As filed with the Securities and Exchange Commission on July 24,
1996
Registration No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
RESIDENTIAL ACCREDIT LOANS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
51-0368240
(I.R.S. employer identification number)
Residential Accredit Loans, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(612) 832-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principle
executive offices)
Christopher J. Nordeen, President
Residential Accredit Loans, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(612) 832-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for
service)
Copies to:
Robert L. Schwartz, Esq.
GMAC Mortgage Corporation
3031 West Grand Boulevard
Detroit, Michigan 48232
Steven S. Kudenholdt,
Esq.
Katharine I. Crost, Esq. Paul D. Tvetenstrand, Esq.
Orrick, Herrington & Sutcliffe Thacher Proffitt & Wood
666 Fifth Avenue Two World Trade Center
New York, New York 10103 New York, New York 10048
Approximate date of commencement of proposed sale to the
public: From time to time after this Registration Statement becomes
effective as determined by market conditions.
If any of the securities being registered on this Form are to
be offered pursuant to dividend or interest reinvestment plans,
please check the following box.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered only
in connection with dividend or interest reinvestment plans, check
the following box.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act Registration
Statement number of the earlier effective Registration Statement for
the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering.
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.
CALCULATION OF REGISTRATION FEE
Title of
Securities to
be Registered Amount
to be
Registered(1) Proposed Maximum
Aggregate Price Per Unit
Mortgage and $2,000,000,000 100%(2)
Manufactured
Housing
Contract Pass-Through
Certificates
(Issuable in
Series)
Proposed Maximum
Aggregate Offering Price Amount of
Registration Fee
$2,000,000,000(1) $689,655
(1) $529,459,082 aggregate principal amount of Mortgage and
Manufactured Housing Contract Pass-Through Certificates
registered by the Registrant under Registration Statement No.
33-95932 on Form S-3 referred to below and not previously sold
are consolidated into this Registration Statement pursuant to
Rule 429. All registration fees in connection with such
unsold amount of Mortgage and Manufactured Housing Contract
Pass-Through Certificates have been previously paid by the
Registrant under the foregoing Registration Statement.
Accordingly, the total amount registered under this
Registration Statement as so consolidated as of the date of
this filing is $2,529,459,082.
(2) Estimated solely for the purpose of calculating the
registration fee.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
Pursuant to Rule 429 of the General Rules and Regulations
under the Securities Act of 1933, the prospectus that is part of
this Registration Statement is a combined prospectus and includes
all the information currently required in a prospectus relating to
the securities covered by Registration Statement No. 33-95932 on
Form S-3 previously filed by the Registrant. This Registration
Statement, which relates to $2,529,459,082 aggregate principal
amount of Mortgage and Manufactured Housing Contract Pass-Through
Certificates, constitutes Post-Effective Amendment No. 1 to
Registration Statement No. 33-95932 on Form S-3.
SUBJECT TO COMPLETION, DATED JULY 24, 1996
Version I-A
Prospectus Supplement
(to Prospectus dated _______ __, 199_)
RESIDENTIAL ACCREDIT LOANS, INC.
Depositor
[Name of [Master] Servicer[s]]
[Master] Servicer
[Mortgage][Manufactured Housing Contract] Pass-Through Certificates,
Series [199_-_]
$__________ ____% Class A-1 Certificates $
0 Variable Rate (2) Class A-5 Certificates
$__________ ____% Class A-2 Certificates $__________
____% Class R
Certificates
$__________ 0% (1) Class A-4 Certificates $__________
____% Class M
Certificates
______________________
(1) The Class A-4 Certificates will be Principal Only
Certificates and will not be entitled to received distributions of
interest.
(2) Based on the Notional Amount (as described herein under
"Description of the Offered Certificates Interest Distributions").
The Class A-5 Certificates will be Stripped Interests Certificates
and will not be entitled to receive distributions of principal.
______________________
The Series [199_-_] [Mortgage] [Manufactured Housing Contract]
Pass-Through Certificates (the "Certificates") will include (i) six
classes of senior certificates (collectively, the "Senior
Certificates"): Class A-1, Class A-2, Class A-3 (the "Accrual
Certificates"), Class A-4 (the "Principal Only Certificates"), Class
A-5 (the "Stripped Interests Certificates") and Class R (the
"Residual Certificates"); and (ii) two classes of subordinate
certificates: the Class M Certificates and the Class B Certificates
(collectively, the "Subordinate Certificates"). Only the Senior
Certificates (other than the Accrual Certificates) and the Class M
Certificates (collectively, the "Offered Certificates") are being
offered hereby. See "Index of Principal Definitions" in the
Prospectus for meanings of capitalized terms and acronyms not
otherwise defined herein.
