total principal balance of such certificates
until a required level of overcollateralization has been achieved. As of the
closing date, the aggregate principal balance of the mortgage loans exceeds the
aggregate principal balance of the certificates by approximately 4.60%.
In addition, the principal payment rules require that, under certain
circumstances, excess cashflow relating to one or more loan groups shall be used
to cover shortfalls in the payment of principal allocated to the senior
certificates relating to other loan group or groups. The principal payment rules
also require that, after the senior certificates relating to a loan group or
groups are no longer outstanding, principal payments from the related loan group
or groups otherwise allocable to such senior certificates shall be allocated to
the senior certificates relating to the other loan group or groups. These
features are called 'crosscollateralization.'
See 'Description of the Certificates -- Overcollateralization and
Crosscollateralization Provisions' in this prospectus supplement.
ADVANCES
The master servicer will make cash advances with respect to delinquent payments
of scheduled interest and, other than in the case of simple interest mortgage
loans, principal on the mortgage loans to the extent that the master servicer
reasonably believes that such cash advances can be repaid from future payments
on the related mortgage loans. If the master servicer fails to make any required
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
when the principal balance of the mortgage loans and any foreclosed real estate
owned by the trust fund has declined to or below 10% of the principal balance of
the mortgage loans as of the cut-off date. Such a purchase by the master
servicer will result in the early retirement of all the 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, organized in a tiered REMIC structure. The
certificates offered by this prospectus supplement and the Class XP and
Class B-IO Certificates will represent beneficial ownership of REMIC 'regular
interests' in the related REMIC identified in the pooling and servicing
agreement.
The residual certificates will represent the beneficial ownership of the sole
class of 'residual interest' in each REMIC. Certain classes 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.
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LEGAL INVESTMENT
None of the classes of offered certificates will be 'mortgage related
securities' for purposes of the Secondary Mortgage Market Enhancement Act of
1984.
See 'Legal Investment' in the prospectus.
ERISA CONSIDERATIONS
The Class AF-1, Class AF-2, Class AF-3, Class AF-4, Class A-IO and Class AV-1
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 respective ratings set forth below from Moody's Investors Service, Inc. and
Standard & Poors Rating Services, a division of The McGraw-Hill Companies, Inc.
<TABLE>
<CAPTION>
Moody's S&P
Class Rating Rating
----- ------ ------
<S> <C> <C>
AF-1 Aaa AAA
AF-2 Aaa AAA
AF-3 Aaa AAA
AF-4 Aaa AAA
A-IO Aaa AAA
AV-1 Aaa AAA
M-1 Aa2 AA
M-2 A2 A
B Baa3 BBB
</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.
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<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 SUBORDINATED CERTIFICATES HAVE A
GREATER RISK OF LOSS THAN THE SENIOR
CERTIFICATES When certain classes of certificates provide credit
enhancement for other classes of certificates it is
sometimes referred to as 'subordination.' For purposes
of this prospectus supplement, 'related subordinated
classes' means:
with respect to the senior certificates, the Class M-1
Class M-2 and Class B Certificates and any
overcollateralization;
with respect to the Class M-1 Certificates, the
Class M-2 and Class B Certificates and any
overcollateralization;
with respect to the Class M-2 Certificates, the Class B
Certificates and any overcollateralization; and
with respect to the Class B Certificates, any
overcollateralization.
Credit enhancement will be provided for the
certificates, first, by the right of the holders of the
certificates to receive certain payments of principal
prior to the related subordinated classes and, second,
by the allocation of realized losses to the related
subordinated classes. This form of credit enhancement is
provided by using collections on the mortgage loans
otherwise payable to the holders of the related
subordinated classes to pay amounts due on the more
senior classes. Such collections are the sole source of
funds from which such credit enhancement is provided.
Realized losses in excess of overcollateralization are
allocated to the offered certificates, beginning with
the offered certificates with the lowest payment
priority, until the principal amount of that class has
been reduced to zero. This means that with respect to
the certificates offered by this prospectus supplement,
realized losses on the mortgage loans would first be
allocated to the Class B Certificates until the
principal balance of such Class B Certificates was
reduced to zero. Subsequent realized losses would be
allocated to the next most junior class of offered
certificates, until the principal balance of that class
of offered certificates was reduced to zero.
Accordingly, if the aggregate principal balance of a
subordinated class were to be reduced to zero,
delinquencies and defaults on the mortgage loans would
reduce the amount of funds available for distributions
to holders of the remaining subordinated class or
classes and, if the aggregate principal balance of all
the subordinated classes were to be reduced to zero,
delinquencies and defaults on the mortgage loans in a
particular loan group would reduce the amount of funds
available for monthly distributions to holders of the
remaining related certificates.
You should fully consider the risks of investing in a
subordinated certificate, including the risk that you
may not
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<S> <C>
fully recover your initial investment as a result of
realized losses.
See 'Description of the Certificates' in this prospectus
supplement.
CREDIT ENHANCEMENT MAY BE INADEQUATE TO
COVER LOSSES The mortgage loans are expected to generate more
interest than is needed to pay interest on the offered
certificates because the weighted average interest rate
on the mortgage loans is expected to be higher than the
weighted average pass-through rate on the offered
certificates. If the mortgage loans generate more
interest than is needed to pay interest on the offered
certificates and trust fund expenses, such 'excess
interest' will be used to make additional principal
payments on the offered certificates, which will reduce
the total principal balance of the offered certificates
below the aggregate principal balance of the mortgage
loans, thereby creating 'overcollateralization.'
Overcollateralization is intended to provide limited
protection to certificateholders by absorbing the
certificates' share of losses from liquidated mortgage
loans. In addition, under certain circumstances,
aggregate excess cashflow may be used to provide
crosscollateralization to a class A group or groups to
cover any related shortfalls in the payment of principal
allocated to such class A group or groups. However, we
cannot assure you that enough excess interest will be
generated on the mortgage loans to establish or maintain
the required level of overcollateralization or to
provide crosscollateralization.
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
may be influenced by changes in the weighted average of
the mortgage rates resulting from prepayments and
liquidations of the mortgage loans as well as from
adjustments of the mortgage rates on adjustable rate
mortgage loans.
If the protection afforded by overcollateralization and
cross-collateralization is insufficient, then you could
experience a loss on your investment.
ADJUSTMENTS OF THE MORTGAGE RATES AND
CERTAIN PAYMENTS OF THE MORTGAGE LOANS MAY
LIMIT THE PASS-THROUGH RATES ON THE
CERTIFICATES BEARING INTEREST AT AN
ADJUSTABLE RATE The pass-through rate on the Class AV-1 Certificates
adjusts monthly and is generally based on one-month
LIBOR. The mortgage rates on 94.60% and 5.40% (by the
cut-off date principal balance) of the adjustable rate
mortgage loans adjust semi-annually based on six-month
LIBOR or annually based on the one-year constant
maturity treasury index, called 'one-year CMT,'
respectively. In addition, a substantial majority of the
adjustable rate mortgage loans do not have their first
adjustment dates for two or three years after
origination. Because six-month LIBOR and/or one-year CMT
may respond to different economic and market factors
than one-month LIBOR, there is
</TABLE>
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<TABLE>
<S> <C>
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 Class AV-1 Certificates is
stable or rising. In addition, although it is possible
that both the mortgage rates and Class AV-1 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 Class AV-1 Certificate pass-through
rate.
This absence of a correlation between movement in the
mortgage rates and the Class AV-1 Certificate
pass-through rate may reduce the interest payable on the
Class AV-1 Certificates because of the imposition of the
group III net rate cap.
If on any distribution date the pass-through rate for
the Class AV-1 Certificates is based on the group III
net rate cap, the holders of the Class AV-1 Certificates
will receive a smaller amount of interest than they
would have received on that distribution date had the
pass-through rate for that class not been calculated
based on the group III net rate cap.
The mortgage loans in loan group II accrue interest at
fixed rates while the Class AF-2 Certificates accrue
interest based on one-month LIBOR. To the extent that
the mortgage loans in loan group II with higher mortgage
rates experience prepayments in full or defaults,
including particularly during a period of increased
one-month LIBOR rates, there will be less interest
available from the mortgage loans in loan group II to
cover interest due to the holders of the Class AF-2
Certificates. The Class AF-2 Certificates are also
subject to an interest rate cap which may limit the
amount of interest payable on the Class AF-2
Certificates.
If the pass-through rate on any offered certificates
bearing interest at an adjustable rate is limited by the
applicable 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.
PREPAYMENTS AND DEFAULTS ON THE FIXED RATE
MORTGAGE LOANS MAY REDUCE THE YIELD ON THE
OFFERED CERTIFICATES BEARING INTEREST AT A
FIXED RATE The pass-through rates on the offered certificates
bearing interest at a fixed rate (other than the
Class AF-3 and Class AF-4 Certificates) are each
subject to an interest rate cap equal to the weighted
average of the net mortgage rates on the mortgage loans
in one or more loan groups. If fixed rate mortgage loans
with relatively higher mortgage rates were to prepay or
default, the applicable net rate cap would result in
lower interest than otherwise would be the case. If the
pass-through rate on any offered certificates bearing
interest at a fixed rate (other than the Class AF-3 and
Class AF-4 Certificates) is limited by the applicable
net rate cap on any distribution date, the holders of
those certificates will not be entitled to recover any
resulting
</TABLE>
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<S> <C>
shortfall in interest on that distribution date or on
any other distribution date.
THE ORIGINATOR OF A SUBSTANTIAL PORTION OF
THE MORTGAGE LOANS HAS CEASED OPERATIONS
AS A RESULT OF FINANCIAL DIFFICULTIES Mortgage loans constituting approximately 85.77% of the
cut-off date principal balance of the mortgage loans
were originated or purchased by United Companies
Financial Corporation (referred to herein as United
Companies) during the period from September, 1980
through April, 1999. In March 1999, United Companies
filed for bankruptcy protection, and in September, 2000,
the seller acquired these mortgage loans in a bankruptcy
auction of the assets of United Companies' bankruptcy
estate. There can be no assurance that the performance
of these mortgage loans will correlate with the
performance of mortgage loans originated by United
Companies in prior years, or correlate with the
performance of mortgage loans historically serviced by
the master servicer.
SERVICING OF THE MORTGAGE LOANS HAS BEEN
RECENTLY TRANSFERRED In connection with the seller's purchase of the United
Companies mortgage loans, the direct servicing of such
mortgage loans was transferred to the master servicer
effective October 1, 2000. Any transfer of servicing
creates the possibility of disruptions in 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.
DEFAULTS ON SECOND LIEN MORTGAGE LOANS
COULD RESULT IN PAYMENT DELAYS OR LOSSES Approximately 3.47% and 3.83% of the cut-off date
principal balance of the mortgage loans in loan group I
and loan group II, respectively, 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
certificates, other than the Class AV-1 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.
</TABLE>
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<TABLE>
<S> <C>
BALLOON LOANS MAY HAVE HIGH RATES OF
DEFAULT With respect to approximately 2.24% and 0.33% of the
cut-off date principal balance of the mortgage loans in
loan group I and loan group II, respectively, 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 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.
In the event that:
the mortgaged properties fail to provide adequate
security for the related mortgage loans, and
the protection provided by the subordination of certain
classes and the availability of overcollateralization
are insufficient to cover any shortfall,
you could lose all or a portion of the money you paid
for your certificates.
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, and
homeowner mobility.
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
</TABLE>
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<S> <C>
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 55.51% of the
mortgage loans by cut-off date principal balance impose
a prepayment charge in connection with voluntary
prepayments made within up to five years after
origination.
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 a certificate bearing interest at an
adjustable rate, your yield will also be sensitive to
the level of one-month LIBOR and the applicable
interest rate cap and, in the case of the Class AV-1
Certificates, the timing of adjustment of the
pass-through rate on the Class AV-1 Certificates as it
relates to the timing of adjustment of the interest
rates on the adjustable rate mortgage loans and the
level of the mortgage indicies, 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.
MORTGAGE LOAN MODIFICATIONS MAY AFFECT
INTEREST RATE CAPS Modifications of mortgage loans agreed to by the master
servicer in order to maximize ultimate proceeds of such
mortgage loans may extend the period over which
principal is received on the certificates or, if such
modifications downwardly adjust interest rates, may
lower the applicable interest rate cap or caps.
VIOLATIONS OF CONSUMER PROTECTION LAWS MAY
RESULT IN LOSSES Certain of the mortgage loans may be subject to special
rules, disclosure requirements and other provisions that
were added to the federal Truth-in-Lending Act by the
Home Ownership and Equity Protection Act of 1994, if
such mortgage loans
were originated on or after October 1, 1995
</TABLE>
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<TABLE>
<S> <C>
are not mortgage loans made to finance the purchase of
the mortgaged property and
have interest rates or origination costs in excess of
certain prescribed levels.
We refer to these mortgage loans as high cost loans
herein. EMC generally does not possess sufficient
information regarding the origination costs of the
mortgage loans to determine whether such mortgage loans
would be high cost loans. However, based upon a review
of the mortgage rates, origination dates and loan
purposes with respect to the mortgage loans, EMC
believes that there may be a significant number of
mortgage loans that are high cost loans.
The act provides that any purchaser or assignee of a
high cost loan 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 high cost
loan.
The trust fund could be subject to all of the claims and
defenses which the borrower could assert against the
originator. Remedies available to the borrower include
monetary penalties, as well as rescission rights if the
appropriate disclosures were not given as required. Any
violation of the Home Ownership and Equity Protection
Act of 1994 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 (or in certain instances substitute 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 the related certificates. If
the seller fails to cure, repurchase or substitute for
the applicable mortgage loan, the related
certificateholders may suffer a loss.
The Mortgage Loans are also subject to other federal and
state laws. See 'Certain Legal Aspects of Mortgage
Loans.'
A REDUCTION IN CERTIFICATE RATING COULD
HAVE AN ADVERSE EFFECT ON THE VALUE OF
YOUR CERTIFICATES The ratings of each class of offered certificates will
depend primarily on an assessment by the rating agencies
of the related mortgage loans, the amount of
overcollateralization and the subordination afforded by
certain classes of certificates. The ratings by each of
the rating agencies of the offered certificates are not
recommendations to purchase, hold or sell the offered
certificates because such ratings do not address the
market prices of the certificates or suitability for a
particular investor.
The rating agencies may suspend, reduce or withdraw the
ratings on the offered certificates at any time. Any
reduction in, or suspension or withdrawal of, the rating
assigned to a class of offered certificates would
probably reduce the market value of such class of
offered certificates and may affect your ability to sell
them.
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<S> <C>
YOUR DISTRIBUTIONS COULD BE ADVERSELY
AFFECTED BY THE BANKRUPTCY OR INSOLVENCY
OF CERTAIN PARTIES The seller will treat its transfer of the mortgage loans
to the depositor as a sale of the mortgage loans.
However, if the seller becomes bankrupt, the trustee in
bankruptcy may argue that the mortgage loans were not
sold but were only pledged to secure a loan to the
seller. 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, 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 7.52%, 6.87%, 6.25%, 6.12%, and 5.22% of
the loan group I mortgage loans as of the cut-off date
are secured by mortgaged properties that are located in
the states of Louisiana, New York, Florida, California
and Ohio, respectively. Approximately 8.64%, 7.99%,
7.48%, 6.79%, and 6.24% of the loan group II mortgage
loans as of the cut-off date are secured by mortgaged
properties that are located in the states of North
Carolina, California, Louisiana, New York and Ohio,
respectively. Approximately 10.14%, 9.47%, 5.39%, and
5.07% of the loan group III mortgage loans as of the
cut-off date are secured by mortgaged properties that
are located in the states of Georgia, California, Ohio
and Michigan, respectively. Property in certain of those
states, including California, Florida and Louisiana, 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>
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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>
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<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 November 30, 2000 (the 'Closing Date'), Mortgage Loans may be
removed from the Mortgage Pool and 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 the
close of business on November 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 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 49 states and the
District of Columbia. Each Mortgage Loan in the Trust Fund will be assigned to
one of three mortgage loan groups each of which constitutes a separate sub-trust
('Loan Group I,' 'Loan Group II' and 'Loan Group III,' and each a 'Loan Group'),
comprised of Mortgage Loans that bear interest at fixed rates, in the case of
Loan Group I and Loan Group II (such Mortgage Loans, the 'Fixed Rate Mortgage
Loans'), and adjustable rates, in the case of Loan Group III (such Mortgage
Loans, the 'Adjustable Rate Mortgage Loans'). Loan Group I will consist of Fixed
Rate Mortgage Loans with certain characteristics conforming to the requirements
of Freddie Mac; and Loan Group II will consist of Fixed Rate Mortgage Loans with
certain characteristics that do not conform to those requirements.
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 in 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 in a
bankruptcy auction of the assets of United Companies Financial Corporation
('United Companies') and directly in privately negotiated transactions from
Wells Fargo Home Mortgage, Inc. ('Wells Fargo') and 14 other originators. The
Mortgage Loans were originated substantially in accordance with the underwriting
criteria for subprime 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 ('Scheduled Payments') made by the Mortgagors on
the Mortgage Loans (other than Simple Interest Loans) 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 51.02% of the Mortgage Loans in Loan Group I, approximately 56.07%
of the Mortgage Loans in Loan Group II and approximately 66.47% of the Mortgage
Loans in Loan Group III (by Cut-off Date Principal Balance) provide for the
payment by the borrower of a prepayment charge on voluntary prepayments
typically made up to the first five years from the date of execution of the
related Mortgage Note.
The Cut-off Date Pool Principal Balance is $292,418,587.37, which is equal
to the aggregate Stated Principal Balance of the Mortgage Loans as of the
Cut-off Date. The Mortgage Loans to be transferred by the Depositor to the Trust
Fund on the Closing Date will consist of 4,885 Mortgage Loans, of which
approximately 48.62% are in Loan Group I, 33.14% are in Loan Group II and 18.24%
are in Loan Group III. The 'Stated Principal Balance' of any Mortgage Loan with
respect to any Distribution Date is the Cut-off Date Principal Balance thereof
minus the sum of (a)(i) in the case of each Mortgage Loan other than a Simple
Interest Loan, the principal portion of the Scheduled Payments due with respect
to such Mortgage Loan during each Due Period ending prior to such Distribution
Date (and irrespective of any delinquency in their payment) and (ii) in the case
of each Simple Interest Loan, the principal portion of the Scheduled Payments
that were received by the
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Master Servicer as of the close of business on the Determination Date related to
such Distribution Date and (b) all prepayments of principal with respect to such
Mortgage Loan received prior to or during the related Prepayment Period, and all
liquidation proceeds to the extent applied by the Master Servicer as recoveries
of principal in accordance with the Pooling and Servicing Agreement that were
received by the Master Servicer as of the close of business on the last day of
the Prepayment Period related to such Distribution Date. The 'Determination
Date' with respect to a Distribution Date is the 15th day of the month in which
such Distribution Date occurs. The 'Prepayment Period' with respect to a
Distribution Date is the prior calendar month.
Simple Interest Mortgage Loans. Approximately 1.11% of the Mortgage Loans
(which have an aggregate Cut-off Date Principal Balance as of the Cut-off Date
of approximately $3,235,975.22) are loans which accrue interest on their
outstanding principal balances on a daily basis (such Mortgage Loans, the
'Simple Interest Mortgage Loans'). Each monthly payment made by a Mortgagor with
respect to a Simple Interest Loan is applied first to interest accrued to the
date of payment and then to a reduction of the principal balance. The amount so
applied will depend on the date of receipt of the monthly payment. For example,
a monthly payment received prior to the Due Date on a Mortgage Loan will result
in a larger allocation to principal than if the monthly payment had been
received on the Due Date. If a monthly payment is received after the related Due
Date, this will result in a smaller reduction of the principal balance of the
Mortgage Loan than if the monthly payment had been received on the Due Date. If
a monthly payment received after the Due Date is insufficient to pay accrued
interest on the Mortgage Loan, the unpaid amount will be payable from the next
monthly payment.
Adjustable Rate Mortgage Loans. Each of the Adjustable Rate Mortgage Loans
will have a Mortgage Rate which is subject to either semi-annual or annual
adjustment on the first day of the months specified in the related Mortgage Note
(each such date, an 'Adjustment Date'). Each Mortgage Rate will be equal to the
sum, generally rounded to the nearest 0.125%, of (i) either Six-Month LIBOR or
One-Year CMT, each as defined below (each, a '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 2.00%
on any Adjustment Date (the 'Periodic Rate Cap'), with the exception of the
initial Adjustment Date for certain of the 2/28 Mortgage Loans and 3/27 Mortgage
Loans (each defined below), which are subject to a different initial Periodic
Rate Cap, which is set forth in the Mortgage Note. 'Six-Month LIBOR' is the
average of the London interbank offered rates for six-month U.S. dollar deposits
in the London market, in substantially all cases 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, as most recently announced as of a date which is 30 or 45 days
prior to such Adjustment Date. 'One-Year CMT' is the weekly average yield on
U.S. Treasury securities, adjusted to a constant maturity of one year yields on
actively-traded U.S. Treasury securities in the over-the-counter market,
calculated from composites of quotations reported by five leading U.S. Treasury
securities dealers to the Federal Reserve Bank of New York. Substantially all of
the Mortgage Loans in Loan Group III were originated with Mortgage Rates less
than the sum of the then applicable Mortgage Index and the related Gross Margin.
Approximately 30.66% of the Mortgage Loans in Loan Group III have fixed Mortgage
Rates for approximately 24 months after origination thereof (the '2/28 Mortgage
Loans') and approximately 55.40% of the Mortgage Loans in the Loan Group III
have fixed Mortgage Rates for approximately 36 months after origination thereof
(the '3/27 Mortgage Loans'), in each case before becoming subject to the
semi-annual or annual adjustment described in the preceding sentences. Each of
the Mortgage Loans in Loan Group III 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
S-21
<PAGE>
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.
Credit Life Insurance. Approximately 40.70% and 12.95% of the Mortgage Loans
in Loan Group II and Loan Group III, by Cut-off Date Principal Balance, are
loans the proceeds from which were used to finance certain life insurance
policies ('Credit Life Insurance'). Such policies provide that, upon the death
of the borrower, an amount generally sufficient to fully pay off the mortgage
loan shall be payable by the insurer. Credit Life Insurance premiums are
financed by adding the total premium payments payable under the policy to the
principal balance of the related mortgage loan. In the event of a claim under
the Credit Life Insurance policy, the insurer would pay applicable proceeds to
the Master Servicer. Credit Life Insurance Policies have been challenged by
borrowers as being unlawfully predatory. No proceeds from any of the Mortgage
Loans in Loan Group I were used to finance single premium Credit Life Insurance.