(continued on following page)
______________________
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT
AN
INTEREST IN OR OBLIGATION OF THE COMPANY, THE [MASTER] SERVICER[S],
GMAC
MORTGAGE CORPORATION ("GMAC MORTGAGE") OR ANY OF THEIR AFFILIATES.
NEITHER
THE OFFERED CERTIFICATES NOR THE UNDERLYING [MORTGAGE LOANS]
[CONTRACTS] ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY [(EXCEPT
IN THE CASE OF FHA [LOANS] [CONTRACTS], AND VA [LOANS] [CONTRACTS])] OR
BY
THE COMPANY, THE [MASTER] SERVICER[S], GMAC MORTGAGE OR ANY OF
THEIR
AFFILIATES.
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A
CRIMINAL OFFENSE.
______________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
______________________
For a discussion of significant matters affecting investments in the
Certificates, see "Risk Factors" [commencing on page S-18 herein
and] in the Prospectus commencing on page 15.
___________________________ (the "Underwriter") intends to make a
secondary market in the Offered Certificates (other than the
Residual Certificates and Class M Certificates), but has no
obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop or, if it does
develop, that it will continue. The Offered Certificates will not
be listed on any securities exchange.
The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time
to the public, directly or through dealers, in negotiated
transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the
Offered Certificates will be equal to ____% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest
thereon from __________ 1, 19__ (the "Cut-off Date"), net of any
expenses payable by the Company to the Underwriter and any dealer.
The Offered Certificates are offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such
offer and to reject any order in whole or in part. It is expected
that delivery of the Offered Certificates will be made on or about
__________, 199_ [at the office of
________________________________________] [through the facilities of
The Depository Trust Company] against payment therefor in
immediately available funds.
[The Principal Only Certificates, Stripped Interests Certificates,
Residual Certificates and Class M Certificates may be offered by the
Company from time to time to the public, either directly or through
an underwriter or agent, in negotiated transactions or otherwise at
varying prices to be determined at the time of sale[, except that a
de minimis portion of the Residual Certificate will be held by
Residential Funding and such portion is not offered hereby].
[Proceeds to the Company from the sale of the Principal Only
Certificates, Stripped Interest Certificates, Residual Certificates
or Class M Certificates will be equal to the purchase price paid by
the purchaser thereof, net of any expenses payable by the Company
and any compensation payable to any underwriter or agent.]
[Name of Underwriter]
The date of this Prospectus Supplement is _________ __, 199_.<PAGE>
(continued
from previous page)
It is a condition to the issuance of the Offered Certificates that the
Senior Certificates and the Class M Certificates be rated "___" and
"___", respectively, by ____________ and "___" and "___", respectively,
by ____________.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately ____% and
____%, respectively, in a trust fund (the "Trust Fund") consisting
primarily of a pool of [[fixed] [adjustable] rate [conventional] [FHA-insured]
[VA-guaranteed]
one- to four-family, first lien mortgage loans
(the "Mortgage Loans")][manufactured housing conditional sales
contracts and installment loan agreements (the "Contracts")] to be
deposited by Residential Accredit Loans, Inc. (the "Company") into the
Trust Fund. See "Description of the Trust Fund" herein. As described
herein and in the Prospectus, the rights of the holders of the Class M
Certificates and the Class B Certificates to receive distributions with
respect to the [Mortgage Loans] [Contracts] will be subordinate to the
rights of the holders of the Senior Certificates; in addition, the
rights of the holders of the Class B Certificates to receive
distributions with respect to the [Mortgage Loans] [Contracts] will be
subordinate to the rights of the holders of the Class M Certificates.
See "Description of the Offered Certificates Allocation of Losses;
Subordination" herein.
As described herein, a "real estate mortgage investment conduit" (a
"REMIC") election will be made in connection with the Trust Fund for
federal income tax purposes. Each class of Offered Certificates (other
than the Residual Certificates) will constitute "regular interests" and
the Residual Certificates will constitute "residual interests" in the
REMIC. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
Distributions on the Offered Certificates will be made on the 25th day
of each month (or, if such day is not a business day, the next business
day), commencing on __________, 199_. As described herein under
"Description of the Offered Certificates Interest Distributions,"
interest distributions on the Offered Certificates will be based on the
Certificate Principal Balance or the Notional Amount thereof and the
then-applicable Pass-Through Rate thereof, which will be variable for
the Stripped Interests Certificates and fixed for all other classes of
Certificates. Distributions in respect of principal will be allocated
among the various classes of the Offered Certificates as described
herein under "Description of the Offered Certificates Principal
Distributions on the Senior Certificates" and " Principal Distributions
on the Class M Certificates."