Credit scores. 'Credit scores' are obtained by many lenders in connection
with mortgage loan applications to help assess a borrower's creditworthiness.
Credit scores are obtained from credit reports provided by various credit
reporting organizations, each of which may employ differing computer models and
methodologies. The credit score is designed to assess a borrower's credit
history at a single point, using objective information currently on file for the
borrower at a particular credit reporting organization. Information utilized to
create a credit score may include, among other things, payment history,
delinquencies on accounts, level of outstanding indebtedness, length of credit
history, types of credit, and bankruptcy experience. Credit scores range from
approximately 350 to approximately 840, with higher scores indicating an
individual with a more favorable credit history compared to an individual with a
lower score. However, a credit score purports only to be a measurement of the
relative degree of risk a borrower represents to a lender, that is, a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
credit scores were developed to indicate a level of default probability over a
two-year period, which does not correspond to the life of a mortgage loan.
Furthermore, credit scores were not developed specifically for use in connection
with mortgage loans, but for consumer loans in general, and assess only the
borrower's past credit history. Therefore, a credit score does not take into
consideration the differences between mortgage loans and consumer loans
generally or the specific characteristics of the related mortgage loan
including, for example, the Loan-to-Value Ratio or Combined Loan-to-Value Ratio,
the collateral for the mortgage loan, or the debt to income ratio. There can be
no assurance that the credit scores of the mortgagors will be an accurate
predictor of the likelihood of repayment 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 in the aggregate and about the
Mortgage Loans in each Loan Group. Other than with respect to rates of interest,
percentages are approximate and are stated by Cut-off Date Principal Balance of
all of the Mortgage Loans, or of Mortgage Loans in the related Loan Group, as
applicable. The sum of the columns below may not equal the total indicated due
to rounding.
S-22
<PAGE>
LOAN POOL
<TABLE>
<CAPTION>
MORTGAGE RATES FOR THE
MORTGAGE LOANS IN THE
LOAN POOL(1)
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MORTGAGE RATES MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
6.001% - 6.500%.......... 14 $ 1,440,794.08 0.49%
6.501% - 7.000%.......... 166 14,583,006.86 4.99
7.001% - 7.500%.......... 33 2,435,482.56 0.83
7.501% - 8.000%.......... 33 2,663,555.35 0.91
8.001% - 8.500%.......... 154 11,499,586.39 3.93
8.501% - 9.000%.......... 442 35,212,109.51 12.04
9.001% - 9.500%.......... 525 38,469,285.47 13.16
9.501% - 10.000%.......... 726 48,385,869.55 16.55
10.001% - 10.500%.......... 572 37,323,345.50 12.76
10.501% - 11.000%.......... 537 34,508,254.81 11.80
11.001% - 11.500%.......... 427 21,085,620.99 7.21
11.501% - 12.000%.......... 477 19,687,786.30 6.73
12.001% - 12.500%.......... 173 6,554,653.70 2.24
12.501% - 13.000%.......... 333 10,124,398.21 3.46
13.001% - 13.500%.......... 124 4,387,672.15 1.50
13.501% - 14.000%.......... 57 1,496,697.52 0.51
14.001% - 14.500%.......... 33 969,995.52 0.33
14.501% - 15.000%.......... 32 739,154.24 0.25
15.001% - 15.500%.......... 22 737,239.42 0.25
15.501% - 16.000%.......... 4 90,471.66 0.03
17.501% - 18.000%.......... 1 23,607.58 0.01
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans in the Loan Pool was approximately 10.09% per annum.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS FOR THE
MORTGAGE LOANS IN THE
LOAN POOL(1)
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF COMBINED NUMBER OF BALANCE LOAN
LOAN-TO-VALUE RATIOS MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
5.01% - 10.00%.......... 5 $ 41,466.61 0.01%
10.01% - 20.00%.......... 22 412,414.04 0.14
20.01% - 25.00%.......... 22 551,450.23 0.19
25.01% - 30.00%.......... 25 654,796.21 0.22
30.01% - 40.00%.......... 71 1,660,865.06 0.57
40.01% - 50.00%.......... 158 4,656,081.39 1.59
50.01% - 60.00%.......... 252 9,098,963.60 3.11
60.01% - 70.00%.......... 432 20,271,720.98 6.93
70.01% - 80.00%.......... 1,423 82,815,426.71 28.32
80.01% - 90.00%.......... 1,674 120,235,151.40 41.12
90.01% - 100.00%.......... 758 50,626,393.86 17.31
100.01% - 110.00%.......... 32 1,045,205.72 0.36
110.01% - 120.00%.......... 8 218,232.78 0.07
120.01% - 125.00%.......... 3 130,418.78 0.04
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Combined Loan-to-Value Ratio of
the Mortgage Loans in the Loan Pool was approximately 81.41%.
<TABLE>
<CAPTION>
MORTGAGE LOAN PRINCIPAL BALANCE FOR THE
MORTGAGE LOANS IN THE
LOAN POOL(1)
--------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MORTGAGE LOAN NUMBER OF BALANCE LOAN
PRINCIPAL BALANCES MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00... 956 $16,061,341.25 5.49%
$ 25,000.01 - $ 50,000.00... 1,513 56,164,733.46 19.21
$ 50,000.01 - $ 75,000.00... 1,177 72,080,250.73 24.65
$ 75,000.01 - $100,000.00... 557 47,984,323.22 16.41
$100,000.01 - $125,000.00... 319 35,479,634.62 12.13
$125,000.01 - $150,000.00... 147 19,996,194.12 6.84
$150,000.01 - $175,000.00... 78 12,531,357.98 4.29
$175,000.01 - $200,000.00... 51 9,519,140.79 3.26
$200,000.01 - $225,000.00... 28 5,961,849.99 2.04
$225,000.01 - $250,000.00... 24 5,657,908.98 1.93
$250,000.01 - $275,000.00... 10 2,613,233.72 0.89
$275,000.01 - $300,000.00... 11 3,147,428.16 1.08
$300,000.01 and above....... 14 5,221,190.35 1.79
----- --------------- ------
Total..................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the average principal balance of the Mortgage Loans
in the Loan Pool was approximately $59,860.51.
<TABLE>
<CAPTION>
CREDIT SCORES FOR THE
MORTGAGE LOANS IN THE
LOAN POOL(1)
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
CREDIT SCORES MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
Not available.............. 138 $ 5,900,244.95 2.02%
1 - 499.................. 271 15,723,175.36 5.38
500 - 519.................. 308 16,583,009.25 5.67
520 - 539.................. 397 24,576,076.98 8.40
540 - 559.................. 387 23,424,000.57 8.01
560 - 579.................. 419 27,330,986.34 9.35
580 - 599.................. 414 25,415,037.37 8.69
600 - 619.................. 432 26,192,193.44 8.96
620 - 639.................. 473 28,207,912.51 9.65
640 - 659.................. 455 27,490,471.40 9.40
660 - 679.................. 407 24,199,963.00 8.28
680 - 699.................. 265 16,715,427.33 5.72
700 - 719.................. 219 13,026,648.33 4.45
720 - 739.................. 125 7,927,355.69 2.71
740 - 759.................. 86 4,779,651.51 1.63
760 - 779.................. 46 2,548,129.15 0.87
780 - 799.................. 34 1,862,055.33 0.64
800 and above.............. 9 516,248.86 0.18
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Credit Score of the Mortgage
Loans in the Loan Pool for which Credit Scores are available was
approximately 607.
S-23
<PAGE>
LOAN POOL
<TABLE>
<CAPTION>
STATE DISTRIBUTIONS OF
MORTGAGED PROPERTIES FOR THE MORTGAGE LOANS
IN THE LOAN POOL
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
STATE MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
Alabama.................... 95 $ 4,740,563.00 1.62%
Arizona.................... 50 3,891,610.67 1.33
Arkansas................... 105 4,213,246.06 1.44
California................. 195 21,501,279.26 7.35
Colorado................... 64 5,620,104.98 1.92
Connecticut................ 33 3,376,920.46 1.15
Delaware................... 4 517,965.79 0.18
District of Columbia....... 9 973,266.94 0.33
Florida.................... 216 13,598,632.20 4.65
Georgia.................... 220 14,168,482.28 4.85
Hawaii..................... 2 336,278.69 0.11
Idaho...................... 16 1,359,840.09 0.47
Illinois................... 130 6,105,610.62 2.09
Indiana.................... 207 10,433,877.49 3.57
Iowa....................... 86 4,436,829.09 1.52
Kansas..................... 78 3,465,256.00 1.19
Kentucky................... 128 6,248,944.73 2.14
Louisiana.................. 419 19,626,221.57 6.71
Maine...................... 78 5,030,503.55 1.72
Maryland................... 40 3,231,061.45 1.10
Massachusetts.............. 25 2,364,110.25 0.81
Michigan................... 271 13,285,348.04 4.54
Minnesota.................. 49 3,517,966.53 1.20
Mississippi................ 210 9,645,708.42 3.30
Missouri................... 78 4,213,978.72 1.44
Montana.................... 3 334,244.65 0.11
Nebraska................... 11 488,502.19 0.17
Nevada..................... 11 1,245,672.02 0.43
New Hampshire.............. 66 5,612,992.55 1.92
New Jersey................. 47 4,185,747.69 1.43
New Mexico................. 38 3,100,388.92 1.06
New York................... 270 17,694,045.25 6.05
North Carolina............. 269 14,845,404.76 5.08
North Dakota............... 1 62,773.47 0.02
Ohio....................... 301 16,346,461.65 5.59
Oklahoma................... 146 5,960,316.46 2.04
Oregon..................... 31 2,925,573.39 1.00
Pennsylvania............... 180 9,434,117.41 3.23
Rhode Island............... 10 803,287.21 0.27
South Carolina............. 124 7,452,449.99 2.55
South Dakota............... 3 206,541.05 0.07
Tennessee.................. 211 11,332,872.51 3.88
Texas...................... 92 6,012,171.64 2.06
Utah....................... 34 3,253,647.14 1.11
Vermont.................... 6 250,116.11 0.09
Virginia................... 55 3,415,825.39 1.17
Washington................. 52 5,758,420.04 1.97
West Virginia.............. 37 1,968,543.50 0.67
Wisconsin.................. 77 3,597,049.17 1.23
Wyoming.................... 2 227,816.33 0.08
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE
MORTGAGE LOANS IN THE
LOAN POOL
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
Single Family.............. 4,034 $238,432,940.02 81.54%
Manufactured Housing....... 503 30,721,692.39 10.51
2-4 Family................. 164 9,302,183.70 3.18
Land....................... 66 4,782,021.60 1.64
Planned Unit Development... 38 4,685,603.36 1.60
Condominium................ 42 2,614,692.19 0.89
Townhouse.................. 38 1,879,454.11 0.64
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE
MORTGAGE LOANS IN THE
LOAN POOL(1)
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............. 4,628 $282,990,454.59 96.78%
Investment................. 249 9,046,707.23 3.09
Second Home................ 6 308,686.73 0.11
Unknown.................... 2 72,738.82 0.02
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</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
LOAN POOL(1)
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
REMAINING TERM NUMBER OF BALANCE LOAN
(MONTHS) MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
1 - 48.................. 93 $ 770,469.26 0.26%
49 - 60.................. 16 217,137.14 0.07
61 - 120.................. 426 9,538,472.82 3.26
121 - 180.................. 1,436 56,281,672.54 19.25
181 - 240.................. 474 23,783,181.18 8.13
241 - 300.................. 76 4,580,388.79 1.57
301 - 360.................. 2,364 197,247,265.64 67.45
----- --------------- ------
Total.................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average remaining months to scheduled
maturity of the mortgage loans in the Loan Pool was approximately
285 months.
<TABLE>
<CAPTION>
LOAN PURPOSE FOR THE
MORTGAGE LOANS IN THE
LOAN POOL
--------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING POOL
--------------------------------------------------------------------
<S> <C> <C> <C>
Cash-Out Refinancing....... 4,032 $227,162,088.33 77.68%
Purchase................... 786 59,065,291.74 20.20
Rate/Term Refinancing...... 54 5,832,766.28 1.99
Unknown.................... 13 358,441.02 0.12
----- --------------- ------
Total...................... 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN POSITION FOR THE
MORTGAGE LOANS IN
THE LOAN POOL
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LIEN MORTGAGE LOANS OUTSTANDING POOL
-------------------------------------------------------------------
<S> <C> <C> <C>
First................... 4,494 $283,778,555.71 97.05%
Second.................. 391 8,640,031.66 2.95
----- --------------- ------
Total................. 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE FOR THE
MORTGAGE LOANS IN
THE LOAN POOL
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
DOCUMENT NUMBER OF BALANCE LOAN
TYPE MORTGAGE LOANS OUTSTANDING POOL
-------------------------------------------------------------------
<S> <C> <C> <C>
Full.................... 4,418 $256,501,242.65 87.72%
Alt/Lite................ 327 23,914,833.55 8.18
No Income No Asset...... 71 6,824,596.24 2.33
Income Only............. 47 3,894,056.01 1.33
Unknown................. 22 1,283,858.92 0.44
----- --------------- ------
Total................. 4,885 $292,418,587.37 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-24
<PAGE>
LOAN GROUP I
<TABLE>
<CAPTION>
MORTGAGE RATES FOR THE
MORTGAGE LOANS IN
LOAN GROUP I(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MORTGAGE RATES MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
6.001% - 6.500%......... 11 $ 1,170,277.25 0.82%
6.501% - 7.000%......... 127 11,634,832.77 8.18
7.001% - 7.500%......... 29 2,204,967.78 1.55
7.501% - 8.000%......... 25 1,629,485.51 1.15
8.001% - 8.500%......... 114 8,286,915.45 5.83
8.501% - 9.000%......... 242 18,792,254.14 13.22
9.001% - 9.500%......... 226 17,425,745.94 12.26
9.501% - 10.000%......... 351 23,853,143.01 16.78
10.001% - 10.500%......... 264 16,448,544.01 11.57
10.501% - 11.000%......... 259 14,885,954.31 10.47
11.001% - 11.500%......... 196 9,670,742.28 6.80
11.501% - 12.000%......... 192 7,767,318.98 5.46
12.001% - 12.500%......... 102 3,631,229.81 2.55
12.501% - 13.000%......... 75 2,606,788.27 1.83
13.001% - 13.500%......... 35 1,017,046.90 0.72
13.501% - 14.000%......... 22 526,664.06 0.37
14.001% - 14.500%......... 9 262,700.79 0.18
14.501% - 15.000%......... 6 146,794.67 0.10
15.001% - 15.500%......... 2 171,798.35 0.12
15.501% - 16.000%......... 1 18,560.44 0.01
17.501% - 18.000%......... 1 23,607.58 0.02
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans in Loan Group I was approximately 9.77% per annum.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS FOR THE
MORTGAGE LOANS IN
LOAN GROUP I(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF COMBINED NUMBER OF BALANCE LOAN
LOAN-TO-VALUE RATIOS MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
5.01% - 10.00%......... 3 $ 26,162.00 0.02%
10.01% - 20.00%......... 10 199,735.55 0.14
20.01% - 25.00%......... 12 334,450.33 0.24
25.01% - 30.00%......... 9 212,629.79 0.15
30.01% - 40.00%......... 28 770,776.18 0.54
40.01% - 50.00%......... 62 1,915,445.31 1.35
50.01% - 60.00%......... 107 4,074,013.51 2.87
60.01% - 70.00%......... 196 9,517,282.87 6.69
70.01% - 80.00%......... 757 43,536,110.09 30.62
80.01% - 90.00%......... 822 62,711,298.99 44.11
90.01% - 100.00%......... 257 18,224,426.61 12.82
100.01% - 110.00%......... 20 583,212.75 0.41
110.01% - 120.00%......... 5 55,364.14 0.04
120.01% - 125.00%......... 1 14,464.18 0.01
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Combined Loan-to-Value Ratio of
the Mortgage Loans in Loan Group I was approximately 81.03%.
<TABLE>
<CAPTION>
MORTGAGE LOAN PRINCIPAL BALANCE FOR THE
MORTGAGE LOANS IN
LOAN GROUP I(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MORTGAGE LOAN NUMBER OF BALANCE LOAN
PRINCIPAL BALANCES MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00... 413 $ 6,677,018.44 4.70%
$ 25,000.01 - $ 50,000.00... 673 25,313,263.63 17.80
$ 50,000.01 - $ 75,000.00... 524 32,176,137.82 22.63
$ 75,000.01 - $100,000.00... 292 25,241,272.32 17.75
$100,000.01 - $125,000.00... 199 22,055,749.02 15.51
$125,000.01 - $150,000.00... 83 11,311,755.67 7.96
$150,000.01 - $175,000.00... 50 8,061,193.04 5.67
$175,000.01 - $200,000.00... 28 5,233,549.12 3.68
$200,000.01 - $225,000.00... 12 2,554,074.36 1.80
$225,000.01 - $250,000.00... 15 3,551,358.88 2.50
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the average principal balance of the Mortgage Loans
in Loan Group I was approximately $62,112.44.
<TABLE>
<CAPTION>
CREDIT SCORES FOR
MORTGAGE LOANS IN
LOAN GROUP I(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
CREDIT SCORES MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
Not available............. 78 $ 3,396,238.89 2.39%
1 - 499.................. 118 7,475,523.48 5.26
500 - 519................. 125 6,890,924.04 4.85
520 - 539................. 169 11,251,866.17 7.91
540 - 559................. 171 10,884,719.15 7.66
560 - 579................. 182 12,098,564.93 8.51
580 - 599................. 177 10,882,689.50 7.65
600 - 619................. 201 12,878,306.93 9.06
620 - 639................. 222 13,693,880.54 9.63
640 - 659................. 212 14,056,108.26 9.89
660 - 679................. 209 12,430,449.18 8.74
680 - 699................. 140 9,028,622.53 6.35
700 - 719................. 102 6,056,047.38 4.26
720 - 739................. 73 4,681,454.45 3.29
740 - 759................. 46 2,793,094.17 1.96
760 - 779................. 30 1,686,072.49 1.19
780 - 799................. 28 1,601,170.71 1.13
800 and above............. 6 389,639.50 0.27
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Credit Score of the Mortgage
Loans in Loan Group I for which Credit Scores are available was
approximately 613.
S-25
<PAGE>
LOAN GROUP I
<TABLE>
<CAPTION>
STATE DISTRIBUTIONS OF
MORTGAGED PROPERTIES FOR THE MORTGAGE LOANS
IN LOAN GROUP I
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
STATE MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
Alabama................... 72 $ 3,063,144.91 2.15%
Arizona................... 19 1,606,175.44 1.13
Arkansas.................. 57 2,476,148.84 1.74
California................ 81 8,703,564.07 6.12
Colorado.................. 29 2,790,482.46 1.96
Connecticut............... 19 1,938,973.99 1.36
Delaware.................. 2 186,291.13 0.13
District of Columbia...... 4 304,010.44 0.21
Florida................... 150 8,890,439.56 6.25
Georgia................... 118 6,324,495.41 4.45
Idaho..................... 10 812,906.71 0.57
Illinois.................. 50 2,581,452.79 1.82
Indiana................... 75 3,767,185.85 2.65
Iowa...................... 33 1,788,155.59 1.26
Kansas.................... 49 2,332,384.81 1.64
Kentucky.................. 28 1,959,603.57 1.38
Louisiana................. 217 10,696,882.80 7.52
Maine..................... 26 1,723,263.65 1.21
Maryland.................. 28 2,037,917.80 1.43
Massachusetts............. 19 1,496,460.09 1.05
Michigan.................. 105 6,001,899.38 4.22
Minnesota................. 27 1,768,235.79 1.24
Mississippi............... 93 4,513,335.50 3.17
Missouri.................. 41 2,355,389.43 1.66
Montana................... 2 272,747.48 0.19
Nebraska.................. 4 219,909.96 0.15
Nevada.................... 9 883,796.58 0.62
New Hampshire............. 37 3,724,098.19 2.62
New Jersey................ 20 1,461,382.53 1.03
New Mexico................ 25 2,159,450.89 1.52
New York.................. 121 9,762,633.07 6.87
North Carolina............ 87 4,761,525.37 3.35
Ohio...................... 121 7,427,893.38 5.22
Oklahoma.................. 53 2,558,937.89 1.80
Oregon.................... 14 1,297,819.96 0.91
Pennsylvania.............. 79 4,381,883.78 3.08
Rhode Island.............. 7 537,113.48 0.38
South Carolina............ 86 5,347,777.65 3.76
South Dakota.............. 3 206,541.05 0.15
Tennessee................. 97 5,571,574.46 3.92
Texas..................... 64 3,697,373.16 2.60
Utah...................... 11 970,710.89 0.68
Vermont................... 6 250,116.11 0.18
Virginia.................. 23 1,388,221.71 0.98
Washington................ 22 2,295,533.70 1.61
West Virginia............. 15 978,648.79 0.69
Wisconsin................. 30 1,743,025.45 1.23
Wyoming................... 1 157,856.76 0.11
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE
MORTGAGE LOANS IN
LOAN GROUP I
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
Single Family............. 1,812 $108,678,898.66 76.44%
Manufactured Housing...... 336 24,697,857.45 17.37
2-4 Family................ 80 4,798,751.69 3.38
Planned Unit
Development.............. 17 1,783,370.04 1.25
Townhouse................. 24 1,203,827.39 0.85
Condominium............... 20 1,012,667.07 0.71
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE
MORTGAGE LOANS IN
LOAN GROUP I(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............ 2,101 $135,551,357.70 95.34%
Investment................ 183 6,357,170.74 4.47
Second Home............... 4 234,694.13 0.17
Unknown................... 1 32,149.73 0.02
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</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
LOAN GROUP I(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
REMAINING TERM NUMBER OF BALANCE LOAN
(MONTHS) MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
1 - 48................. 49 $ 362,360.58 0.25%
49 - 60................. 9 141,126.18 0.10
61 - 120................. 170 4,145,769.60 2.92
121 - 180................. 657 27,861,432.14 19.60
181 - 240................. 272 14,013,897.19 9.86
241 - 300................. 53 3,202,970.13 2.25
301 - 360................. 1,079 92,447,816.48 65.02
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average remaining months to scheduled
maturity of the mortgage loans in Loan Group I was approximately
282 months.
<TABLE>
<CAPTION>
LOAN PURPOSE FOR THE
MORTGAGE LOANS IN
LOAN GROUP I
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
Cash-Out Refinance........ 1,728 $102,701,588.51 72.24%
Purchase.................. 539 37,310,776.60 26.24
Rate/Term Refinance....... 19 2,084,472.51 1.47
Unknown................... 3 78,534.68 0.06
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN POSITION FOR THE
MORTGAGE LOANS IN
LOAN GROUP I
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LIEN TYPE MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
First..................... 2,065 $137,243,866.20 96.53%
Second.................... 224 4,931,506.10 3.47
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE FOR THE
MORTGAGE LOANS IN
LOAN GROUP I
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
DOCUMENTATION TYPE MORTGAGE LOANS OUTSTANDING GROUP I
-------------------------------------------------------------------
<S> <C> <C> <C>
Full...................... 2,062 $125,783,759.84 88.47%
Alt/Lite.................. 152 10,964,313.51 7.71
No Income No Asset........ 35 2,432,082.66 1.71
Income Only............... 24 2,218,877.42 1.56
Unknown................... 16 776,338.87 0.55
----- --------------- ------
Total................... 2,289 $142,175,372.30 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-26
<PAGE>
LOAN GROUP II
<TABLE>
<CAPTION>
MORTGAGE RATES FOR THE
MORTGAGE LOANS IN
LOAN GROUP II(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MORTGAGE RATES MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
6.001% - 6.500%......... 3 $ 270,516.83 0.28%
6.501% - 7.000%......... 39 2,948,174.09 3.04
7.001% - 7.500%......... 4 230,514.78 0.24
7.501% - 8.000%......... 5 256,772.89 0.26
8.001% - 8.500%......... 34 2,695,817.59 2.78
8.501% - 9.000%......... 177 13,683,377.86 14.12
9.001% - 9.500%......... 253 15,621,033.14 16.12
9.501% - 10.000%......... 290 16,162,883.93 16.68
10.001% - 10.500%......... 186 10,009,994.04 10.33
10.501% - 11.000%......... 157 8,150,340.41 8.41
11.001% - 11.500%......... 169 6,315,796.11 6.52
11.501% - 12.000%......... 231 8,456,975.41 8.73
12.001% - 12.500%......... 53 1,897,506.81 1.96
12.501% - 13.000%......... 215 5,468,288.52 5.64
13.001% - 13.500%......... 73 2,607,211.82 2.69
13.501% - 14.000%......... 31 810,393.26 0.84
14.001% - 14.500%......... 18 401,913.15 0.41
14.501% - 15.000%......... 22 370,773.53 0.38
15.001% - 15.500%......... 19 505,680.68 0.52
15.501% - 16.000%......... 2 41,385.13 0.04
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans in Loan Group II was approximately 10.29% per annum.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS FOR THE
MORTGAGE LOANS IN
LOAN GROUP II(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF COMBINED NUMBER OF BALANCE LOAN
LOAN-TO-VALUE RATIOS MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
5.01% - 10.00%......... 2 $ 15,304.61 0.02%
10.01% - 20.00%......... 11 188,915.58 0.19
20.01% - 25.00%......... 10 216,999.90 0.22
25.01% - 30.00%......... 13 237,806.62 0.25
30.01% - 40.00%......... 41 831,315.87 0.86
40.01% - 50.00%......... 89 2,415,888.51 2.49
50.01% - 60.00%......... 129 4,076,531.90 4.21
60.01% - 70.00%......... 174 6,299,724.81 6.50
70.01% - 80.00%......... 452 19,957,879.84 20.60
80.01% - 90.00%......... 637 37,639,207.48 38.84
90.01% - 100.00%......... 411 24,634,313.74 25.42
100.01% - 110.00%......... 8 211,353.04 0.22
110.01% - 120.00%......... 2 64,153.48 0.07
120.01% - 125.00%......... 2 115,954.60 0.12
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Combined Loan-to-Value Ratio of
the Mortgage Loans in Loan Group II was approximately 81.71%.
<TABLE>
<CAPTION>
MORTGAGE LOAN PRINCIPAL BALANCE FOR THE
MORTGAGE LOANS IN
LOAN GROUP II(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MORTGAGE LOAN NUMBER OF BALANCE LOAN
PRINCIPAL BALANCES MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00... 504 $ 8,570,250.37 8.84%
$ 25,000.01 - $ 50,000.00... 718 26,177,420.80 27.01
$ 50,000.01 - $ 75,000.00... 470 28,553,557.70 29.47
$ 75,000.01 - $100,000.00... 167 14,176,295.52 14.63
$100,000.01 - $125,000.00... 63 7,016,157.29 7.24
$125,000.01 - $150,000.00... 19 2,569,224.46 2.65
$150,000.01 - $175,000.00... 7 1,116,590.93 1.15
$175,000.01 - $200,000.00... 6 1,099,817.02 1.13
$200,000.01 - $225,000.00... 4 856,843.35 0.88
$225,000.01 - $250,000.00... 2 465,071.09 0.48
$250,000.01 - $275,000.00... 8 2,076,945.22 2.14
$275,000.01 - $300,000.00... 6 1,697,534.15 1.75
$300,000.01 - $325,000.00... 2 631,900.98 0.65
$325,000.01 - $350,000.00... 1 326,776.06 0.34
$350,000.01 - $375,000.00... 1 351,369.43 0.36
$375,000.01 - $400,000.00... 1 399,175.03 0.41
$400,000.01 - $425,000.00... 2 820,420.58 0.85
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the average principal balance of the Mortgage Loans
in Loan Group II was approximately $48,917.39.
<TABLE>
<CAPTION>
CREDIT SCORES FOR THE
MORTGAGE LOANS IN
LOAN GROUP II(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
CREDIT SCORES MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
Not available............. 45 $ 1,333,486.32 1.38%
1 - 499................. 113 5,439,227.32 5.61
500 - 519................. 134 5,513,082.75 5.69
520 - 539................. 164 7,802,962.38 8.05
540 - 559................. 150 6,992,635.10 7.22
560 - 579................. 165 8,339,113.38 8.61
580 - 599................. 170 8,382,162.12 8.65
600 - 619................. 168 8,112,181.25 8.37
620 - 639................. 186 8,912,060.17 9.20
640 - 659................. 207 10,399,068.51 10.73
660 - 679................. 167 8,844,988.44 9.13
680 - 699................. 106 5,724,846.08 5.91
700 - 719................. 105 6,068,517.88 6.26
720 - 739................. 39 1,982,918.80 2.05
740 - 759................. 39 1,896,426.31 1.96
760 - 779................. 14 774,179.19 0.80
780 - 799................. 6 260,884.62 0.27
800 and above............. 3 126,609.36 0.13
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Credit Score of the Mortgage
Loans in Loan Group II for which Credit Scores are available was
approximately 610.
S-27
<PAGE>
LOAN GROUP II
<TABLE>
<CAPTION>
STATE DISTRIBUTIONS OF
MORTGAGED PROPERTIES FOR THE MORTGAGE LOANS
IN LOAN GROUP II
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
STATE MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
Alabama................... 13 $ 796,644.38 0.82%
Arizona................... 24 1,604,576.50 1.66
Arkansas.................. 46 1,651,679.93 1.70
California................ 77 7,746,251.37 7.99
Colorado.................. 24 1,631,901.34 1.68
Connecticut............... 8 718,419.94 0.74
District of Columbia...... 4 553,012.66 0.57
Florida................... 43 2,107,596.64 2.17
Georgia................... 55 2,434,437.32 2.51
Idaho..................... 3 240,104.78 0.25
Illinois.................. 60 2,226,619.00 2.30
Indiana................... 92 4,240,414.82 4.38
Iowa...................... 48 2,370,847.63 2.45
Kansas.................... 4 230,295.13 0.24
Kentucky.................. 84 3,296,160.49 3.40
Louisiana................. 182 7,250,619.52 7.48
Maine..................... 46 2,815,090.52 2.90
Maryland.................. 5 214,110.47 0.22
Massachusetts............. 1 315,182.61 0.33
Michigan.................. 126 4,580,387.97 4.73
Minnesota................. 11 550,341.97 0.57
Mississippi............... 97 3,719,994.14 3.84
Missouri.................. 29 1,484,907.53 1.53
Nebraska.................. 6 232,663.88 0.24
Nevada.................... 1 266,213.99 0.27
New Hampshire............. 23 1,353,580.55 1.40
New Jersey................ 14 1,089,109.40 1.12
New Mexico................ 9 644,596.82 0.67
New York.................. 139 6,580,381.23 6.79
North Carolina............ 161 8,373,994.65 8.64
North Dakota.............. 1 62,773.47 0.06
Ohio...................... 133 6,045,915.07 6.24
Oklahoma.................. 81 2,697,690.58 2.78
Oregon.................... 12 900,136.90 0.93
Pennsylvania.............. 84 4,197,813.88 4.33
Rhode Island.............. 2 137,965.79 0.14
South Carolina............ 27 1,267,762.15 1.31
Tennessee................. 90 4,136,234.11 4.27
Texas..................... 10 407,871.19 0.42
Utah...................... 8 765,751.52 0.79
Virginia.................. 22 1,301,486.17 1.34
Washington................ 13 1,210,313.92 1.25
West Virginia............. 20 827,702.96 0.85
Wisconsin................. 42 1,555,835.52 1.61
Wyoming................... 1 69,959.57 0.07
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE
MORTGAGE LOANS IN
LOAN GROUP II
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
Single Family............. 1,673 $82,179,088.87 84.80%
Manufactured Housing...... 155 5,014,341.01 5.17
Land...................... 66 4,782,021.60 4.93
2-4 Family................ 62 2,708,964.39 2.80
Planned Unit
Development.............. 6 1,155,607.05 1.19
Condominium............... 10 693,488.73 0.72
Townhouse................. 9 371,838.33 0.38
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE
MORTGAGE LOANS IN
LOAN GROUP II(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............ 1,944 $95,772,076.86 98.83%
Investment................ 36 1,082,370.16 1.12
Second Home............... 1 50,902.96 0.05
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</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
LOAN GROUP II(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
REMAINING TERM NUMBER OF BALANCE LOAN
(MONTHS) MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
1 - 48................. 44 $ 408,108.68 0.42%
49 - 60................. 7 76,010.96 0.08
61 - 120................. 254 5,367,192.39 5.54
121 - 180................. 733 26,660,296.27 27.51
181 - 240................. 169 8,158,136.44 8.42
241 - 300................. 20 1,132,146.07 1.17
301 - 360................. 754 55,103,459.17 56.86
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average remaining months to scheduled
maturity of the mortgage loans in Loan Group II was approximately
263 months.
<TABLE>
<CAPTION>
LOAN PURPOSE FOR THE
MORTGAGE LOANS IN
LOAN GROUP II
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING GROUP II
-------------------------------------------------------------------
<S> <C> <C> <C>
Cash-Out Refinance........ 1,883 $90,472,384.14 93.36%
Purchase.................. 90 6,243,708.75 6.44
Unknown................... 8 189,257.09 0.20
----- -------------- ------
Total................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN POSITION FOR THE
MORTGAGE LOANS IN
LOAN GROUP II
-------------------------------------------------------------------
PERCENT
AGGREGATE OF
PRINCIPAL LOAN
NUMBER OF BALANCE GROUP
LIEN TYPE MORTGAGE LOANS OUTSTANDING II
-------------------------------------------------------------------
<S> <C> <C> <C>
First...................... 1,814 $93,196,824.42 96.17%
Second..................... 167 3,708,525.56 3.83
----- -------------- ------
Total.................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE FOR THE
MORTGAGE LOANS IN
LOAN GROUP II
-------------------------------------------------------------------
PERCENT
AGGREGATE OF
PRINCIPAL LOAN
NUMBER OF BALANCE GROUP
DOCUMENTATION TYPE MORTGAGE LOANS OUTSTANDING II
-------------------------------------------------------------------
<S> <C> <C> <C>
Full....................... 1,829 $86,664,153.12 89.43%
Alt/Lite................... 122 8,098,461.61 8.36
Income Only................ 15 998,478.84 1.03
No Income No Asset......... 10 723,208.83 0.75
Unknown.................... 5 421,047.58 0.43
----- -------------- ------
Total.................... 1,981 $96,905,349.98 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
S-28
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
MORTGAGE RATES FOR THE
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MORTGAGE RATES MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
7.501% - 8.000%........ 3 $ 777,296.95 1.46%
8.001% - 8.500%........ 6 516,853.35 0.97
8.501% - 9.000%........ 23 2,736,477.51 5.13
9.001% - 9.500%........ 46 5,422,506.39 10.17
9.501% - 10.000%........ 85 8,369,842.61 15.69
10.001% - 10.500%........ 122 10,864,807.45 20.37
10.501% - 11.000%........ 121 11,471,960.09 21.51
11.001% - 11.500%........ 62 5,099,082.60 9.56
11.501% - 12.000%........ 54 3,463,491.91 6.49
12.001% - 12.500%........ 18 1,025,917.08 1.92
12.501% - 13.000%........ 43 2,049,321.42 3.84
13.001% - 13.500%........ 16 763,413.43 1.43
13.501% - 14.000%........ 4 159,640.20 0.30
14.001% - 14.500%........ 6 305,381.58 0.57
14.501% - 15.000%........ 4 221,586.04 0.42
15.001% - 15.500%........ 1 59,760.39 0.11
15.501% - 16.000%........ 1 30,526.09 0.06
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans in Loan Group III was approximately 10.55% per annum.
<TABLE>
<CAPTION>
GROSS MARGINS FOR
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
GROSS MARGINS MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
0.001 - 4.000............ 51 $ 4,014,168.49 7.53%
4.001 - 5.000............ 90 7,195,488.04 13.49
5.001 - 6.000............ 158 11,703,833.03 21.94
6.001 - 7.000............ 198 17,966,632.72 33.68
7.001 - 8.000............ 116 12,334,904.56 23.13
8.001 - 9.000............ 2 122,838.25 0.23
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Gross Margin of the Mortgage
Loans in Loan Group III was approximately 6.09%.
<TABLE>
<CAPTION>
MAXIMUM RATES FOR THE
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
MAXIMUM RATES MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
1.000% - 12.000%........ 1 $ 107,813.03 0.20%
13.001% - 14.000%........ 13 2,147,452.81 4.03
14.001% - 15.000%........ 42 4,157,861.59 7.80
15.001% - 16.000%........ 162 15,532,549.96 29.12
16.001% - 17.000%........ 241 21,298,868.11 39.93
17.001% - 18.000%........ 106 7,710,273.27 14.46
18.001% - 19.000%........ 37 1,838,776.83 3.45
19.001% - 20.000%........ 8 342,556.45 0.64
20.001% - 21.000%........ 3 111,426.56 0.21
21.001% - 22.000%........ 2 90,286.48 0.17
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Maximum Rate of the Mortgage
Loans in Loan Group III was approximately 16.27% per annum.
<TABLE>
<CAPTION>
CREDIT SCORES FOR THE
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
RANGE OF NUMBER OF BALANCE LOAN
CREDIT SCORES MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
Not available............ 15 $ 1,170,519.74 2.19%
1 - 499................ 40 2,808,424.56 5.27
500 - 519................ 49 4,179,002.46 7.83
520 - 539................ 64 5,521,248.43 10.35
540 - 559................ 66 5,546,646.32 10.40
560 - 579................ 72 6,893,308.03 12.92
580 - 599................ 67 6,150,185.75 11.53
600 - 619................ 63 5,201,705.26 9.75
620 - 639................ 65 5,601,971.80 10.50
640 - 659................ 36 3,035,294.63 5.69
660 - 679................ 31 2,924,525.38 5.48
680 - 699................ 19 1,961,958.72 3.68
700 - 719................ 12 902,083.07 1.69
720 - 739................ 13 1,262,982.44 2.37
740 - 759................ 1 90,131.03 0.17
760 - 779................ 2 87,877.47 0.16
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Credit Score of the Mortgage
Loans in Loan Group III for which Credit Scores are available was
approximately 588.
<TABLE>
<CAPTION>
MORTGAGE LOAN PRINCIPAL BALANCES FOR THE
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MORTGAGE LOAN NUMBER OF BALANCE LOAN
PRINCIPAL BALANCES MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 25,000.00... 39 $ 814,072.44 1.53%
$ 25,000.01 - $ 50,000.00... 122 4,674,049.03 8.76
$ 50,000.01 - $ 75,000.00... 183 11,350,555.21 21.28
$ 75,000.01 - $100,000.00... 98 8,566,755.38 16.06
$100,000.01 - $125,000.00... 57 6,407,728.31 12.01
$125,000.01 - $150,000.00... 45 6,115,213.99 11.47
$150,000.01 - $175,000.00... 21 3,353,574.01 6.29
$175,000.01 - $200,000.00... 17 3,185,774.65 5.97
$200,000.01 - $225,000.00... 12 2,550,932.28 4.78
$225,000.01 - $250,000.00... 7 1,641,479.01 3.08
$250,000.01 - $275,000.00... 2 536,288.50 1.01
$275,000.01 - $300,000.00... 5 1,449,894.01 2.72
$300,000.01 and above....... 7 2,691,548.27 5.05
--- -------------- ------
Total..................... 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the average principal balance of the Mortgage Loans
in Loan Group III was approximately $86,728.24.
S-29
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
MINIMUM MORTGAGE RATES FOR
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
MINIMUM INTEREST NUMBER OF BALANCE LOAN
RATES MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
1.000% - 5.000%........ 1 $ 52,630.63 0.10%
5.001% - 6.000%........ 9 1,425,756.07 2.67
6.001% - 7.000%........ 30 2,217,412.26 4.16
7.001% - 8.000%........ 116 10,255,028.79 19.23
8.001% - 9.000%........ 144 12,430,774.26 23.31
9.001% - 10.000%........ 111 10,183,442.55 19.09
10.001% - 11.000%........ 140 11,894,607.95 22.30
11.001% - 12.000%........ 47 3,971,125.84 7.45
12.001% - 13.000%........ 9 572,532.69 1.07
13.001% - 14.000%........ 3 132,841.01 0.25
14.001% - 15.000%........ 3 111,426.56 0.21
15.001% - 16.000%........ 2 90,286.48 0.17
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Minimum Mortgage Rate of the
Mortgage Loans in Loan Group III was approximately 9.18% per annum.
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIO FOR THE
MORTGAGE LOANS IN
LOAN GROUP III(1)
-------------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF PRINCIPAL OF
LOAN-TO-VALUE NUMBER OF BALANCE LOAN
RATIOS MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
10.01% - 20.00%........ 1 $ 23,762.91 0.04%
25.01% - 30.00%........ 3 204,359.80 0.38
30.01% - 40.00%........ 2 58,773.01 0.11
40.01% - 50.00%........ 7 324,747.57 0.61
50.01% - 60.00%........ 16 948,418.19 1.78
60.01% - 70.00%........ 62 4,454,713.30 8.35
70.01% - 80.00%........ 214 19,321,436.78 36.22
80.01% - 90.00%........ 215 19,884,644.93 37.28
90.01% - 100.00%........ 90 7,767,653.51 14.56
100.01% - 110.00%........ 4 250,639.93 0.47
110.01% - 120.00%........ 1 98,715.16 0.19
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio of the
Mortgage Loans in Loan Group III was approximately 81.86%.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
FOR THE MORTGAGE LOANS
IN LOAN GROUP III
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
STATE MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
Alabama.................. 10 $ 880,773.71 1.65%
Arizona.................. 7 680,858.73 1.28
Arkansas................. 2 85,417.29 0.16
California............... 37 5,051,463.82 9.47
Colorado................. 11 1,197,721.18 2.25
Connecticut.............. 6 719,526.53 1.35
Delaware................. 2 331,674.66 0.62
District of Columbia..... 1 116,243.84 0.22
Florida.................. 23 2,600,596.00 4.88
Georgia.................. 47 5,409,549.55 10.14
Hawaii................... 2 336,278.69 0.63
Idaho.................... 3 306,828.60 0.58
Illinois................. 20 1,297,538.83 2.43
Indiana.................. 40 2,426,276.82 4.55
Iowa..................... 5 277,825.87 0.52
Kansas................... 25 902,576.06 1.69
Kentucky................. 16 993,180.67 1.86
Louisiana................ 20 1,678,719.25 3.15
Maine.................... 6 492,149.38 0.92
Maryland................. 7 979,033.18 1.84
Massachusetts............ 5 552,467.55 1.04
Michigan................. 40 2,703,060.69 5.07
Minnesota................ 11 1,199,388.77 2.25
Mississippi.............. 20 1,412,378.78 2.65
Missouri................. 8 373,681.76 0.70
Montana.................. 1 61,497.17 0.12
Nebraska................. 1 35,928.35 0.07
Nevada................... 1 95,661.45 0.18
New Hampshire............ 6 535,313.81 1.00
New Jersey............... 13 1,635,255.76 3.07
New Mexico............... 4 296,341.21 0.56
New York................. 10 1,351,030.95 2.53
North Carolina........... 21 1,709,884.74 3.21
Ohio..................... 47 2,872,653.20 5.39
Oklahoma................. 12 703,687.99 1.32
Oregon................... 5 727,616.53 1.36
Pennsylvania............. 17 854,419.75 1.60
Rhode Island............. 1 128,207.94 0.24
South Carolina........... 11 836,910.19 1.57
Tennessee................ 24 1,625,063.94 3.05
Texas.................... 18 1,906,927.29 3.58
Utah..................... 15 1,517,184.73 2.84
Virginia................. 10 726,117.51 1.36
Washington............... 17 2,252,572.42 4.22
West Virginia............ 2 162,191.75 0.30
Wisconsin................ 5 298,188.20 0.56
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-30
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE FOR THE
MORTGAGE LOANS IN
LOAN GROUP III
-------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NEXT ADJUSTMENT NUMBER OF BALANCE LOAN
DATE MORTGAGE LOANS OUTSTANDING GROUP III
-------------------------------------------------------------------
<S> <C> <C> <C>
December 2000............ 7 $ 440,406.46 0.83%
January 2001............. 17 1,480,135.87 2.78
February 2001............ 53 3,335,250.95 6.25
March 2001............... 46 3,964,405.84 7.43
April 2001............... 13 1,189,295.67 2.23
May 2001................. 16 1,177,250.46 2.21
June 2001................ 15 1,233,875.18 2.31
July 2001................ 13 1,411,623.94 2.65
August 2001.............. 16 2,301,789.11 4.32
September 2001........... 20 1,906,233.21 3.57
October 2001............. 15 1,403,734.40 2.63
November 2001............ 33 2,943,605.15 5.52
December 2001............ 17 2,461,795.94 4.62
January 2002............. 27 2,314,618.12 4.34
February 2002............ 131 10,518,535.77 19.72
March 2002............... 77 6,102,407.33 11.44
April 2002............... 27 1,911,592.83 3.58
May 2002................. 13 1,040,672.45 1.95
June 2002................ 6 701,083.13 1.31
July 2002................ 3 418,282.40 0.78
August 2002.............. 6 688,844.21 1.29
September 2002........... 4 294,168.81 0.55
October 2002............. 5 517,582.22 0.97
November 2002............ 5 655,828.84 1.23
December 2002............ 5 534,992.23 1.00
January 2003............. 3 220,980.58 0.41
February 2003............ 6 789,392.68 1.48
March 2003............... 5 442,599.84 0.83
April 2003............... 4 460,890.94 0.86
May 2003................. 6 449,049.21 0.84
June 2003................ 1 26,941.32 0.05
--- -------------- ------
Total.................. 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE
MORTGAGE LOANS IN
LOAN GROUP III
----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING GROUP III
----------------------------------------------------------------------
<S> <C> <C> <C>
Single Family.......... 549 $47,574,952.49 89.20%
2-4 Family............. 22 1,794,467.62 3.36
Planned Unit
Development........... 15 1,746,626.27 3.27
Manufactured Housing... 12 1,009,493.93 1.89
Condominimum........... 12 908,536.39 1.70
Townhouse.............. 5 303,788.39 0.57
--- -------------- ------
Total................ 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE
MORTGAGE LOANS IN
LOAN GROUP III(1)
----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING GROUP III
----------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied......... 583 $51,667,020.03 96.87%
Investment............. 30 1,607,166.33 3.01
Unknown................ 1 40,589.09 0.08
Second Home............ 1 23,089.64 0.04
--- -------------- ------
Total................ 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</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
LOAN GROUP III(1)
----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
REMAINING TERM NUMBER OF BALANCE LOAN
(MONTHS) MORTGAGE LOANS OUTSTANDING GROUP III
----------------------------------------------------------------------
<S> <C> <C> <C>
61 - 120.............. 2 $ 25,510.83 0.05%
121 - 180.............. 46 1,759,944.13 3.30
181 - 240.............. 33 1,611,147.55 3.02
241 - 300.............. 3 245,272.59 0.46
301 - 360.............. 531 49,695,989.99 93.17
--- -------------- ------
Total................ 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
---------
(1) As of the Cut-off Date, the weighted average remaining months to scheduled
maturity of the mortgage loans in Loan Group III was approximately
332 months.
<TABLE>
<CAPTION>
LOAN PURPOSE FOR THE
MORTGAGE LOANS IN
LOAN GROUP III
----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING GROUP III
----------------------------------------------------------------------
<S> <C> <C> <C>
Cash-Out Refinance..... 421 $33,988,115.68 63.72%
Purchase............... 157 15,510,806.39 29.08
Rate/Term Refinance.... 35 3,748,293.77 7.03
Unknown................ 2 90,649.25 0.17
--- -------------- ------
Total................ 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN POSITION
FOR THE MORTGAGE LOANS IN
LOAN GROUP III
----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
NUMBER OF BALANCE LOAN
LIEN MORTGAGE LOANS OUTSTANDING GROUP III
----------------------------------------------------------------------
<S> <C> <C> <C>
First.................. 615 $53,337,865.09 100.00%
--- -------------- ------
Total................ 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE
FOR THE MORTGAGE LOANS IN
LOAN GROUP III
----------------------------------------------------------------------
AGGREGATE PERCENT
PRINCIPAL OF
DOCUMENT NUMBER OF BALANCE LOAN
TYPE MORTGAGE LOANS OUTSTANDING GROUP III
----------------------------------------------------------------------
<S> <C> <C> <C>
Full................... 527 $44,053,329.69 82.59%
Alt/Lite............... 53 4,852,058.43 9.10
No Income No Asset..... 26 3,669,304.75 6.88
Income Only............ 8 676,699.75 1.27
Unknown................ 1 86,472.47 0.16
--- -------------- ------
Total................ 615 $53,337,865.09 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-31
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASE
Pursuant to the pooling and servicing agreement dated as of November 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 Wells Fargo Bank Minnesota,
National Association, 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 (with respect to each Mortgage
Loan other than the Simple Interest Mortgage Loans) 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 of the
Mortgage Loan, without recourse in the following form: 'Pay to the order of
Wells Fargo Bank Minnesota, National Association as Trustee for
certificateholders of Bear Stearns Asset Backed Securities, Inc.,
Asset-Backed Certificates, Series 2000-2 without recourse,' with all
intervening endorsements that show a complete chain of endorsement from the
originator to the Seller or, if the original Mortgage Note is unavailable to
the Depositor, a photocopy thereof, if available, together with a lost note
affidavit;
(b) the original recorded Mortgage or a photocopy thereof;
(c) a duly executed assignment of the Mortgage to 'Wells Fargo Bank
Minnesota, National Association, as Trustee for certificateholders of Bear
Stearns Asset Backed Securities, Inc., Asset-Backed Certificates, Series
2000-2, without recourse;' in recordable form, as described in the Pooling
and Servicing Agreement;
(d) all interim recorded assignments of such Mortgage, if any and if
available to Depositor; 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 or, in the event such original lender's
title policy is unavailable, a photocopy of such title policy or, in lieu
thereof, a current lien search on the related property.
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 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, or as to which the Rating Agencies
advise that the omission to record therein will not affect their ratings of the
Offered Certificates.
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 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
interests of 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. 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
S-32
<PAGE>
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 a Fixed Rate
Mortgage Loan, have a Mortgage Rate not less than and not more than 1% per
annum higher than the Mortgage Rate of the Deleted Mortgage Loan,
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,
have the same lien priority as the Deleted Mortgage Loan,
constitute the same occupancy type as the Deleted Mortgage Loan or be owner
occupied, and
comply with all of the representations and warranties set forth in the
Pooling and Servicing Agreement as of the date of substitution.
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.
UNDERWRITING GUIDELINES
Approximately 85.77% and 5.77% of the Mortgage Loans were purchased from
United Companies and Wells Fargo, respectively. The remaining Mortgage Loans
were purchased from 14 different originators (together with United Companies and
Wells Fargo, the 'Originators' and, each an 'Originator'). Set forth below is a
description of the underwriting procedures (the 'Underwriting Guidelines')
generally applied by United Companies. The Depositor believes that the
underwriting guidelines of the other Originators were substantially similar.
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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 related 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.
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) by qualified independent appraisers who are
approved by the related Originator and (y) a review of such appraisal, which
review may be conducted by the related Originator's staff appraiser or
representative 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 or a drive-by review appraisal of the mortgaged property.
Generally, the maximum loan-to-value ratio is 85% for a loan with a second
mortgage on the property. With respect to rural properties, the maximum
loan-to-value ratio (utilizing only up to ten acres and the improvements
thereon) is 80%. The maximum loan-to-value ratio generally applicable to
non-owner occupied homes and owner occupied manufactured/mobile homes with land
is generally 80%.
Under the Underwriting Guidelines, the related Originator reviews and
verifies the loan applicant's sources of income, 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. Verification of personal financial
information for each applicant is required. The applicant's total monthly
obligations (including principal and interest on each mortgage, tax assessments,
other loans, charge accounts and all scheduled indebtness) generally should not
exceed 50% of a borrower's gross monthly income. In the case of adjustable rate
home equity loans, the debt ratio calculation is based upon the principal and
interest payment amount utilizing the maximum rate on the second change date.
Generally, the borrowers are required to have two years of employment with their
current employer or two years of like experience. Applicants who are salaried
employees must provide current employment information in addition to recent
employment history. Originators verify this information for salaried borrowers
based on written confirmation from employers, or a combination of a telephone
confirmation from the employer and the most recent pay stub and the most recent
W-2 tax form. A self-employed applicant is generally required to provide copies
of complete federal income tax returns (including schedules) filed for the most
recent two years.
A credit report by an independent, nationally recognized credit reporting
agency reflecting the applicant's credit history is required. The credit report
should reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies and similar instances of adverse credit
that can be discovered by a search of public records. Verification is required
to be obtained of the first mortgage balance, if any, its status and whether
local taxes, interest, insurance and assessments are included in the applicant's
monthly payment. All taxes and assessments not included in the payment are
required to be verified as current. A borrower's mortgage payment history
generally should reflect no more than three payments over 30 days delinquent in
the last twelve months; however, in some cases, a borrower is permitted to have
more payments over 30 days delinquent in the last twelve months. Credit analysis
is subjective and subject to interpretation in the underwriting process.
The borrower is required to obtain property insurance in an amount
sufficient to cover in the case of a first mortgage the new loan and in the case
of a fixed rate second mortgage, the new loan and any prior mortgage. If
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the sum of an outstanding first mortgage, if any, and the fixed rate home equity
loan exceeds the lesser of replacement or insurable value, insurance equal to
the lesser of replacement or insurable value may be accepted. The Originator
requires that its name and address are properly added to the 'mortgage clause'
of the insurance policy. In the event the Originator's name is added to a 'loss
payee clause' and the policy does not provide for written notice of policy
changes or cancellation, an endorsement adding such provision is required. The
borrower is required to obtain flood insurance to the extent such insurance is
available under the Flood Disaster Protection Act of 1973, as amended. 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.
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 cure, 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 cure, repurchase 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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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. 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, the Master Servicer will
service the Mortgage Loans without subservicing arrangements.
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 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 September 30,
2000, EMC was servicing approximately $3.8 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.
COLLECTION PROCEDURES
EMC, as Master Servicer, will make reasonable efforts to collect all
payments called for under the Mortgage Loans and, consistent with the Pooling
and Servicing Agreement and any applicable insurance policy, guaranty,
bankruptcy bond or alternative arrangements, will 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
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<PAGE>
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. In most cases,
deficiencies are cured promptly. 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.
In the event that any Mortgage Loan is in default or imminent default, the
Master Servicer may, in its discretion, modify certain terms of the related
Mortgage Loan in order to maximize the ultimate proceeds of such Mortgage Loan.
Such modifications may include (i) a reduction in the Mortgage Rate on a
Mortgage Loan (but, in the case of a Mortgage Loan in Loan Group I or Loan
Group II, in no event to lower than 7.50% and in the case of a Mortgage Loan in
Loan Group III, only if the related Mortgage Index, Gross Margin and any
existing interest rate parameters and/or payment parameters remain the same,
(ii) a recasting of the amortization schedule (based on a 30-year term) and/or
an extension of the scheduled date of final payment on such Mortgage Loan (but
not beyond June 2030) and (iii) an increase or reduction in the principal
balance of such Mortgage Loan.
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.
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.
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DELINQUENCY AND FORECLOSURE EXPERIENCE(1)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF JUNE 30, 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................... 24,159 $1,869,900,359 70.72% 30,514 $2,172,839,680 68.56%
Period of delinquency(3)
30-59 days.................. 2,877 187,511,932 7.09 4,450 292,369,887 9.22
60-89 days.................. 1,091 71,415,699 2.70 1,404 90,314,938 2.85
90 days or more............. 2,041 143,439,906 5.42 1,576 116,479,156 3.67
Foreclosure/
bankruptcies(4)............... 4,091 305,592,230 11.56 5,318 408,881,121 12.90
Real estate owned............... 783 66,294,610 2.51 1,170 88,642,865 2.80
------ -------------- ------ ------ -------------- ------
Total portfolio................. 35,042 $2,644,154,736 100.00% 44,432 $3,169,527,647 100.00%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000 AS OF SEPTEMBER 30, 2000
----------------------------------- -----------------------------------
% 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................... 40,957 $2,773,375,021 69.5% 39,178 $2,652,813,916 68.94%
Period of delinquency(3)
30-59 days.................. 5,116 335,858,515 8.4 5,036 336,942,431 8.75
60-89 days.................. 1,763 124,260,172 3.1 1,798 125,353,979 3.26
90 days or more............. 2,490 175,071,236 4.4 2,561 173,038,504 4.50
Foreclosure/
bankruptcies(4)............... 6,784 498,486,846 12.5 6,486 471,787,042 12.26
Real estate owned............... 1,045 81,915,418 2.1 1,208 88,136,385 2.29
------ -------------- ------ ------ -------------- ------
Total portfolio................. 58,155 $3,988,967,208 100.00% 56,267 $3,848,072,257 100.00%
</TABLE>
---------
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
(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 the Mortgage Loans 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 will be 0.515% per
annum of the Stated Principal Balance of 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') and (b) fees
payable to the Trustee in respect of its activities as trustee (the 'Trustee
Fee'). 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 (but not prepayment charges),
assumption fees and other similar charges
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and all reinvestment income earned on amounts on deposit in the Certificate
Account and Distribution Account and, with respect to any Due Date, any interest
paid on Simple Interest Loans in excess of 30 days of interest. The Master
Servicer is obligated to pay to the Trust Fund, with respect to each Simple
Interest Loan, an amount equal to the excess of interest thereon for 30 days
over the amount otherwise required to be paid on the applicable Due Date.
For any Mortgage Loan, the 'Net Mortgage Rate' is the Mortgage Rate thereon
minus 0.515%.
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 shall, to
the extent of such shortfall ('Compensating Interest'), 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 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 interest (net of the Master Servicing Fee) on and, except with
respect to the Simple Interest Loans, principal of the Mortgage Loans 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 interest (net of the Master Servicing Fee) on
and, except with respect to the Simple Interest Loans, principal of each
Mortgage Loan to the extent that such Advances are, in its reasonable judgment,
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
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 the case of the Trustee, net of the
Master Servicing Fee and the Trustee Fee) 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
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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 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 retain or withdraw 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 retain or withdraw
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 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, the Audit Program for Mortgages serviced for Freddie Mac, or the
Uniform Single Attestation Program for Mortgage Bankers, except for any
significant exceptions or errors in records that, in the opinion of the firm 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, 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
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Master Servicer has fulfilled its obligations under the Pooling and Servicing
Agreement throughout the preceding year.
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 Trustee
has consented thereto, such consent not to be withheld unreasonably
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.
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 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 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 by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties thereunder or by reason
of reckless disregard of obligations and duties thereunder. 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
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
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 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 and
further provided that such merger, consolidation or succession does not
adversely affect the then-current ratings of any class of Offered Certificates.
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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 of
the Offered Certificates. 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 2000-2 (the 'Certificates') will consist of: (a) the Class AF-1
Certificates (the 'Class A-I Group'); (b) the Class AF-2 Certificates,
Class AF-3 Certificates and Class AF-4 Certificates (collectively, the
'Class A-II Group'); (c) the Class AV-1 Certificates (the 'Class A-III Group');
(d) the Class A-IO Certificates (the 'Class A-IO Certificates' and, together
with the Class A-I Group, the Class A-II Group and the Class A-III Group, the
'Senior Certificates'); (e) the Class M-1 Certificates and the Class M-2
Certificates (collectively, the 'Mezzanine Certificates'); (f) the Class B
Certificates (the 'Class B Certificates' and, together with the Mezzanine
Certificates, the 'Subordinated Offered Certificates'); (g) the Class B-IO
Certificates; (h) the Class XP Certificates and (i) the Class R Certificates
(the 'Residual Certificates').
The Class A-IO Certificates and Class B-IO Certificates are interest-only
Certificates issued with notional principal balances. Only the Senior
Certificates and the Subordinated Offered Certificates (collectively, the
'Offered Certificates') are offered hereby. Distributions on the Class A-I Group
will be based primarily on amounts available for distribution in respect of Loan
Group I. Distributions on the Class A-II Group will be based primarily on
amounts available for distribution in respect of Loan Group II. Distributions on
the Class A-III Group will be based primarily on amounts available for
distribution in respect of Loan Group III. Distributions on the Class A-IO
Certificates will be based primarily on amounts available for distribution in
respect of Loan Group I and Loan Group II. In certain instances, as described
under ' -- Distributions -- Allocation of Payments on the Mortgage Loans' below,
amounts available for distribution with respect to a Loan Group will be
distributed with respect to unrelated Senior Certificates. Distributions on the
Subordinated Offered Certificates will be based on a subordinated basis on
amounts available for distribution in respect of Loan Group I, Loan Group II and
Loan Group III.
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 initially will be book-entry certificates (the
'Book-Entry Certificates'). Persons acquiring beneficial ownership interests in
the Offered Certificates ('Certificateowners') will hold the certificates
through The Depository Trust Company ('DTC'), in the United States, or
Clearstream Banking, societe anonyme ('Clearstream, Luxembourg') or the
Euroclear System ('Euroclear'), in Europe, if the Certificateowners are
participants of those systems, or indirectly through organizations that are
participants in those systems. The Book-Entry Certificates will be issued in one
or more certificates per class, representing the aggregate principal balance of
each class of Offered Certificates, and will initially be registered in the name
of Cede & Co. ('Cede'), the nominee of DTC. Euroclear and Clearstream,
Luxembourg will hold omnibus positions on behalf of their participants through
customers' securities accounts in Euroclear's and Clearstream, Luxembourg's
names on the books of their respective depositaries which in turn will hold
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank N.A. will act as depositary for Clearstream, Luxembourg
and Morgan Guaranty Trust Company of New York will act as depositary for
Euroclear. Investors may hold beneficial interests in the Book-Entry
Certificates in minimum denominations representing principal balances of $25,000
and in integral multiples of $1,000 in excess thereof. Except as described in
the Prospectus, no person acquiring a Book-Entry Certificate will be entitled to
receive a physical certificate representing the Certificate (a 'Definitive
Certificate'). Unless and until Definitive Certificates are issued, it is
anticipated that the only 'Certificateholder' of the Offered Certificates will
be Cede, as nominee of DTC. Certificateowners will not be Certificateholders as
that term is used in the Agreement. Certificateowners are permitted to exercise
their rights only indirectly through DTC and its participants (including
Euroclear and Clearstream, Luxembourg).
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Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg, was incorporated in 1970 as 'Cedel S.A.,' a company with
limited liability under Luxembourg law (a societe anonyme). Cedel S.A.
subsequently changed its name to Cedelbank. On January 10, 2000, Cedelbank's
parent company, Cedel International, societe anonyme ('CI') merged its clearing,
settlement and custody business with that of Deutsche Borse Clearing AG ('DBC').
The merger involved the transfer by CI of substantially all of its assets and
liabilities (including its shares in Cedelbank) to a new Luxembourg company, New
Cedel International, societe anonyme ('New CI'), which is 50% owned by CI and
50% owned by DBC's parent company Deutsche Borse AG. The shareholders of these
two entities are banks, securities dealers and financial institutions. CI
currently has 92 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than 5 percent of CI's stock.
Further to the merger, the Board of Directors of New CI decided to rename
the companies in the group in order to give them a cohesive brand name. The new
brand name that was chosen is 'Clearstream.' With effect from January 14, 2000,
New CI has been renamed 'Clearstream International, societe anonyme.' On
January 18, 2000, Cedelbank was renamed 'Clearstream Banking, societe anonyme,'
and Cedel Global Services was renamed 'Clearstream Services, societe anonyme.'
On January 17, 2000, DBC was renamed 'Clearstream Banking AG.' This means
that there are now two entities in the corporate group headed by Clearstream
International which share the name 'Clearstream Banking,' the entity previously
named 'Cedelbank' and the entity previously named 'Deutsche Borse Clearing AG.'
Clearstream, Luxembourg holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream,
Luxembourg's customers through electronic book-entry changes in accounts of
Clearstream, Luxembourg customers, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Clearstream, Luxembourg
in any of 36 currencies, including United States Dollars. Clearstream,
Luxembourg provides to its customers, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg also
deals with domestic securities markets in over 30 countries through established
depository and custodial relationships. Clearstream, Luxembourg is registered as
a bank in Luxembourg, and as such is subject to regulation by the Commission de
Surveillance du Secteur Financier, which supervises Luxembourg banks.
Clearstream, Luxembourg's customers are world-wide financial institutions
including underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations. Clearstream, Luxembourg's U.S. customers are limited
to securities brokers and dealers, and banks. Currently, Clearstream, Luxembourg
has approximately 2,000 customers located in over 80 countries, including all
major European countries, Canada, and the United States. Indirect access to
Clearstream, Luxembourg is available to other institutions that clear through or
maintain a custodial relationship with an account holder of Clearstream,
Luxembourg. Clearstream, Luxembourg has established an electronic bridge with
Morgan Guaranty Trust Company of New York as the Operator of the Euroclear
System ('MGT/EOC') in Brussels to facilitate settlement of trades between
Clearstream, Luxembourg and MGT/EOC. See ' ANNEX I, Global Clearance, Settlement
And Tax Documentation Procedures.'
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. 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
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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 each Rating Agency.
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 on or
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 accruing on
the Mortgage Loans (other than Simple Interest Loans) 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 ('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;
5. all prepayment charges collected by the Master Servicer during the
related Due 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
(but not prepayment 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)
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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. Central Time on the business day
immediately 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 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.
The 'Interest Funds' with respect to each Loan Group are equal to the sum,
without duplication, of
all scheduled interest (and in the case of Simple Interest Loans, all
interest) collected during the related Due Period 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 Prepayment Period, in each
case with respect to the Mortgage Loans in such Loan Group.
The 'Net Interest Funds' with respect to each Loan Group are equal to the
Interest Funds for such Loan Group less the portion of the Trustee Fee
calculated based on the Mortgage Loans in such Loan Group.
The 'Principal Funds' are equal to the sum, without duplication, of
the scheduled principal (or in the case of Simple Interest Loans, the
actual principal) collected during the related Due Period or advanced
(other than in the case of Simple Interest Loans) 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 relate to principal) less all
non-recoverable Advances relating to principal reimbursed during the
related Due Period.
A 'Due Period' with respect to any Distribution Date is the period
commencing on the second day of the month preceding the calendar month in which
such Distribution Date occurs and ending at the close of business on the first
day of the month in which such Distribution Date occurs.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
The Trustee will establish and maintain a distribution account (the
'Distribution Account') on behalf of the Certificateholders. The Trustee will,
promptly upon receipt, deposit in the Distribution Account and retain
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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 to the Certificateholders 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 and
expenses as provided in the Pooling and Servicing Agreement;
to pay itself 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.
DISTRIBUTIONS
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 December 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 Certificates bearing interest at a fixed rate for the first
Distribution Date will be the Closing Date. For any other Distribution Date, the
Record Date for such Certificates will be the last Business Day of the month
preceding the month in which that Distribution Date occurs. The Record Date for
the Certificates bearing interest at an adjustable rate for any Distribution
Date will be the Business Day preceding the applicable Distribution Date.
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 10% or more 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.
On each Distribution Date, the interest distributable with respect to the
Certificates bearing interest at a fixed rate is the interest which has accrued
thereon at the related Pass-Through Rate during the calendar month immediately
preceding the calendar month in which such Distribution Date occurs; and the
interest distributable with respect to the Certificates bearing interest at an
adjustable rate is the interest which has accrued thereon at the then applicable
related Pass-Through Rate 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. Each period referred
to in the prior sentence relating to the accrual of interest is the 'Accrual
Period' for the related Class of Offered Certificates.
All calculations of interest on the Certificates bearing interest at a fixed
rate will be made on the basis of a 360-day year assumed to consist of twelve
30-day months. All calculations of interest on the Certificates bearing interest
at an adjustable rate will be made on the basis of a 360-day year and the actual
number of days elapsed in the applicable Accrual Period.
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Allocation of Payments on the Mortgage Loans. On each Distribution Date, the
Trustee will withdraw (i) the prepayment charges for such Distribution Date and
pay such amounts to the Class XP Certificates and (ii) the Net Interest Funds
and Principal Funds for such Distribution Date and apply such amounts as
follows:
First, to pay accrued and unpaid interest on the Offered Certificates, in
the following order of priority:
1. From Net Interest Funds in respect of Loan Group I and Loan
Group II, in proportion to the amounts of Net Interest Funds relating to
each such Loan Group, to the Class A-IO Certificates, the Current Interest
and any Interest Carry Forward Amount for such Class;
2. (a) From remaining Net Interest Funds in respect of Loan Group I, to
the Class AF-1 Certificates, the Current Interest and any Interest Carry
Forward Amount for such Class, (b) from remaining Net Interest Funds in
respect of Loan Group II, to each Class in the Class A-II Group, Current
Interest and any Interest Carry Forward Amount for such Class, on a pro rata
basis in accordance with the amount of accrued interest due thereon, and
(c) from Net Interest Funds in respect of Loan Group III, to the Class AV-1
Certificates, the Current Interest and any Interest Carry Forward Amount for
such Class;
3. From remaining Net Interest Funds in respect of Loan Group I, Loan
Group II and Loan Group III, to the Class M-1 Certificates, the Class M-2
Certificates and the Class B Certificates, sequentially, in that order, the
Current Interest and any Interest Carry Forward Amount for each such Class;
4. Any Excess Spread to the extent necessary to meet a level of
overcollateralization equal to the Specified Overcollateralization Amount
will be the Extra Principal Distribution Amount and will be included as part
of the Principal Distribution Amount; and
5. Any Remaining Excess Spread will be added to any Excess
Overcollateralization Amount and will be applied as Excess Cashflow pursuant
to clauses second (D) through eighth below.
Notwithstanding the provisions of clauses first 4 and 5, above, on the first
Distribution Date, all Excess Spread will be paid to the holders of the
Class B-IO Certificates.
Second, to pay as principal on the Offered Certificates entitled to payments
of principal, in the following order of priority:
(A) For each Distribution Date (i) prior to the Stepdown Date or (ii) on
which a Trigger Event is in effect:
1. To the Senior Certificates entitled to payments of principal as
follows: the Principal Distribution Amount to (a) the Class AF-1
Certificates, (b) the Class AF-2 Certificates, Class AF-3 Certificates
and Class AF-4 Certificates, sequentially, in that order, and (c) the
Class AV-1 Certificates, pro rata, based on the Principal Funds for such
Distribution Date from each of Loan Group I, Loan Group II and Loan
Group III, respectively, in each case until the Certificate Principal
Balance of the respective Class is reduced to zero;
2. To the Class M-1 Certificates, any remaining Principal
Distribution Amount until the Certificate Principal Balance thereof is
reduced to zero;
3. To the Class M-2 Certificates, any remaining Principal
Distribution Amount until the Certificate Principal Balance thereof is
reduced to zero;
4. To the Class B Certificates, any remaining Principal Distribution
Amount until the Certificate Principal Balance thereof is reduced to
zero;
(B) For each Distribution Date on or after the Stepdown Date, so long as
a Trigger Event is not in effect:
1. To the Senior Certificates entitled to payments of principal as
follows: from the Principal Distribution Amount, the Class A Principal
Distribution Amount to (a) the Class AF-1 Certificates, (b) the
Class AF-2 Certificates, the Class AF-3 Certificates and the Class AF-4
Certificates, sequentially, in that order, and (c) the Class AV-1
Certificates, pro rata, based on the Principal Funds for such
Distribution Date from each of Loan Group I, Loan Group II and Loan
Group III, respectively, in each case until the Certificate Principal
Balance of the respective Class is reduced to zero;
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2. To the Class M-1 Certificates, from any remaining Principal
Distribution Amount, the Class M-1 Principal Distribution Amount, until
the Certificate Principal Balance thereof is reduced to zero;
3. To the Class M-2 Certificates, from any remaining Principal
Distribution Amount, the Class M-2 Principal Distribution Amount, until
the Certificate Principal Balance thereof is reduced to zero;
4. To the Class B Certificates, from any remaining Principal
Distribution Amount, the Class B Principal Distribution Amount, until the
Certificate Principal Balance thereof is reduced to zero;
(C) Notwithstanding the provisions of clauses second (A) and (B), if on
any Distribution Date all of the Senior Certificates of a Class A Group or
Groups are no longer outstanding, the pro rata portion of the Class A
Principal Distribution Amount otherwise allocable to such Class A Group or
Groups will be allocated to the remaining Class A Group or Groups, pro rata
in accordance with the aggregate Certificate Principal Balances of the
outstanding Senior Certificates of the Class A Group or Groups to which such
funds are allocated, except that the pro rata portion of the Class A
Principal Distribution Amount otherwise allocable to the Class A-II Group or
Class A-III Group shall be payable to the Class AF-1 Certificates only if no
other Classes of Senior Certificates are outstanding; and
(D) Notwithstanding the provisions of clauses second (A) and (B), if on
any Distribution Date the pro rata portion of the Class A Principal
Distribution Amount allocated to a Class A Group is insufficient to pay to
the related Senior Certificates the principal to which they are entitled
under clause second (B) (1), any Excess Cashflow will be allocated in an
amount equal to the lesser of the deficiency and the aggregate amount of
such Excess Cashflow, and if the pro rata portion of the Class A Principal
Distribution Amount is insufficient in more than one Class A Group, then pro
rata based upon the respective amounts of such deficiencies, except that
Excess Cashflow shall be payable to the Class AF-1 Certificates only if no
other Classes of Senior Certificates are outstanding.
Third, to the Senior Certificates as follows: from any remaining Excess
Cashflow, pro rata based on the Principal Funds for such Distribution Date from
each of Loan Group I, Loan Group II and Loan Group III to (a) the Class AF-1
Certificates, an amount equal to any Unpaid Realized Losses for such Class for
such Distribution Date, (b) the Class AF-2 Certificates, the Class AF-3 and the
Class AF-4 Certificates, sequentially, in that order, an amount equal to any
Unpaid Realized Losses for the applicable Class for such Distribution Date and
(c) the Class AV-1 Certificates, an amount equal to any Unpaid Realized Losses
for such Class for such Distribution Date.
Fourth, from any remaining Excess Cashflow, to the Class M-1 Certificates an
amount equal to any Unpaid Realized Losses for such Class for such Distribution
Date;
Fifth, from any remaining Excess Cashflow, to the Class M-2 Certificates any
amount equal to Unpaid Realized Losses for such Class for such Distribution
Date;
Sixth, from any remaining Excess Cashflow, to the Class B Certificates any
amount equal to Unpaid Realized Losses for such Class for such Distribution
Date;
Seventh, from any remaining Excess Cashflow, to the Class B-IO Certificates
an amount specified in the Pooling and Servicing Agreement; and
Eighth, any remaining amounts to the Residual Certificates.
GLOSSARY
'Applied Realized Loss Amount,' with respect to any Class of Offered
Certificates and as to any Distribution Date, means the sum of the Realized
Losses with respect to Mortgage Loans which have been applied in reduction of
the Certificate Principal Balance of such Class.
'Certificate Principal Balance' with respect to any Class of Offered
Certificates (other than any Class A-IO Certificates) and any Distribution Date,
is the Original Certificate Principal Balance of such Class as set forth on the
cover page of this Prospectus Supplement, less (i) all amounts in respect of
principal distributed to such Class on previous Distribution Dates and (ii) any
Applied Realized Loss Amounts allocated to such Class on previous Distribution
Dates.
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'Class A Group' is any of the Class A-I Group, the Class A-II Group or the
Class A-III Group, as applicable.
'Class A Principal Distribution Amount,' is the excess of (A) the aggregate
Certificate Principal Balance of all of the Senior Certificates immediately
prior to such Distribution Date over (B) the lesser of (I) approximately 51.20%
of the Stated Principal Balances of the Mortgage Loans as of the last day of the
related Due Period and (II) the Stated Principal Balances of the Mortgage Loans
as of the last day of the related Due Period less the OC Floor.
'Class B Principal Distribution Amount' is the excess of (x) of the sum of
(A) the aggregate Certificate Principal Balance of all of the Senior
Certificates (after taking into account distributions of the Class A Principal
Distribution Amount for such Distribution Date), (B) the Certificate Principal
Balance of the Class M-1 Certificates (after taking into account distribution of
the Class M-1 Principal Distribution Amount for such Distribution Date),
(C) the Certificate Principal Balance of the Class M-2 Certificates (after
taking into account distributions of the Class M-2 Principal Distribution Amount
for such Distribution Date) and (D) the Certificate Principal Balance of the
Class B Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) approximately 88.00% of the aggregate Stated Principal Balances of
all of the Mortgage Loans as of the last day of the related Due Period and
(B) the aggregate Stated Principal Balance of all of the Mortgage Loans as of
the last day of the related Due Period less the OC Floor; provided, however,
that after the Certificate Principal Balances of the Senior Certificates, the
Class M-1 Certificates and the Class M-2 Certificates are reduced to zero, the
Class B Principal Distribution Amount for such Distribution Date will equal 100%
of the Principal Distribution Amount.
'Class M-1 Principal Distribution Amount,' is the excess of (x) the sum of
(A) the aggregate Certificate Principal Balance of all of the Senior
Certificates (after taking into account distributions of the Class A Principal
Distribution Amount for such Distribution Date) and (B) the Certificate
Principal Balance of the Class M-1 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) approximately 65.20% of the
aggregate Stated Principal Balances of all of the Mortgage Loans as of the last
day of the related Due Period and (B) the aggregate Stated Principal Balances of
all of the Mortgage Loans as of the last day of the related Due Period less the
OC Floor.
'Class M-2 Principal Distribution Amount' is the excess of (x) the sum of
(A) the aggregate Certificate Principal Balance of all of the Senior
Certificates (after taking into account distributions of the Class A Principal
Distribution Amount for such Distribution Date), (B) the Certificate Principal
Balance of the Class M-1 Certificates (after taking into account distribution of
the Class M-1 Principal Distribution Amount for such Distribution Date) and
(C) the Certificate Principal Balance of the Class M-2 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) approximately 77.20%
of the aggregate Stated Principal Balances of all of the Mortgage Loans as of
the last day of the related Due Period and (B) the aggregate Stated Principal
Balances of all of the Mortgage Loans as of the last day of the related Due
Period less the OC Floor.
'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.
'Excess Cashflow' with respect to any Distribution Date, is the sum of (a)
the Excess Overcollateralization Amount and (b) the Remaining Excess Spread, in
each case for such Distribution Date.
'Excess Overcollateralization Amount' with respect to any Distribution Date,
is the excess, if any, of (a) the Overcollateralization Amount over (b) the
Specified Overcollateralization Amount, in each case for such Distribution Date.
'Excess Spread,' with respect to any Distribution Date, is the excess, if
any, of the Net Interest Funds for such Distribution Date over required
distributions of interest on the Offered Certificates on such Distribution Date.
'Extra Principal Distribution Amount,' with respect to any Distribution
Date, is the lesser of (a) the excess, if any, of the Specified
Overcollateralization Amount and for such Distribution Date over the
Overcollateralization Amount (after giving effect to distributions of principal
on the Certificates other than any Extra Principal Distribution Amount) and for
such Distribution Date and (b) the Excess Spread for such Distribution Date.
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'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.
'OC Floor' equals 0.50% of the aggregate Stated Principal Balances of the
Mortgage Loans as of the Cut-off Date.
'Overcollateralization Amount,' with respect to any Distribution Date, is
the excess, if any, of (a) the aggregate Stated Principal Balances of the
Mortgage Loans as of the last day of the related Due Period over (b) the
Certificate Principal Balances of the Offered Certificates as of such date
(after taking into account the payment of principal other than any Extra
Principal Distribution Amount on such Certificates on such Distribution Date).
'Principal Distribution Amount,' with respect to each Distribution Date, is
the sum of (x) the Principal Funds for such Distribution Date plus (y) any Extra
Principal Distribution Amount for such Distribution Date less (z) any Excess
Overcollateralization Amount for such Distribtion Date.
'Realized Loss' is the excess of the Stated Principal Balance of a defaulted
Mortgage Loan over the net liquidation proceeds with respect thereto that are
allocated to principal.
'Remaining Excess Spread' with respect to any Distribution Date, is the
Excess Spread less any Extra Principal Distribution Amount, in each case for
such Distribution Date.
'Senior Enhancement Percentage' for any Distribution Date is the percentage
obtained by dividing (x) the sum of (i) the aggregate of the Certificate
Principal Balances of the Subordinated Offered Certificates and (ii) the
Overcollateralization Amount after taking into account the distribution of the
related Principal Distribution Amounts on such Distribution Date by (y) the
aggregate Stated Principal Balances of the Mortgage Loans as of the last day of
the related Due Period.
'Specified Overcollateralization Amount' means, prior to the Stepdown Date,
an amount equal to 6.00% of the Cut-off Date Principal Balance of the Mortgage
Loans, and on and after the Stepdown Date, an amount equal to 12.00% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the last day of
the related Due Period, subject to a minimum amount equal to the OC Floor;
provided, however, that, if on any Distribution Date, a Trigger Event has
occurred, the Specified Overcollateralization Amount shall not be reduced to the
applicable percentage of the then current aggregate Stated Principal Balance of
the Mortgage Loans until the Distribution Date on which a Trigger Event no
longer exists.
'Specified Senior Enhancement Percentage' means 48.80%.
'Stepdown Date,' is the later to occur of (i) the Distribution Date in
December 2003 or (ii) the first Distribution Date on which the Senior
Enhancement Percentage (calculated for this purpose only after taking into
account distributions of principal on the related Mortgage Loans on such
Distribution Date, but prior to any applications of Principal Funds to the
Certificates) is greater than or equal to the Specified Senior Enhancement
Percentage.
A 'Trigger Event,' with respect to a Distribution Date after the Stepdown
Date, exists if certain rates of cumulative losses have occurred during certain
periods of time as specified in the Pooling and Servicing Agreement or a
Delinquency Event shall have occurred and be continuing. A 'Delinquency Event'
shall have occurred and be continuing if at any time, (x) the three-month
rolling average of the percent equivalent of a fraction, the numerator of which
is the aggregate Stated Principal Balance of the Mortgage Loans that are
60 days or more delinquent or are in bankruptcy or foreclosure or are REO
Properties, and the denominator of which is the aggregate Stated Principal
Balance of all of the Mortgage Loans as of the last day of the related Due
Period, equals or exceeds (y) 45% of the Senior Enhancement Percentage.
'Unpaid Realized Loss Amount,' with respect to any Class of the Offered
Certificates and as to any Distribution Date, is the excess of (i) Applied
Realized Loss Amounts with respect to such Class over (ii) the sum of all
distributions in reduction of the Applied Realized Loss Amounts on all previous
Distribution Dates. Any amounts distributed to a Class of Offered Certificates
in respect of any Unpaid Realized Loss Amount will not be applied to reduce the
Certificate Principal Balance of such Class.
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OVERCOLLATERALIZATION AND CROSSCOLLATERALIZATION PROVISIONS
Excess Spread will be required to be applied as an Extra Principal
Distribution Amount with respect to the Offered Certificates whenever the
Overcollateralization Amount is less than the Specified Overcollateralization
Amount. If on any Distribution Date, after giving effect to allocations of
Principal Distribution Amounts, the aggregate Certificate Principal Balances of
the Offered Certificates exceed the Stated Principal Balances of the Mortgage
Loans, the Certificate Principal Balances of the Offered Certificates will be
reduced, in inverse order of seniority (beginning with the Class B Certificates)
by an amount equal to such excess. Any such reduction is an 'Applied Realized
Loss Amount.'
If, on any Distribution Date, the Excess Overcollateralization Amount is,
or, after taking into account all other distributions to be made on such
Distribution Date, would be, greater than zero (i.e., the Overcollateralization
Amount is or would be greater than the Specified Overcollateralization Amount),
then such Excess Overcollateralization Amount together with any Remaining Excess
Spread will be paid as provided in clauses second (D) through eighth as provided
in ' -- Distributions -- Allocations of Payments on the Mortgage Loans,' above.
This has the effect of decelerating the amortization of the Offered Certificates
relative to the amortization of the Mortgage Loans, and of reducing the related
Overcollateralization Amount to the applicable Specified Overcollateralization
Amount.
If on any Distribution Date, all of the Senior Certificates of a Class A
Group or Groups are no longer outstanding, the pro rata portion of the Class A
Principal Distribution Amount otherwise allocable to such Class A Group or
Groups will be allocated to the remaining Class A Group or Groups, pro rata in
accordance with the aggregate Certificate Principal Balances of the outstanding
Senior Certificates of the Class A Group or Groups to which such funds are
allocated. However, the pro rata portion of the Class A Principal Distribution
Amount otherwise allocable to the Class A-II Group or Class A-III Group shall be
payable to the Class AF-1 Certificates only if no other Classes of Senior
Certificates are outstanding. This potential for payment of principal amounts
from one Loan Group to pay principal on one or both of the unrelated Class A
Groups has the effect of crosscollateralizing the Class A Groups.
If on any Distribution Date, the pro rata portion of the Class A Principal
Distribution Amount allocated to a Class A Group is insufficient to pay to the
related Senior Certificates the principal to which they are entitled, any Excess
Cashflow will be allocated to such Class A Group to make up the deficiency. If
the pro rata portion of the Class A Principal Amount is insufficient in more
than one Class A Group, then any Excess Cashflow will be allocated to such Class
A Groups to make up the respecive deficiencies, pro rata, based upon the
respective amounts of such deficiencies, except that Excess Cashflow shall be
payable to the Class AF-1 Certificates only if no other Classes of Senior
Certificates are outstanding. This use of aggregate Excess Cashflow to fund any
deficiencies in one or more Class A Groups has the effect of
crosscollateralizing the Class A Groups.
PASS-THROUGH RATES
The 'Pass-Through Rate' per annum for each Class of Certificates bearing
interest at a fixed rate is the respective 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 Certificates
bearing interest at a fixed rate will increase by 0.50% per annum. On any
Distribution Date (including after the Optional Termination Date),
the Pass-Through Rate for the Class A-IO Certificates will be subject to
the A-IO Net Rate Cap,
the Class AF-1 Certificates will be subject to (a) through the applicable
Accrual Period for such Class relating to the Distribution Date in May,
2003, the Aggregate Groups I and II Net Rate Cap and (b) thereafter, the
Group I Net Rate Cap, and
the Class M-1, Class M-2 and Class B Certificates will each be subject to
the Subordinated Certificates Rate Cap.
The 'A-IO Net Rate Cap,' is equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in both Loan Group I and Loan Group II.
The 'Aggregate Groups I and II Net Rate Cap' is equal to
(I) (A)(1) the weighted average of the Net Mortgage Rates of the Mortgage
Loans in Loan Group I and Loan Group II multiplied by (2) the excess of
the Stated Principal Balance of the Mortgage Loans in
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Loan Group I and Loan Group II as of the last day of the related Due
Period over the notional amount of the Class A-IO Certificates, plus
(B)(1) the excess of the weighted average of the Net Mortgage Rates of
the Mortgage Loans in Loan Group I and Loan Group II over the
Pass-Through Rate of the Class A-IO Certificates, multiplied by
(2) the notional amount of the Class A-IO Certificates; divided by
(II) the Stated Principal Balance of the Mortgage Loans in Loan Group I and
Loan Group II as of the last day of the related Due Period.
The 'Group I Net Rate Cap' is equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in Loan Group I.
The 'Group II Net Rate Cap' is equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in Loan Group II.
The 'Group III Net Rate Cap' is equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in Loan Group III.
The 'Subordinated Certificates Rate Cap' is equal to:
(a) through the applicable Accrual Period for each such Class relating to
the Distribution Date in May, 2003, the lesser of
(i) the Aggregate Groups I and II Net Rate Cap, and
(ii) the Group III Net Rate Cap, and
(b) thereafter, the least of
(i) the Group I Net Rate Cap,
(ii) the Group II Net Rate Cap and
(iii) the Group III Net Rate Cap.
The 'Pass-Through Rate' per annum for each Class of Certificates bearing
interest at an adjustable rate will be equal to the lesser 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 for such
Class, and
(a) in the case of the Class AF-2 Certificates, (i) the Aggregate Groups I
and II Net Rate Cap through the applicable Accrual Period for such Class
relating to the Distribution Date in May, 2003 and (ii) thereafter, the
Group II Net Rate Cap, and
(b) in the case of the Class AV-1 Certificates, the percentage obtained by
dividing (a) the Group III Net Rate Cap by (b) the product of (i) the
Stated Principal Balance of the Mortgage Loans in Loan Group III as of the
last day of the related Due Period and (ii) the actual number of days
elapsed during such Accrual Period divided by 360.
The 'Pass-Through Margin' for each Class of Certificates bearing interest at
an adjustable rate is (i) for the Class AF-2 Certificates, 0.15% and (ii) for
the Class AV-1 Certificates and for any Distribution Date on or prior to the
Optional Termination Date, 0.25%, and for any Distribution Date after the
Optional Termination Date, 0.50%.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Offered Certificates bearing
interest at an adjustable rate (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
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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 Classes of Offered Certificates bearing
interest at an adjustable rate 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 Balance of all Classes of Offered Certificates
bearing interest at an adjustable rate 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 Classes of Offered Certificates bearing interest at an adjustable rate for
the related Accrual Period shall (in the absence of manifest error) be final and
binding.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will make available to each
Certificateholder, 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) any Extra Principal Distribution Amount included therein;
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 and allocation of Applied
Realized Loss Amounts 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 Offered 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) 31-60 days, (2) 61-90 days and (3) 91 or more days, and
(B) in foreclosure and delinquent (1) 31-60 days, (2) 61-90 days and (3) 91
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 was
liquidated during the preceding calendar month, the loan number and Stated
Principal Balance of, and Realized Loss on, such Mortgage Loan as of the
close of business on the Determination Date preceding such Distribution
Date;
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11. whether a Trigger Event exists;
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;
13. the cumulative Realized Losses for each Loan Group through the end
of the preceding month; and
14. the three-month rolling average of the percent equivalent of a
fraction, the numerator of which is the aggregate Stated Principal Balance
of the Mortgage Loans that are 60 days or more delinquent or are in
bankruptcy or foreclosure or are REO Properties, and the denominator of
which is the aggregate Stated Principal Balance of all of the Mortgage Loans
as of the last day of the such Distribution Date.
The Trustee will make the monthly statement (and, at its option, any
additional files containing the same information in an alternative format)
available each month to Certificateholders via the Trustee's internet website
and its fax-on-demand service. The Trustee's fax-on-demand service may be
accessed by calling (301) 815-6610. The Trustee's internet website shall
initially be located at 'www.ctslink.com'. Assistance in using the website or
the fax-on-demand service can be obtained by calling the Trustee's customer
service desk at (301) 815-6600. Parties that are unable to use the above
distribution options are entitled to have a paper copy mailed to them via first
class mail by calling the customer service desk and indicating such. The Trustee
may change the way monthly statements are distributed in order to make such
distributions more convenient or more accessible to the above parties.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to the Master Servicer and,
upon request, 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, the Seller and the Trustee, without the consent of
Certificateholders,
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. The Pooling
and Servicing Agreement may also be amended 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. In addition, the Pooling and
Servicing Agreement may be amended 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 qualification of 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 qualification.
In addition, the Pooling and Servicing Agreement may be amended by the
Depositor, the Master Servicer, the Seller and the Trustee with the consent of
the holders of a Majority in Interest of each Class of Certificates affected
thereby 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;
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(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.
The Trustee will not be entitled to consent to any amendment to the Pooling
and Servicing Agreement without having first received an opinion of counsel to
the effect that such amendment is permitted under the terms of the Pooling and
Servicing Agreement and will not cause the Trust Fund's REMIC elections 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'). 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 of the Trustee or the Master Servicer and the
principal portion of any unreimbursed Advances previously incurred by the Master
Servicer in the performance of its servicing obligations. Proceeds from such
purchase will be distributed to the Certificateholders in the priority described
above. The proceeds from any such distribution may not be sufficient to
distribute the full amount to which each Class of Certificates is entitled if
the purchase price is based in part on the appraised value of any REO Property
and such appraised value is less than the Stated Principal Balance of the
related Mortgage Loan. 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.
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
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 five Business Days 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
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
holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates; or
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.
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
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Principal Balances and (y) holders of the Class B-IO Certificates and 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 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 (other than its obligation to purchase any Restricted Mortgage
Loan required to be repurchased under the Pooling and Servicing Agreement),
whereupon the Trustee will succeed (after a transition period not exceeding 90
days) 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, it 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. The costs and expenses of the Trustee in connection with
the termination of the Master Servicer, appointment of a successor Master
Servicer and the transfer of servicing, to the extent not paid by the terminated
Master Servicer, will be paid by the Trust Fund.
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 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
Wells Fargo Bank Minnesota, National Association 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. The Trustee's Corporate Trust Office for Certificate transfer purposes
is located at Sixth and Marquette, Minneapolis, Minnesota 55479, Attention: Bear
Stearns, ABS 2000-2, and for all other purposes at 11000 Broken Land Parkway,
Columbia, Maryland 21044-3562, Attention: Bear Stearns Asset Backed Securities,
Inc., Series 2000-2 or at such other address as the Trustee may designate from
time to time.
S-56
<PAGE>
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 or Groups. 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 mortgagors' equity in such properties, and changes in the
mortgagors' housing needs, job transfers and employment status. In addition,
approximately 0.00%, 0.95%, 15.71%, 0.00% and 34.36% of the Mortgage Loans in
Loan Group I, approximately 0.03%, 0.34%, 6.66%, 0.00% and 49.03% of the
Mortgage Loans in Loan Group II and approximately 0.00%, 16.66%, 33.60%, 0.00%
and 16.20% of the Mortgage Loans in Loan Group III (by Cut-off Date Principal
Balance) provide for the payment by the borrower of a prepayment charge on
voluntary prepayments typically made within one, two, three, four and five
years, respectively, 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 determination.
The weighted average life and yield to maturity of each Class of Offered
Certificates will also be influenced by the amount of Excess Spread generated by
the Mortgage Loans and applied in reduction of the Certificate Principal
Balances of such Certificates. The level of Excess Spread 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 Mortgage Pool 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 Offered Certificates);
the delinquency and default experience of the Mortgage Loans,
the level of One-Month LIBOR and the Mortgage Indices for the Adjustable
Rate Mortgage Loans, and
the provisions of the Pooling and Servicing Agreement that permit principal
collections to be distributed to the Class B-IO Certificates and the
Residual Certificates (in each case as provided in the Pooling and
Servicing Agreement) when required overcollateralization levels have been
met.
To the extent that greater amounts of Excess Spread are distributed in
reduction of the Certificate Principal Balance 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 Spread to be
distributed at any time or in the aggregate.
S-57
<PAGE>
The principal payment rules require that, after certain Classes of Senior
Certificates are no longer outstanding, principal payments from the related Loan
Group or Groups shall be allocated to the Senior Certificates relating to the
other Loan Group or Groups. To the extent a Class of Senior Certificates
receives such additional amounts, the weighted average life thereof can be
expected to shorten.
See 'Description of the Certificates -- Distributions' and
' -- Overcollateralization and Crosscollateralization Provisions' herein.
The yields to maturity of the Offered Certificates and, in particular the
Subordinated Offered Certificates, in the order of payment priority, will be
progressively more sensitive to the rate, timing and severity of Realized Losses
on the Mortgage Loans. If an Applied Realized Loss Amount is allocated to a
Class of Offered Certificates, that Class will thereafter accrue interest on a
reduced Certificate Principal Balance. Although the Applied Realized Loss Amount
so allocated may be recovered on future Distribution Dates to the extent Excess
Cashflow is available for that purpose, there can be no assurance that those
amounts will be available or sufficient.
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 or Groups. 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 or Groups 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 or Groups could result in an actual yield to such investor
that is lower than the anticipated yield.
The effective yield to the holders of the Certificates bearing interest at a
fixed rate 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 Loan Group I and Loan Group II 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 Mortgage Loans
may reduce any interest rate cap applicable to the related Class or Classes of
Certificates. If the Pass-Through Rate on a Class of Certificates is limited by
an interest 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 Loan Group III 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 Class AV-1 Certificates. 94.60% and 5.40% of the
Adjustable Rate Mortgage Loans, by Cut-off Date Principal Balance, adjust by
reference to
S-58
<PAGE>
Six-Month LIBOR and One-Year CMT, respectively. Changes in One-Month LIBOR may
not correlate with changes in either Mortgage Index and also may not correlate
with prevailing interest rates. It is possible that an increased level of
One-Month 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 Class AV-1 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 applicable Mortgage Index
value most recently announced generally as of a date 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
Group III Net Rate Cap on the Class AV-1 Certificates. In addition, a
substantial portion of the Mortgage Loans in Loan Group III 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.
The 'Last Scheduled Distribution Date' for each Class of the Offered
Certificates (other than the Class A-IO Certificates) is the Distribution Date
in the month following the latest maturing mortgage loan plus one month. 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 to the extent 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 of the Mortgage Loans and may
purchase Mortgage Loans in certain other circumstances as described herein.
The 'Last Scheduled Distribution Date' for the Class A-IO Certificates is
the Distribution Date in May, 2003.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement (the 'Prepayment
Model') is a prepayment assumption which represents a constant assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans similar to the Mortgage Loans in each Loan Group for the
life of such mortgage loans ('CPR'). In the case of Loan Group I and Loan
Group II, 18% CPR assumes a constant prepayment rate of 18% per annum and in the
case of Loan Group III, 28% CPR assumes a constant prepayment rate of 28% per
annum.
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 in Loan Group I and Loan Group II and the
Adjustable Rate Mortgage Loans in Loan Group III prepay at the indicated
percentages of CPR;
distributions on the Offered Certificates are received, in cash, on the
25th day of each month, commencing in December 2000, in accordance with the
payment priorities defined herein;
S-59
<PAGE>
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 December 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 November 2000, and include 30 days'
interest thereon;
the level of the six-month LIBOR Mortgage Index remains constant at 6.700%
per annum, the level of One-Month LIBOR remains constant at 6.620% per
annum and the One-Year CMT Index remains constant at 6.149%;
the Pass-Through Margin for each Class of Certificates bearing interest at
an adjustable rate remains constant at the rate applicable thereto prior to
the Optional Termination Date, and the Pass-Through Margin for each class
of Certificates bearing interest at an adjustable rate is adjusted as
provided herein on any Distribution Date following the Optional Termination
Date;
the Closing Date for the Certificates is November 30, 2000;
for purposes of the modeling assumptions, the Trustee Fee is 0.02% and the
Master Servicing Fee is 0.50%.
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 applicable Mortgage Index and (b) the respective Gross Margin (such
sum being subject to the applicable periodic adjustment caps and floors);
except as indicated with respect to the weighted average lives, the Master
Servicer does not exercise its right to purchase the assets of the Trust
Fund on the Optional Termination Date; and
each Loan Group consists of Mortgage Loans having the approximate
characteristics described below:
LOAN GROUP I
<TABLE>
<CAPTION>
ORIGINAL REMAINING
AMORTIZATION AMORTIZATION BALLOON
CURRENT GROSS TERM TERM TERM
BALANCE MORTGAGE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 238,821.46 11.121% 56 34 N/A
$ 3,155,602.68 10.458% 116 95 N/A
$25,376,131.21 10.235% 179 157 N/A
$14,262,108.25 10.282% 239 216 N/A
$ 2,993,040.67 9.637% 296 266 N/A
$92,782,702.04 9.520% 359 338 N/A
$ 175,258.73 8.464% 361 340 N/A
$ 3,191,707.26 10.574% 360 337 150
</TABLE>
LOAN GROUP II
<TABLE>
<CAPTION>
ORIGINAL REMAINING
AMORTIZATION AMORTIZATION BALLOON
CURRENT GROSS TERM TERM TERM
BALANCE MORTGAGE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 342,183.27 11.591% 57 36 N/A
$ 5,132,526.66 11.328% 117 96 N/A
$26,607,295.08 10.781% 178 156 N/A
$ 8,230,057.17 10.525% 239 218 N/A
$ 1,126,804.23 9.977% 292 271 N/A
$55,087,609.69 9.923% 360 339 N/A
$ 60,337.02 11.000% 429 333 N/A
$ 318,536.86 10.757% 360 332 151
</TABLE>
S-60
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
NUMBER OF
ORIGINAL REMAINING MONTHS UNTIL
AMORTIZATION AMORTIZATION NEXT RATE RESET INITIAL
CURRENT GROSS TERM TERM GROSS ADJUSTMENT CHANGE PERIODIC PERIODIC LIFETIME
BALANCE MORTGAGE RATE (IN MONTHS) (IN MONTHS) MARGIN DATE FREQUENCY CAP CAP FLOOR
------- ------------- ----------- ----------- ------ ---- --------- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 190,381.63 11.759% 340 320 6.819% 5 12 2.000% 2.000% 9.646%
$ 2,692,434.70 9.993% 352 336 6.580% 20 12 2.956% 1.876% 9.748%
$ 3,075,453.22 10.029% 360 340 6.632% 4 6 2.835% 1.062% 9.711%
$ 7,823,515.23 10.470% 358 344 6.617% 10 6 2.972% 1.071% 10.396%
$ 5,455,160.33 10.531% 356 347 6.233% 15 6 2.990% 1.000% 10.531%
$ 1,237,265.86 10.336% 355 324 5.366% 4 6 1.951% 1.000% 8.074%
$ 3,098,573.86 10.249% 343 317 5.918% 10 6 2.233% 1.000% 8.236%
$19,637,977.57 10.389% 349 329 6.195% 16 6 2.273% 1.033% 8.575%
$ 2,883,905.71 10.342% 356 347 5.836% 28 6 3.000% 1.000% 10.342%
$ 7,243,196.98 11.710% 337 312 4.960% 3 6 1.033% 1.033% 8.135%
<CAPTION>
CURRENT LIFETIME
BALANCE CAP INDEX
------- --- -----
<S> <C> <C>
$ 190,381.63 15.984% 1YR CMT
$ 2,692,434.70 15.992% 1YR CMT
$ 3,075,453.22 16.124% 6M LIBOR
$ 7,823,515.23 16.556% 6M LIBOR
$ 5,455,160.33 16.541% 6M LIBOR
$ 1,237,265.86 16.285% 6M LIBOR
$ 3,098,573.86 16.294% 6M LIBOR
$19,637,977.57 16.398% 6M LIBOR
$ 2,883,905.71 16.348% 6M LIBOR
$ 7,243,196.98 15.508% 6M LIBOR
</TABLE>
S-61
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A-IO'D' CLASS AF-1
---------------------------------- ----------------------------------
LOAN GROUP I AND LOAN GROUP II (CPR) 0% 9% 14% 18% 23% 27% 0% 9% 14% 18% 23% 27%
LOAN GROUP III (CPR) ---- --- --- --- --- --- ---- --- --- --- --- ---
DISTRIBUTION DATE 0% 14% 21% 28% 35% 42% 0% 14% 21% 28% 35% 42%
----------------- -- --- --- --- --- --- -- --- --- --- --- ---
<S> <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
November 25, 2001....................... 100 100 100 100 100 100 96 85 78 73 67 62
November 25, 2002....................... 100 100 100 100 100 100 94 72 61 53 43 35
November 25, 2003....................... 0 0 0 0 0 0 91 61 47 36 24 16
November 25, 2004....................... 0 0 0 0 0 0 88 51 35 30 24 16
November 25, 2005....................... 0 0 0 0 0 0 85 41 30 24 18 15
November 25, 2006....................... 0 0 0 0 0 0 82 35 25 20 14 12
November 25, 2007....................... 0 0 0 0 0 0 78 31 21 16 11 9
November 25, 2008....................... 0 0 0 0 0 0 74 27 18 13 9 7
November 25, 2009....................... 0 0 0 0 0 0 70 24 15 11 7 5
November 25, 2010....................... 0 0 0 0 0 0 65 21 13 9 6 4
November 25, 2011....................... 0 0 0 0 0 0 60 18 11 7 4 2
November 25, 2012....................... 0 0 0 0 0 0 55 16 9 6 3 2
November 25, 2013....................... 0 0 0 0 0 0 46 13 7 5 2 1
November 25, 2014....................... 0 0 0 0 0 0 43 12 6 4 2 *
November 25, 2015....................... 0 0 0 0 0 0 39 11 6 3 1 0
November 25, 2016....................... 0 0 0 0 0 0 35 9 5 2 * 0
November 25, 2017....................... 0 0 0 0 0 0 31 8 4 2 0 0
November 25, 2018....................... 0 0 0 0 0 0 27 7 3 1 0 0
November 25, 2019....................... 0 0 0 0 0 0 25 6 3 1 0 0
November 25, 2020....................... 0 0 0 0 0 0 23 6 2 * 0 0
November 25, 2021....................... 0 0 0 0 0 0 21 5 2 0 0 0
November 25, 2022....................... 0 0 0 0 0 0 19 4 1 0 0 0
November 25, 2023....................... 0 0 0 0 0 0 16 4 1 0 0 0
November 25, 2024....................... 0 0 0 0 0 0 13 3 * 0 0 0
November 25, 2025....................... 0 0 0 0 0 0 10 2 0 0 0 0
November 25, 2026....................... 0 0 0 0 0 0 7 1 0 0 0 0
November 25, 2027....................... 0 0 0 0 0 0 3 0 0 0 0 0
November 25, 2028....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2029....................... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)(1)..... 2.5 2.5 2.5 2.5 2.5 2.5 13.5 6.3 4.5 3.7 2.9 2.4
Weighted Average Life (in
years)(1)(2)........................... 2.5 2.5 2.5 2.5 2.5 2.5 13.4 5.7 4.1 3.3 2.5 2.0
</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.
'D' NOTIONAL
* LESS THAN 0.50% BUT GREATER THAN 0%.
(Table continued on next page.)
S-62
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS AF-2 CLASS AF-3
---------------------------------- ----------------------------------
LOAN GROUP I AND LOAN GROUP II (CPR) 0% 9% 14% 18% 23% 27% 0% 9% 14% 18% 23% 27%
---- --- --- --- --- --- ---- --- --- --- --- ---
0% 14% 21% 28% 35% 42% 0% 14% 21% 28% 35% 42%
LOAN GROUP III (CPR) -- --- --- --- --- --- -- --- --- --- --- ---
DISTRIBUTION DATE
-----------------
<S> <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
November 25, 2001....................... 90 68 56 46 34 24 100 100 100 100 100 100
November 25, 2002....................... 84 43 21 5 0 0 100 100 100 100 68 35
November 25, 2003....................... 77 20 0 0 0 0 100 100 81 37 0 0
November 25, 2004....................... 70 0 0 0 0 0 100 97 32 9 0 0
November 25, 2005....................... 62 0 0 0 0 0 100 54 8 0 0 0
November 25, 2006....................... 53 0 0 0 0 0 100 24 0 0 0 0
November 25, 2007....................... 43 0 0 0 0 0 100 6 0 0 0 0
November 25, 2008....................... 32 0 0 0 0 0 100 0 0 0 0 0
November 25, 2009....................... 23 0 0 0 0 0 100 0 0 0 0 0
November 25, 2010....................... 12 0 0 0 0 0 100 0 0 0 0 0
November 25, 2011....................... 1 0 0 0 0 0 100 0 0 0 0 0
November 25, 2012....................... 0 0 0 0 0 0 73 0 0 0 0 0
November 25, 2013....................... 0 0 0 0 0 0 39 0 0 0 0 0
November 25, 2014....................... 0 0 0 0 0 0 28 0 0 0 0 0
November 25, 2015....................... 0 0 0 0 0 0 14 0 0 0 0 0
November 25, 2016....................... 0 0 0 0 0 0 * 0 0 0 0 0
November 25, 2017....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2018....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2019....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2020....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2021....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2022....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2023....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2024....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2025....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2026....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2027....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2028....................... 0 0 0 0 0 0 0 0 0 0 0 0
November 25, 2029....................... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)(1)..... 6.0 1.8 1.3 1.0 0.8 0.7 13.1 5.3 3.7 3.0 2.2 1.9
Weighted Average Life (in
years)(1)(2)........................... 6.0 1.8 1.3 1.0 0.8 0.7 13.1 5.3 3.7 3.0 2.2 1.9
</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.
* LESS THAN 0.50% BUT GREATER THAN 0%.
(Table continued from previous page and continued on next page.)
S-63
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS AF-4 CLASS AV-1
----------------------------------- ----------------------------------
LOAN GROUP I AND LOAN GROUP II (CPR) 0% 9% 14% 18% 23% 27% 0% 9% 14% 18% 23% 27%
---- ---- --- --- --- --- ---- --- --- --- --- ---
0% 14% 21% 28% 35% 42% 0% 14% 21% 28% 35% 42%
LOAN GROUP III (CPR) -- --- --- --- --- --- -- --- --- --- --- ---
DISTRIBUTION DATE
-----------------
<S> <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
November 25, 2001....................... 100 100 100 100 100 100 98 79 70 61 52 43
November 25, 2002....................... 100 100 100 100 100 100 98 63 48 34 22 11
November 25, 2003....................... 100 100 100 100 89 43 97 49 31 15 3 0
November 25, 2004....................... 100 100 100 100 86 43 96 37 19 9 2 0
November 25, 2005....................... 100 100 100 87 62 38 95 27 13 4 0 0
November 25, 2006....................... 100 100 89 70 41 21 94 20 9 1 0 0
November 25, 2007....................... 100 100 74 51 26 9 93 16 5 0 0 0
November 25, 2008....................... 100 91 61 36 15 1 92 13 3 0 0 0
November 25, 2009....................... 100 79 50 25 7 0 90 10 1 0 0 0
November 25, 2010....................... 100 68 40 16 2 0 89 8 0 0 0 0
November 25, 2011....................... 100 58 29 10 0 0 87 6 0 0 0 0
November 25, 2012....................... 100 49 21 4 0 0 84 4 0 0 0 0
November 25, 2013....................... 100 40 14 0 0 0 82 3 0 0 0 0
November 25, 2014....................... 100 35 9 0 0 0 79 1 0 0 0 0
November 25, 2015....................... 100 31 6 0 0 0 76 * 0 0 0 0
November 25, 2016....................... 100 25 3 0 0 0 72 0 0 0 0 0
November 25, 2017....................... 86 20 * 0 0 0 68 0 0 0 0 0
November 25, 2018....................... 76 15 0 0 0 0 65 0 0 0 0 0
November 25, 2019....................... 69 11 0 0 0 0 62 0 0 0 0 0
November 25, 2020....................... 63 7 0 0 0 0 59 0 0 0 0 0
November 25, 2021....................... 55 4 0 0 0 0 56 0 0 0 0 0
November 25, 2022....................... 47 2 0 0 0 0 52 0 0 0 0 0
November 25, 2023....................... 39 0 0 0 0 0 47 0 0 0 0 0
November 25, 2024....................... 29 0 0 0 0 0 42 0 0 0 0 0
November 25, 2025....................... 19 0 0 0 0 0 36 0 0 0 0 0
November 25, 2026....................... 7 0 0 0 0 0 29 0 0 0 0 0
November 25, 2027....................... 0 0 0 0 0 0 21 0 0 0 0 0
November 25, 2028....................... 0 0 0 0 0 0 6 0 0 0 0 0
November 25, 2029....................... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)(1)..... 21.4 12.9 9.5 7.5 5.8 4.2 20.2 3.9 2.5 1.7 1.3 1.0
Weighted Average Life (in
years)(1)(2)........................... 21.4 12.2 9.0 7.2 5.6 4.0 19.9 3.9 2.5 1.7 1.3 1.0
</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.
* LESS THAN 0.50% BUT GREATER THAN 0%.
(Table continued from previous page and continued on next page.)
S-64
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS M-1 CLASS M-2
----------------------------------- -----------------------------------
LOAN GROUP I AND LOAN GROUP II (CPR) 0% 9% 14% 18% 23% 27% 0% 9% 14% 18% 23% 27%
---- ---- --- --- --- --- ---- ---- --- --- --- ---
LOAN GROUP III (CPR) 0% 14% 21% 28% 35% 42% 0% 14% 21% 28% 35% 42%
-- --- --- --- --- --- -- --- --- --- --- ---
DISTRIBUTION DATE
-----------------
<S> <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
November 25, 2001....................... 100 100 100 100 100 100 100 100 100 100 100 100
November 25, 2002....................... 100 100 100 100 100 100 100 100 100 100 100 100
November 25, 2003....................... 100 100 100 100 100 100 100 100 100 100 100 100
November 25, 2004....................... 100 100 96 77 59 89 100 100 96 77 59 46
November 25, 2005....................... 100 100 79 61 43 32 100 100 79 61 43 32
November 25, 2006....................... 100 94 65 48 32 23 100 94 65 48 32 23
November 25, 2007....................... 100 82 54 37 23 16 100 82 54 37 23 16
November 25, 2008....................... 100 71 44 29 17 11 100 71 44 29 17 11
November 25, 2009....................... 100 62 36 22 12 8 100 62 36 22 12 8
November 25, 2010....................... 100 53 29 17 9 5 100 53 29 17 9 5
November 25, 2011....................... 100 45 24 13 7 4 100 45 24 13 7 2
November 25, 2012....................... 100 39 19 10 5 1 100 39 19 10 5 0
November 25, 2013....................... 100 32 15 7 3 0 100 32 15 7 1 0
November 25, 2014....................... 100 27 12 6 1 0 100 27 12 6 0 0
November 25, 2015....................... 100 24 10 5 0 0 100 24 10 5 0 0
November 25, 2016....................... 100 20 8 3 0 0 100 20 8 2 0 0
November 25, 2017....................... 100 17 6 2 0 0 100 17 6 0 0 0
November 25, 2018....................... 95 14 5 0 0 0 95 14 5 0 0 0
November 25, 2019....................... 89 12 4 0 0 0 89 12 3 0 0 0
November 25, 2020....................... 83 10 3 0 0 0 83 10 1 0 0 0
November 25, 2021....................... 76 8 1 0 0 0 76 8 0 0 0 0
November 25, 2022....................... 68 7 0 0 0 0 68 7 0 0 0 0
November 25, 2023....................... 59 5 0 0 0 0 59 5 0 0 0 0
November 25, 2024....................... 50 4 0 0 0 0 50 4 0 0 0 0
November 25, 2025....................... 39 3 0 0 0 0 39 * 0 0 0 0
November 25, 2026....................... 28 0 0 0 0 0 28 0 0 0 0 0
November 25, 2027....................... 15 0 0 0 0 0 15 0 0 0 0 0
November 25, 2028....................... 3 0 0 0 0 0 1 0 0 0 0 0
November 25, 2029....................... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)(1)..... 23.6 11.8 8.6 6.9 5.7 5.4 23.6 11.8 8.6 6.8 5.6 5.0
Weighted Average Life (in
years)(1)(2)........................... 23.4 10.9 7.8 6.2 5.2 4.9 23.4 10.9 7.8 6.2 5.1 4.6
</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.
* LESS THAN 0.50% BUT GREATER THAN 0%.
(Table continued from previous page and continued on next page.)
S-65
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
LOAN GROUP I AND LOAN GROUP II (CPR) 0% 9% 14% 18% 23% 27%
---- ---- --- --- --- ---
LOAN GROUP III (CPR) 0% 14% 21% 28% 35% 42%
-- --- --- --- --- ---
DISTRIBUTION DATE
-----------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100
November 25, 2001....................... 100 100 100 100 100 100
November 25, 2002....................... 100 100 100 100 100 100
November 25, 2003....................... 100 100 100 100 100 100
November 25, 2004....................... 100 100 96 77 59 46
November 25, 2005....................... 100 100 79 61 43 32
November 25, 2006....................... 100 94 65 48 32 23
November 25, 2007....................... 100 82 54 37 23 16
November 25, 2008....................... 100 71 44 29 17 11
November 25, 2009....................... 100 62 36 22 12 7
November 25, 2010....................... 100 53 29 17 9 2
November 25, 2011....................... 100 45 24 13 5 0
November 25, 2012....................... 100 39 19 10 1 0
November 25, 2013....................... 100 32 15 7 0 0
November 25, 2014....................... 100 27 12 3 0 0
November 25, 2015....................... 100 24 10 * 0 0
November 25, 2016....................... 100 20 7 0 0 0
November 25, 2017....................... 100 17 4 0 0 0
November 25, 2018....................... 95 14 1 0 0 0
November 25, 2019....................... 89 12 0 0 0 0
November 25, 2020....................... 83 10 0 0 0 0
November 25, 2021....................... 76 8 0 0 0 0
November 25, 2022....................... 68 5 0 0 0 0
November 25, 2023....................... 59 2 0 0 0 0
November 25, 2024....................... 50 0 0 0 0 0
November 25, 2025....................... 39 0 0 0 0 0
November 25, 2026....................... 28 0 0 0 0 0
November 25, 2027....................... 15 0 0 0 0 0
November 25, 2028....................... 0 0 0 0 0 0
November 25, 2029....................... 0 0 0 0 0 0
Weighted Average Life (in years)(1)..... 23.6 11.7 8.5 6.7 5.5 4.8
Weighted Average Life (in
years)(1)(2)........................... 23.4 10.9 7.8 6.2 5.0 4.4
</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.
* LESS THAN 0.50% BUT GREATER THAN 0%.
(Table continued from previous page.)
S-66
<PAGE>
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to the 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.
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 and 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
the Offered Certificates will represent regular interests in a REMIC.
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 Certificate 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 original issue discount ('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 OID,
market discount, or bond premium, if any, will be a rate equal to 18% CPR in the
case of Loan Group I and Loan Group II and 28% of CPR in the case of Loan
Group III 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
S-67
<PAGE>
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 held as inventory.
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 or 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 Offered 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 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 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
S-68
<PAGE>
investments be made in accordance with the documents governing the Plan. A
fiduciary which decides to invest the assets of a Plan in a class of Senior
Certificates should consider, among other factors, the extreme sensitivity of
the investments to the rate of principal payments (including prepayments) on the
Mortgage Loans.
The U.S. Department of Labor has granted to Bear, Stearns & Co. Inc. an
administrative exemption (Prohibited Transaction Exemption ('PTE') 90-30, as
amended by PTE 97-34) (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 as discussed in 'ERISA Considerations' in the
Prospectus. The Exemption applies to obligations such as the Mortgage Loans in
the Trust Fund and was recently further amended by PTE 2000-58 to apply to
certain Mortgage Loans which have combined Loan-to-Value Ratios in excess of 100
percent, provided that the Certificates issued are rated at least 'AA' and are
not subordinate to any other classes of certificates, as more fully described in
'ERISA Considerations' in the Prospectus.
The Exemption also 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;
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 Senior 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.
The Exemption does not apply to the initial purchase, the holding or the
subsequent resale of the Subordinated Offered Certificates because the
Subordinated Offered Certificates are subordinate to the Senior Certificates and
are backed in part by certain Mortgage Loans with a Combined Loan-to-Value Ratio
in excess of 100 percent and, in most cases, are rated below 'AA.' Consequently,
transfers of the Subordinated Offered Certificates will not be registered by the
Trustee unless the Trustee receives a representation from the transferee of such
Certificate to the effect that either:
such transferee is not an employee benefit plan subject to Section 406 of
ERISA or a plan or arrangement subject to Section 4975 of the Code, nor a
person acting on behalf of any such plan or arrangement or using the assets
of any such plan or arrangement to effect such transfer; or
the purchase and holding of such Certificate by a Plan, any person acting
on behalf of a Plan or using such Plan's assets, will not result in any
prohibited transactions under ERISA or the Code and will not subject the
Trustee or the Master Servicer to any obligation in addition to those
undertaken in the Pooling and Servicing Agreement.
Such representation as described above shall be deemed to have been made to
the Trustee by the transferee's acceptance of a Subordinated Offered Certificate
in book-entry form. In the event that such representation is violated, such
attempted transfer or acquisition shall be void and of no effect.
S-69
<PAGE>
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 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 $283,137,049, plus accrued interest, before
deducting issuance expenses payable by the Depositor, estimated to be
approximately $500,000.
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.
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 Investors Service, Inc. ('Moody's') and Standard and Poor's Ratings
Service, a division of The McGraw-Hill Companies ('S&P' and, together with
Moody's the 'Rating Agencies').
<TABLE>
<CAPTION>
CLASS MOODY'S RATING S&P RATING
----- -------------- ----------
<S> <C> <C>
AF-1 Aaa AAA
AF-2 Aaa AAA
AF-3 Aaa AAA
AF-4 Aaa AAA
A-IO Aaa AAA
AV-1 Aaa AAA
M-1 Aa2 AA
M-2 A2 A
B Baa3 BBB
</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 respective Rating
Agency. The ratings on the Offered Certificates do not, however, constitute
statements regarding the likelihood or frequency of prepayments on the Mortgage
Loans or the anticipated yields in light of prepayments.
The Depositor has not requested ratings 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-70
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2/28 Mortgage Loans............... S-21
3/27 Mortgage Loans............... S-21
A-IO Net Rate Cap................. S-52
Accrual Period.................... S-46
Adjustable Rate Mortgage Loans.... S-20
Adjustment Date................... S-21
Advance........................... S-39
Aggregate Groups I and II Net Rate
Cap............................. S-52
Applied Realized Loss Amount...... S-48, S-51
BIF............................... S-43
Book-Entry Certificates........... S-42
Cede.............................. S-42
Certificate Account............... S-43
Certificateholder................. S-42
Certificateowners................. S-42
Certificate Principal Balance..... S-48
Certificates...................... S-42
CI................................ S-43
Class A Group..................... S-49
Class A Principal Distribution
Amount.......................... S-49
Class A-I Group................... S-42
Class A-II Group.................. S-42
Class A-III Group................. S-42
Class A-IO Certificates........... S-42
Class B Certificates.............. S-42
Class B Principal Distribution
Amount.......................... S-49
Class B-IO Certificates........... S-42
Class M-1 Certificates............ S-42
Class M-1 Principal Distribution
Amount.......................... S-49
Class M-2 Certificates............ S-42
Class M-2 Principal Distribution
Amount.......................... S-49
Class R Certificates.............. S-42
Class XP Certificates............. S-42
Clearstream, Luxembourg........... S-42
Closing Date...................... S-20
Code.............................. S-67
Collateral Value.................. S-21
Combined Loan-to-Value Ratio...... S-21
Compensating Interest............. S-39
Contributions Tax................. S-68
CPR............................... S-59
Credit Life Insurance............. S-22
Credit scores..................... S-22
Current Interest.................. S-49
Cut-off Date...................... S-20
Cut-off Date Pool Principal
Balance......................... S-20
Cut-off Date Principal Balance.... S-20
DBC............................... S-43
Definitive Certificate............ S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Deleted Mortgage Loan............. S-32
Delinquency Event................. S-50
Depositor......................... S-20
Determination Date................ S-21
Distribution Account.............. S-45
Distribution Date................. S-46
DTC............................... S-42
Due Date.......................... S-20
Due Period........................ S-45
EMC............................... S-36
ERISA............................. S-68
Euroclear......................... S-42
Event of Default.................. S-55
Excess Cashflow................... S-49
Excess Overcollateralization
Amount.......................... S-49
Excess Spread..................... S-49
Exemption......................... S-69
Extra Principal Distribution
Amount.......................... S-49
FDIC.............................. S-43
Fixed Rate Mortgage Loans......... S-20
Global Securities................. A-1
Gross Margin...................... S-21
Group I Net Rate Cap.............. S-52
Group II Net Rate Cap............. S-52
Group III Net Rate Cap............ S-52
Insurance Proceeds................ S-44
Interest Carry Forward Amount..... S-50
Interest Determination Date....... S-53
Interest Funds.................... S-45
Last Scheduled Distribution
Date............................ S-59
LIBOR Business Day................ S-53
Liquidation Proceeds.............. S-44
Loan Group........................ S-20
Loan Group I...................... S-20
Loan Group II..................... S-20
Loan Group III.................... S-20
Loan-to-Value Ratio............... S-21
Master Servicer................... S-32
Master Servicer Advance Date...... S-39
Master Servicing Fee.............. S-38
Maximum Mortgage Rate............. S-21
Mezzanine Certificates............ S-42
MGT/EOC........................... S-43
Minimum Mortgage Rate............. S-21
Modeling Assumptions.............. S-59
Moody's........................... S-70
Mortgage Index.................... S-21
Mortgage Loans.................... S-20
Mortgage Notes.................... S-20
Mortgage Pool..................... S-20
Mortgaged Properties.............. S-20
Net Interest Funds................ S-45
</TABLE>
S-71
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Mortgage Rate................. S-39
New CI............................ S-43
OC Floor.......................... S-50
Offered Certificates.............. S-42
OID............................... S-67
One-Month LIBOR................... S-52
One-Year CMT...................... S-21
Optional Termination Date......... S-55
Originator........................ S-33
Overcollateralization Amount...... S-50
Pass-Through Margin............... S-52
Pass-Through Rate................. S-51
Percentage Interest............... S-46
Periodic Rate Cap................. S-21
Plans............................. S-68
Pooling and Servicing Agreement... S-32
Prepayment Interest Shortfall..... S-39
Prepayment Model.................. S-59
Prepayment Period................. S-21
Principal Distribution Amount..... S-50
Principal Funds................... S-45
Prohibited Transactions Tax....... S-67
PTE............................... S-69
Purchase Price.................... S-32
Rating Agencies................... S-70
Realized Loss..................... S-50
Record Date....................... S-46
Reference Bank Rate............... S-53
Reference Banks................... S-53
Remaining Excess Spread........... S-50
REO Property...................... S-36
Replacement Mortgage Loan......... S-33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Residual Certificates............. S-42
Restricted Group.................. S-69
RTC............................... S-36
SAIF.............................. S-43
Scheduled Payments................ S-20
SEC............................... S-32
Seller............................ S-32
Senior Certificates............... S-42
Senior Enhancement Percentage..... S-50
Simple Interest Mortgage Loans.... S-21
Six-Month LIBOR................... S-21
S&P............................... S-70
Specified
Overcollateralization Amount.... S-50
Specified Senior Enhancement
Percentage...................... S-50
Stated Principal Balance.......... S-20
Stepdown Date..................... S-50
Subordinated Offered
Certificates.................... S-42
Subordinated Certificates Rate
Cap............................. S-52
Tax Counsel....................... S-67
Trigger Event..................... S-50
Trustee........................... S-32
Trustee Fee....................... S-38
Trustee's Mortgage File........... S-32
Trust Fund........................ S-20
Underwriter....................... S-70
Underwriting Guidelines........... S-33
United Companies.................. S-20
Unpaid Realized Loss Amount....... S-50
U.S. Person....................... A-3
Wells Fargo....................... S-20
</TABLE>
S-72
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the globally offered Bear Stearns Asset
Backed Securities, Inc. Asset-Backed Certificates, Series 2000-2 (the 'Global
Securities') will be available only in book-entry form. Investors in the Global
Securities may hold the Global Securities through any of DTC, Euroclear or
Clearstream, Luxembourg. The Global Securities will be tradable 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
Euroclear and Clearstream, Luxembourg 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 Asset-Backed Certificates issues.
Secondary cross-market trading between Euroclear or Clearstream, Luxembourg
and DTC participants holding Certificates will be effected on a
delivery-against-payment basis through the respective depositaries of Euroclear
and Clearstream, Luxembourg and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless the holders meet established 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, Euroclear and Clearstream,
Luxembourg will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold the positions in accounts as
DTC participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Asset-Backed Certificates 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 Euroclear or
Clearstream, Luxembourg 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 sellers'
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
Asset-Backed Certificates issues in same-day funds.
Trading between Euroclear and/or Clearstream, Luxembourg Participants.
Secondary market trading between Euroclear participants or Clearstream,
Luxembourg participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC Seller and Euroclear or Clearstream, Luxembourg
Purchaser. When Global Securities are to be transferred from the account of a
DTC participant to the account of a Euroclear participant or a Clearstream,
Luxembourg participant, the purchaser will send instructions to Euroclear or
Clearstream, Luxembourg through a Euroclear participant or Clearstream,
Luxembourg participant at least one business day prior to settlement. Euroclear
or Clearstream, Luxembourg 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
A-1
<PAGE>
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 the accrual
period and a year assumed to consist of 360 days or a 360-day year of 12 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 Euroclear participant's or
Clearstream, Luxembourg 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 Euroclear or
Clearstream, Luxembourg cash debt will be valued instead as of the actual
settlement date.
Euroclear participants and Clearstream, Luxembourg 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 Euroclear or Clearstream,
Luxembourg. Under this approach, they may take on credit exposure to Euroclear
or Clearstream, Luxembourg until the Global Securities are credited to their
accounts one day later.
As an alternative, if Euroclear or Clearstream, Luxembourg has extended a
line of credit to them, Euroclear participants or Clearstream, Luxembourg
participants can elect not to preposition funds and allow that credit line to be
drawn upon the finance settlement. Under this procedure, Euroclear participants
or Clearstream, Luxembourg 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 the overdraft charges, although
this result will depend on each Euroclear participant's or Clearstream,
Luxembourg 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 Euroclear participants or
Clearstream, Luxembourg 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 Euroclear or Clearstream, Luxembourg Seller and DTC
Purchaser. Due to time zone differences in their favor, Euroclear participants
and Clearstream, Luxembourg 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 Euroclear or Clearstream,
Luxembourg through a Euroclear participant or Clearstream, Luxembourg
participant at least one business day prior to settlement. In these cases
Euroclear or Clearstream, Luxembourg will instruct the respective depositary, as
appropriate, to deliver the Global Securities to the DTC participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either the actual number of days in the accrual period and a
year assumed to consist of 360 days or a 360-day year of 12 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 Euroclear participant or Clearstream, Luxembourg participant the
following day, and receipt of the cash proceeds in the Euroclear participant's
or Clearstream, Luxembourg 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 Euroclear participant or Clearstream, Luxembourg 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 Euroclear participant's or Clearstream,
Luxembourg participant's account would instead be valued as of the actual
settlement date.
A-2
<PAGE>
Finally, day traders that use Euroclear or Clearstream, Luxembourg and that
purchase Global Securities from DTC participants for delivery to Euroclear
participants or Clearstream, Luxembourg 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 Euroclear or Clearstream, Luxembourg for one day
(until the purchase side of the day trade is reflected in their Euroclear or
Clearstream, Luxembourg 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 Euroclear or
Clearstream, Luxembourg 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 Euroclear participant or
Clearstream, Luxembourg participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% (or in some cases 31%) U.S.
withholding tax that generally applies to payments of interest on registered
debt issued by U.S. persons, unless (1) 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 the beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (2) the 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 BEN). 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 BEN. If the information shown on
Form W-8 BEN changes, a new Form W-8 BEN must be filed within 30 days of the
change.
Exemption for non-U.S. persons with effectively connected income (Form
W-8ECI). 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 W-8ECI.
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form W-8 BEN). Non-U.S. persons that are beneficial owners residing in a
country that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form W-8 BEN.
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.
U.S. Federal Income Tax Reporting Procedure. The Global Securities holder
files by submitting the appropriate form to the person through whom he holds
(e.g., the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Forms W-8 BEN and W-8ECI are generally effective for
three calendar years.
U.S. Person. As used in this prospectus supplement the term 'U.S. person'
means a beneficial owner of a Certificate that is for United States federal
income tax purposes
a citizen or resident of the United States,
a corporation or partnership created or organized in or under the laws
of the United States or of any State thereof or the District of
Columbia,
an estate the income of which is subject to United States federal
income taxation regardless of its source, or
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.
A-3
<PAGE>
As used in this prospectus supplement, the term 'non-U.S. person' means a
beneficial owner of a Certificate that is not a U.S. person.
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 the extensive withholding regulations that are generally
effective with respect to payments made after December 31, 2000 which have
detailed rules regarding the determination of beneficial ownership. 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.
November 21, 2000
<PAGE>
(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.
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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.
<TABLE>
<S> <C>
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) the Trust Fund relating to a particular Series
of Certificates is treated 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 (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 stated redemption price at maturity
of a 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.'
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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 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
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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 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
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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 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
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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.
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
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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 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
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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 REMIC that
acquires loans at a market discount must include such market discount in income
currently, as it accrues, on a constant interest basis.
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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 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.
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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 '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
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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.
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
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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 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.
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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.
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
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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
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
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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 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,
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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.
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
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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
GENERAL
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of ERISA should consider the fiduciary standards
under the Employee Retirement Income Security Act of 1974, as amended ('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,
pursuant to Section 404 of ERISA, such fiduciary should consider among other
factors (i) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries; (ii) whether the investment satisfies the
applicable diversification requirements; (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. Fiduciaries of plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, employee benefit plans or other retirement arrangements subject
to ERISA, as well as individual retirement accounts, certain types of Keogh
plans not subject to ERISA but subject to Section 4975 of the Code, or any
entity (including insurance company separate or general accounts) whose
underlying assets include plan assets by reason of such plans, arrangements or
accounts investing in the entity (each, a 'Plan') are prohibited from engaging
in a broad range of transactions involving Plan assets and persons having
certain specified relationships to a Plan ('parties in interest' and
'disqualified persons'). Such transactions are treated as 'prohibited
transactions' under Sections 406 of ERISA and excise taxes and/or other
penalties are imposed upon such persons under ERISA and/or Section 4975 of the
Code unless an exemption applies. Bear Stearns & Co. Inc., each Master Servicer
or other Servicer, any Insurer, the Trustee, the Indenture Trustee and certain
of their affiliates might be considered 'parties in interest' or 'disqualified
persons' with respect to a Plan. If so, the acquisition, holding or disposition
of Securities by or on behalf of such Plan could be considered to give rise to a
'prohibited transaction' within the meaning of ERISA and the Code unless a
statutory, regulatory or administrative exception or exemption is available.
ERISA CONSIDERATIONS RELATING TO CERTIFICATES
Plan Assets. In 29 C.R.F 'SS' 2510.3-101 (the 'Plan Asset Regulations'), the
U.S. Department of Labor ('DOL') has defined what constitutes 'plan assets' for
purposes of ERISA and Section 4975 of the Code. The Plan Asset Regulations
provide that if a Plan makes an investment in an 'equity interest' in an entity,
an undivided portion of the assets of the entity will be considered the assets
of such Plan unless certain exceptions set forth in such Regulations apply. The
Certificates will be deemed an equity interest for purposes of the Plan Asset
Regulations, and the Depositor can give no assurance that the Certificates will
qualify for any of the exceptions under the Plan Asset Regulations. As a result,
(i) a Plan may be deemed to have acquired an interest in the assets of the Trust
Fund and not merely an interest in the Certificates, (ii) the fiduciary
investment standards of ERISA could apply to such assets and (iii) transactions
occurring in the course of managing, operating and servicing the Trust Fund and
its assets might constitute prohibited transactions, unless a statutory,
regulatory or administrative exemption applies.
Prohibited Transaction Class Exemption 83-1. The DOL has issued an
administrative exemption, Prohibited Transaction Class Exemption 83-1
('PTCE 83-1'), which under certain conditions exempts from the application of
the prohibited transaction rules of ERISA and the excise tax provisions of
Section 4975 of the Code transactions involving a Plan in connection with the
operation of a 'mortgage pool' and the purchase, sale and holding of
Certificates which are 'mortgage pool pass-through certificates.' A 'mortgage
pool' is defined as a fixed investment pool consisting solely of
interest-bearing obligations secured by first or second mortgages or deeds of
trust on single-family residential property, property acquired in foreclosure
and undistributed cash. A
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'mortgage pool pass-through certificate' is defined as a Certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass through payments of principal and interest from the mortgage
loans. PTCE 83-1 requires that: (i) the Depositor and the Trustee maintain a
system of insurance or other protection for the mortgage loans, the property
securing such mortgage loans and for indemnifying holders of Certificates
against reductions in pass-through payments due to defaults in loan payments or
property damage in an amount at least equal to the greater of (x) 1% of the
aggregate principal balance of the mortgage loans or (y) 1% of the principal
balance of the largest covered pooled mortgage loans; (ii) the Trustee may not
be an affiliate of the Depositor; and (iii) the payments made to, and retained
by, the Depositor in connection with the Trust Fund, together with all funds
inuring to its benefit for administering the Trust Fund, represent no more than
'adequate consideration' for selling the mortgage loans, plus reasonable
compensation for services provided to the Trust Fund. In addition, PTCE 83-1
exempts the initial sale of Certificates to a Plan with respect to which the
Depositor, the Insurer, the Master Servicer or other Servicer or the Trustee is
a party in interest if the Plan does not pay more than fair market value for
such Certificates and the rights and interests evidenced by such Certificates
are not subordinated to the rights and interests evidenced by other Certificates
of the same pool.
PTCE 83-1 also exempts from the prohibited transaction rules any
transactions in connection with the servicing and operation of the mortgage
pool, provided that any payments made to the Master Servicer in connection with
the servicing of the Trust Fund are made in accordance with a binding agreement,
copies of which must be made available to prospective Plan investors. In the
case of any Plan with respect to which the Depositor, the Master Servicer, the
Insurer or the Trustee is a fiduciary, PTCE 83-1 will only apply if, in addition
to the other requirements: (i) the initial sale, exchange or transfer of
Certificates is expressly approved by an independent fiduciary who has authority
to manage and control those Plan assets being invested in Certificates;
(ii) the Plan pays no more for the Certificates than would be paid in an
arm's-length transaction; (iii) no investment management, advisory or
underwriting fee, sales commission or similar compensation is paid to the
Depositor with regard to the sale, exchange or transfer of Certificates to the
Plan; (iv) the total value of the Certificates purchased by such Plan does not
exceed 25% of the amount issued and (v) at least 50% of the aggregate amount of
Certificates is acquired by persons independent of the Depositor, the Trustee,
the Master Servicer and the Insurer. Before purchasing Certificates, a fiduciary
of a Plan should confirm that the Trust Fund is a 'mortgage pool,' that the
Certificates constitute 'mortgage pool pass-through certificates' and that the
conditions set forth in PTCE 83-1 would be satisfied. In addition to making its
own determination as to the availability of the exemptive relief provided in
PTCE 83-1, the Plan fiduciary should consider the availability of any other
prohibited transaction exemptions. The Plan fiduciary should also consider its
general fiduciary obligations under ERISA in determining whether to purchase any
Certificates on behalf of a Plan pursuant to PTCE 83-1.
Underwriter Exemption
General Discussion. The DOL has also issued an individual exemption,
Prohibited Transaction Exemption 90-30 as amended by Prohibited Transaction
Exemption 97-34 ('PTE 97-34') and as further recently amended pursuant to
Prohibited Transaction Exemption 2000-58 ('PTE 2000-58') to Bear Stearns & Co.
Inc. (the 'Exemption') which is applicable to Certificates which meet its
requirements whenever Bear Stearns & Co. Inc. or its affiliate is the sole
underwriter, manager or co-manager of an underwriting syndicate or is the
selling or placement agent. The Exemption generally exempts certain transactions
from the application of certain of the prohibited transaction provisions of
ERISA and the Code provided that the conditions set forth in the Exemption are
satisfied. These transactions include the servicing, managing and operation of
investment trusts holding fixed (generally non-revolving pools) of enumerated
categories of assets which include: the Primary Assets and guaranteed government
mortgage pool certificates and the purchase, sale and holding of Certificates
which represent beneficial ownership interests in the assets of such trusts.
General Conditions of Exemption. The Exemption sets forth general conditions
which must be satisfied for a transaction involving the purchase, sale and
holding of the Certificates to be eligible for exemptive relief thereunder.
First, the acquisition of Certificates by Plans must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the assets held by the Trust Fund must be
secured (other than one-to-four family residential mortgage loans and home
equity loans or receivables backing certain types of Certificates, as described
below). (Mortgage loans, loans, obligations and
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receivables will be collectively referred to herein as 'loans.'). Third, unless
the Certificates are issued in 'designated transactions' (as described below)
and are backed by fully-secured loans, they may not be subordinated. Fourth, the
Certificates at the time of acquisition by the Plan must be rated in one of the
three (or in the case of designated transactions, four) highest generic rating
categories by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., Moody's Investors Services, Inc. or Fitch, Inc. (each, a
'Rating Agency'). Fifth, the Trustee and the Indenture Trustee generally cannot
be affiliates of any member of the 'Restricted Group' which consists of any
(i) underwriter as defined in the Exemption, (ii) the Depositor, (iii) the
Master Servicer, (iv) each Servicer, (v) the Insurer, (vi) the counterparty of
any 'interest swap' (as described below) held as an asset of the Trust Fund and
(vii) any obligor with respect to loans constituting more than 5% of the
aggregate unamortized principal balance of the loans held in the Trust Fund as
of the date of initial issuance of the Certificates. Sixth, the sum of all
payments made to, and retained by, such underwriters must represent not more
than reasonable compensation for underwriting the Certificates; the sum of all
payments made to, and retained by, the Depositor pursuant to the assignment of
the loans to the related Trust Fund must represent not more than the fair market
value of such loans; and the sum of all payments made to, and retained by, the
Master Servicer and any Servicer must represent not more than reasonable
compensation for such person's services under the Agreement and reimbursement of
such person's reasonable expenses in connection therewith. Seventh, (i) the
investment pool must consist only of assets of the type enumerated in the
Exemption and which have been included in other investment pools;
(ii) Certificates evidencing interests in such other investment pools must have
been rated in one of the three (or in the case of designated transactions, four)
highest generic rating categories by one of the Rating Agencies for at least one
year prior to a Plan's acquisition of Certificates; 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 a Plan's acquisition
of Certificates. Finally, the investing Plan must be an accredited investor as
defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities
Act of 1933, as amended. The Depositor assumes that only Plans which are
accredited investors under the federal securities laws will be permitted to
purchase the Certificates.
Recent Amendments to Exemption. PTE 2000-58 (the 'Amendment') recently
amended the Exemption to make the acquisition of Certificates by Plans in an
initial offering or in a secondary market transaction, the holding or transfer
of Certificates and the servicing, management and operation of the Trust Fund
and its assets on or after November 13, 2000 eligible for exemptive relief to a
broader range of Certificates. Prior to such amendment, the Exemption generally
permitted Plans to purchase only unsubordindated Certificates rated within the
highest three generic rating categories backed by secured collateral. Such
Certificates had to be issued by a Trust Fund which was a grantor trust, REMIC
or a FASIT whose corpus could not include certain types of assets such as
interest-rate swaps.
Types of Trust Funds. The Amendment has expanded the types of permitted
Trust Funds to include owner-trusts, as well as grantor trusts, REMICs and
FASITs. Owner-trusts are subject to certain restrictions in their governing
documents to ensure that their assets may not be reached by the creditors of the
Depositor in the event of bankruptcy or other insolvency and must provide
certain legal opinions.
Designated Transactions. In the case where the Certificates are backed by
Trust Fund assets which are residential, home equity, manufactured housing or
multi-family loans which are described and defined in the Exemption as
designated transactions ('Designated Transactions'), the Amendment permits the
Certificates issued by the Trust Fund in such transactions to be rated in one of
the highest four generic rating categories by a Rating Agency and/or to be
subordinated. In addition, one subset of Designated Transactions, residential
(one-to-four family) and home equity loans, may be less than fully secured,
provided that the rights and interests evidenced by Certificates issued in such
Designated Transactions are: (a) not subordinated to the rights and interests
evidenced by Securities of the same Trust Fund; (b) such Certificates acquired
by the Plan have received a rating from a Rating Agency at the time of such
acquisition that is in one of the two highest generic rating categories; and
(c) any loan included in the corpus or assets of the Trust Fund is secured by
collateral whose fair market value on the closing date of the Designated
Transactions is at least equal to 80% of the sum of: (i) the outstanding
principal balance due under the loan which is held by the Trust Fund and
(ii) the outstanding principal balance(s) of any other loan(s) of higher
priority (whether or not held by the Trust Fund) which are secured by the same
collateral.
Insurance Company General Account. In the event that Certificates do not
meet the requirements of the Exemption solely because they are Subordinate
Certificates or fail to meet a minimum rating requirement under
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the Exemption, certain Plans may be eligible to purchase Certificates pursuant
to Section III of Prohibited Transaction Class Exemption 95-60 ('PTCE 95-60')
which permits insurance company general accounts as defined in PTCE 95-60 to
purchase such Certificates if they otherwise meet all of the other requirements
of the Exemption.
Permitted Assets. The Amendment permits an interest-rate swap to be an asset
of a Trust Fund which issues Certificates acquired by Plans in an initial
offering or in the secondary market on or after November 13, 2000 and clarifies
the requirements regarding yield supplement agreements. An interest-rate swap
(or if purchased by or on behalf of the Trust Fund) an interest-rate cap
contract (collectively, a 'Swap' or 'Swap Agreement') is a permitted Trust Fund
asset if it: (a) is an 'eligible Swap;' (b) is with an 'eligible counterparty;'
(c) is purchased by a 'qualified plan investor;' (d) meets certain additional
specific conditions which depend on whether the Swap is a 'ratings dependent
Swap' or a 'non-ratings dependent Swap' and (e) permits the Trust Fund to make
termination payments to the Swap (other than currently scheduled payments)
solely from excess spread or amounts otherwise payable to the Servicer or
Depositor.
An 'eligible Swap' is one which: (a) is denominated in U.S. dollars;
(b) pursuant to which the Trust Fund pays or receives, on or immediately prior
to the respective payment or distribution date for the class of Certificates to
which the Swap relates, a fixed rate of interest or a floating rate of interest
based on a publicly available index (e.g., LIBOR or the U.S. Federal Reserve's
Cost of Funds Index (COFI)), with the Trust Fund receiving such payments on at
least a quarterly basis and obligated to make separate payments no more
frequently than the counterparty, with all simultaneous payments being netted
('Allowable Interest Rate'); (c) has a notional amount that does not exceed
either: (i) the principal balance of the class of Certificates to which the Swap
relates, or (ii) the portion of the principal balance of such class represented
by obligations ('Allowable Notional Amount'); (d) is not leveraged (i.e.,
payments are based on the applicable notional amount, the day count fractions,
the fixed or floating rates permitted above, and the difference between the
products thereof, calculated on a one-to-one ratio and not on a multiplier of
such difference) ('Leveraged'); (e) has a final termination date that is either
the earlier of the date on which the issuer terminates or the related class of
Certificates are fully repaid and (f) does not incorporate any provision which
could cause a unilateral alteration in the interest rate requirements described
above or the prohibition against leveraging.
An 'eligible counterparty' means a bank or other financial institution which
has a rating at the date of issuance of the Certificates, which is in one of the
three highest long-term credit rating categories or one of the two highest
short-term credit rating categories, utilized by at least one of the Rating
Agencies rating the Certificates; provided that, if a counterparty is relying on
its short-term rating to establish eligibility hereunder, such counterparty must
either have a long-term rating in one of the three highest long-term rating
categories or not have a long-term rating from the applicable Rating Agency.
A 'qualified plan investor' is a Plan or Plans where the decision to buy
such class of Certificates is made on behalf of the Plan by an independent
fiduciary qualified to understand the Swap transaction and the effect the Swap
would have on the rating of the Certificates and such fiduciary is either (a) a
'qualified professional asset manager' ('QPAM') under Prohibited Transaction
Class Exemption 84-14 ('PTCE 84-14') (see below), (b) an 'in-house asset
manager' under Prohibited Transaction Class Exemption 96-23 ('PTCE 96-23') (see
below) or (c) has total assets (both Plan and non-Plan) under management of at
least $100 million at the time the Certificates are acquired by the Plan.
In 'ratings dependent Swaps' (where the rating of a class of Certificates is
dependent on the terms and conditions of the Swap), the Swap Agreement must
provide that if the credit rating of the counterparty is withdrawn or reduced by
any Rating Agency below a level specified by the Rating Agency, the Servicer
must, within the period specified under the Swap Agreement: (a) obtain a
replacement Swap Agreement with an eligible counterparty which is acceptable to
the Rating Agency and the terms of which are substantially the same as the
current Swap Agreement (at which time the earlier Swap Agreement must
terminate); or (b) cause the Swap counterparty to establish any
collateralization or other arrangement satisfactory to the Rating Agency such
that the then current rating by the Rating Agency of the particular class of
Certificates will not be withdrawn or reduced (and the terms of the Swap
Agreement must specifically obligate the counterparty to perform these duties
for any class of Certificates with a term of more than one year). In the event
that the Servicer fails to meet these obligations, Plan certificateholders must
be notified in the immediately following periodic report which is provided to
certificateholders but in no event later than the end of the second month
beginning after the date of such failure. Sixty days after the receipt of such
report, the exemptive relief provided
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under the Exemption will prospectively cease to be applicable to any class of
Certificates held by a Plan which involves such ratings dependent Swap.
'Non-ratings dependent Swaps' (those where the rating of the Certificates
does not depend on the terms and conditions of the Swap) are subject to the
following conditions. If the credit rating of the counterparty is withdrawn or
reduced below the lowest level permitted above, the Servicer will, within a
specified period after such rating withdrawal or reduction: (a) obtain a
replacement Swap Agreement with an eligible counterparty, the terms of which are
substantially the same as the current Swap Agreement (at which time the earlier
Swap Agreement must terminate); (b) cause the counterparty to post collateral
with the Trust Fund in an amount equal to all payments owed by the counterparty
if the Swap transaction were terminated; or (c) terminate the Swap Agreement in
accordance with its terms.
An 'eligible yield supplement agreement' is any yield supplement agreement
or similar arrangement (or if purchased by or on behalf of the Trust Fund) an
interest rate cap contract to supplement the interest rates otherwise payable on
obligations held by the Trust Fund ('EYS Agreement'). If the EYS Agreement has a
notional principal amount and/or is written on an International Swaps and
Derivatives Association, Inc. (ISDA) form, the EYS Agreement may only be held as
an asset of the Trust Fund with respect to Certificates purchased by Plans on or
after April 7, 1998 if it meets the following conditions: (a) it is denominated
in U.S. dollars; (b) it pays an Allowable Interest Rate; (c) it is not
Leveraged; (d) it does not allow any of these three preceding requirements to be
unilaterally altered without the consent of the Trustee; (e) it is entered into
between the Trust Fund and an eligible counterparty and (f) it has an Allowable
Notional Amount.
Pre-Funding Accounts. The Exemption was amended by PTE 97-34 to extend
exemptive relief to Certificates issued in transactions using pre-funding
accounts whereby a portion of the loans backing the Certificates are transferred
to the Trust Fund within a specified period following the closing date ('DOL
Pre-Funding Period') (see below) instead of requiring that all such loans be
either identified or transferred on or before the closing date. The relief is
effective for transactions occurring on or after May 23, 1997 provided that the
following conditions are met. First, 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%). Second,
all loans transferred after the closing date (referred to here as 'additional
loans') must meet the same terms and conditions for eligibility as the original
loans used to create the Trust Fund, which terms and conditions have been
approved by the Rating Agency. Third, the transfer of such additional loans to
the Trust Fund during the DOL Pre-Funding Period must not result in the
Certificates receiving a lower credit rating from the Rating Agency upon
termination of the DOL Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the Certificates by the Trust Fund. Fourth,
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 Fund at the end of the DOL 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 Fund on the closing date. Fifth, either: (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 the Rating Agency, the underwriter and the
Trustee) stating whether or not the characteristics of the additional loans
conform to the characteristics described in the Prospectus, Prospectus
Supplement, Private Placement Memorandum ('Offering Documents') and/or the
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. Sixth, the DOL 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. Seventh, amounts transferred to any Pre-Funding Account
and/or Capitalized Interest Account used in connection with the pre-funding may
be invested only in investments which are permitted by the Rating Agency and
(i) are direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency or
instrumentality thereof (provided that such obligations are backed by the full
faith and credit of the United States); or (ii) have been rated (or the obligor
has been rated) in one of the three highest generic rating categories by the
Rating Agency ('Acceptable Investments'). Eighth, certain disclosure
requirements must be met.
Limitations on Scope of the Exemption. If the general conditions of the
Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by ERISA and the Code in connection with
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the initial acquisition, transfer or holding, and the acquisition or disposition
in the secondary market, of the Certificates by Plans. However, no exemption is
provided from the restrictions of ERISA for the acquisition or holding of a
Certificates on behalf of an 'Excluded Plan' by any person who is a fiduciary
with respect to the assets of such Excluded Plan. For those purposes, an
Excluded Plan is a Plan sponsored by any member of the Restricted Group. In
addition, each Plan's investment in each class of Certificates cannot exceed 25%
of the outstanding Certificates in the class, and after the Plan's acquisition
of the Certificates, no more than 25% of the assets over which the fiduciary has
investment authority are invested in Certificates of a Trust Fund containing
assets which are sold or serviced by the same entity. Finally, in the case of
initial issuance (but not secondary market transactions), at least 50% of each
class of Certificates, and at least 50% of the aggregate interests in the Trust
Fund, must be acquired by persons independent of the Restricted Group.
ERISA CONSIDERATIONS RELATING TO NOTES
Under the Plan Asset Regulations, the assets of the Trust Fund would be
treated as 'plan assets' of a Plan for the purposes of ERISA and the Code only
if the Plan acquires an 'equity interest' in the Trust Fund and none of the
exceptions contained in the Plan Asset Regulations is applicable. An equity
interest is defined under the Plan Asset Regulations as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Assuming that the Notes are treated as
indebtedness without substantial equity features for purposes of the Plan Asset
Regulations, then such Notes will be eligible for purchase by Plans. However,
without regard to whether the Notes are treated as an 'equity interest' for such
purposes, the acquisition or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust Fund or any of
its affiliates is or becomes a party in interest or disqualified person with
respect to such Plan, or in the event that a Note is purchased in the secondary
market and such purchase constitutes a sale or exchange between a Plan and a
party in interest or disqualified person with respect to such Plan. There can be
no assurance that the Trust Fund or any of its affiliates will not be or become
a party in interest or a disqualified person with respect to a Plan that
acquires Notes.
The Amendment to the Exemption permits Trust Funds which are grantor trusts,
owner-trusts, REMICs or FASITs to issue Notes, as well as Certificates, provided
a legal opinion is received to the effect that the noteholders have a perfected
security interest in the Trust Fund's assets. The exemptive relief provided
under the Exemption for any prohibited transactions which could be caused as a
result of the operation, management or servicing of the Trust Fund and its
assets would not be necessary with respect to Notes with no substantial equity
features which are issued as obligations of the Trust Fund. However, effective
for the acquisition, holding or transfer of Notes between a Plan and a party in
interest which occurs on or after November 13, 2000, the Exemption would provide
prohibited transaction exemptive relief, provided that the same conditions of
the Exemption described above relating to Certificates are met with respect to
the Notes. The same limitations of such exemptive relief relating to
acquisitions of Certificates by fiduciaries with respect to Excluded Plans would
also be applicable to the Notes as described herein in 'Limitations on Scope of
the Exemption.'
In the event that the Exemption is not applicable to the Notes, one or more
other prohibited transactions exemptions may be available to Plans purchasing or
transferring the Notes depending in part upon the type of Plan fiduciary making
the decision to acquire the Notes and the circumstances under which such
decision is made. These exemptions include, but are not limited to, Prohibited
Transaction Class Exemption 90-1 (regarding investments by insurance company
pooled separate accounts), Prohibited Transaction Class Exemption 91-38
(regarding investments by bank collective investments funds), PTCE 84-14
(regarding transactions effected by 'qualified professional asset managers'),
PTCE 95-60 (regarding investments by insurance company general accounts) and
PTCE 96-23 (regarding transactions effected by 'in-house asset managers')
(collectively, the 'Investor-Based Exemptions'). However, even if the conditions
specified in these Investor-Based Exemptions are met, the scope of the relief
provided under such Exemptions might or might not cover all acts which might be
construed as prohibited transactions.
EACH PROSPECTUS SUPPLEMENT WILL CONTAIN INFORMATION CONCERNING
CONSIDERATIONS RELATING TO ERISA AND THE CODE THAT ARE APPLICABLE TO THE RELATED
SECURITIES. BEFORE PURCHASING SECURITIES IN RELIANCE ON PTCE 83-1, THE
EXEMPTION, THE INVESTOR-BASED EMEMPTIONS OR ANY OTHER EXEMPTION, A FIDUCIARY OF
A PLAN SHOULD ITSELF CONFIRM THAT REQUIREMENTS SET FORTH IN SUCH EXEMPTION WOULD
BE SATISFIED.
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ANY PLAN INVESTOR WHO PROPOSES TO USE 'PLAN ASSETS' OF ANY PLAN TO PURCHASE
SECURITIES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH RESPECT
TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE OF THE
ACQUISITION AND OWNERSHIP OF SUCH SECURITIES.
Governmental plans and church plans as defined in ERISA are not subject to
ERISA or Code Section 4975, although they may elect to be qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of the
Code and would then be subject to the prohibited transaction rules set forth in
Section 503 of the Code. In addition, governmental plans may be subject to
federal, state and local laws which are to a material extent similar to the
provisions of ERISA or a Code Section 4975 ('Similar Law'). A fiduciary of a
governmental plan should make its own determination as to the propriety of an
investment in Securities under applicable fiduciary or other investment
standards and the need for the availability of any exemptive relief under any
Similar Law.
LEGAL INVESTMENT
Unlesss 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 Stroock & Stroock & Lavan 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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$278,968,000
(APPROXIMATE)
BEAR STEARNS ASSET BACKED SECURITIES, INC.
DEPOSITOR
ASSET-BACKED CERTIFICATES, SERIES 2000-2
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 2000-2 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 2000-2 Asset-Backed Certificates and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Series 2000-2 Asset-Backed Certificates will be required to deliver a prospectus
supplement and prospectus until February 19, 2001.
NOVEMBER 21, 2000
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as....................................'SS'
The dagger symbol shall be expressed as......................................'D'