The yield to maturity on the Offered Certificates will depend on the
rate of payment of principal (including prepayments, defaults and
liquidations) on the [Mortgage Loans] [Contracts]. The yield to
maturity on the Class M Certificates will be extremely sensitive to
losses due to defaults on the [Mortgage Loans] [Contracts] (and the
timing thereof), to the extent losses are not covered by the Class B
Certificates. The yield to investors on the Offered Certificates will
be adversely affected by any shortfalls in interest collected on the
[Mortgage Loans] [Contracts] due to prepayments, liquidations or
otherwise. Shortfalls in interest collected on the [Mortgage Loans]
[Contracts] due to prepayments in full will be offset by the [Master]
Servicer[s] to the extent described herein under "Description of the
Offered Certificates Interest Distributions." The yield to investors on
the Stripped Interests Certificates will be [extremely] sensitive to the
rate and timing of principal payments (including prepayments, defaults
and liquidations) on the [Mortgage Loans] [Contracts], which rate may
fluctuate significantly over time. A rapid rate of principal payments
on the [Mortgage Loans] [Contracts] could result in the failure of
investors in the Stripped Interests Certificates to recover their
initial investments. Because amounts payable with respect to the
Principal Only Certificates are derived only from principal payments on
the [Mortgage Loans] [Contracts] with Net Mortgage Rates that are lower
than ____%, the yield on the Principal Only Certificates will be
adversely affected by slower than expected payments of principal on such
[Mortgage Loans] [Contracts]. See "Summary Special Prepayment
Considerations" and " Special Yield Considerations," and "Certain Yield
and Prepayment Considerations" herein and "Yield Considerations" in the
Prospectus.
______________________
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART
OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY
PURSUANT TO ITS PROSPECTUS DATED __________ __, 199_, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS
PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION
REGARDING
THIS OFFERING NOT CONTAINED HEREIN AND PROSPECTIVE INVESTORS ARE
URGED
TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES
OF
THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS
RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
______________________
UNTIL [_____ __, 199_ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT)], ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO
WHICH
IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
______________________
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT
OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE
OFFERED CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL
IN THE OPEN MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.]<PAGE>
SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere herein and
in the Prospectus. Capitalized terms used herein and not otherwise
defined herein have the meanings assigned in the Prospectus. See
"Index of Principal Definitions" in the Prospectus.
Title of Securities. . . . . . . . . [Mortgage] [Manufactured Housing
Contract] Pass-Through
Certificates, Series [199_-_]
(the "Certificates").
Company. . . . . . . . . . . . . . . Residential Accredit Loans,
Inc., a corporation organized
under the laws of the State of
Delaware, an affiliate of
Residential Funding Corporation
("Residential Funding"), which
is an indirect wholly-owned
subsidiary of GMAC Mortgage.
See "The Company" in the
Prospectus.
[Master] Servicer[s] . . . . . . . . [Residential Funding (the
"Master Servicer")] [__________,
a __________, organized under
the laws of __________ (the
"Servicer[s]")]. See "Pooling
and Servicing Agreement The
[Master] Servicer[s]" herein
[and "Residential Funding
Corporation" in the Prospectus.]
Trustee. . . . . . . . . . . . . . . , a [national
bank] [[state bank] [trust
company] organized under the
laws of __________] (the
"Trustee"). See "The Pooling
and Servicing Agreement The
Trustee" in the Prospectus.
Cut-off Date . . . . . . . . . . . . ____________ 1, 199_ (the "Cut-off Date").
Delivery Date. . . . . . . . . . . . On or about ____________, 19__
(the "Delivery Date").
Distribution Date. . . . . . . . . . The 25th day of each month (or,
if such day is not a business
day, the next business day),
beginning on ________ __, 199_,
(each, a "Distribution Date").
The [Mortgage] [Contract] Pool . . . The Certificates, in the
aggregate, will evidence the
entire beneficial interest in
the Trust Fund which consists of
a pool of [Mortgage Loans
secured by first liens on one-
to four-family residential
properties] [Contracts secured
by manufactured homes] (the
"Mortgaged Properties") and
related property (collectively,
the "Mortgage Collateral") with
an aggregate principal balance
of $__________. The Mortgage
Collateral will be conveyed to
the Trust Fund by the Company
pursuant to the Pooling and
Servicing Agreement (as defined
herein). The [Mortgage Loans]
[Contracts] are [fixed]
[adjustable] rate [conventional]
[FHA-insured] [VA-guaranteed]
[fully amortizing] [balloon]
loans. [The Mortgage Loans are
ARM Loans (as described in the
Prospectus under "The Trust
Fund The Mortgage Loans") with
Mortgage Rates based on
__________ (the "Index").]
The Mortgage Properties have
individual principal balances at
origination of at least
$__________, but not more than
$__________, with an average
principal balance at origination
of approximately $__________.
The [Mortgage Loans] [Contracts]
have terms to maturity from the
date of origination or
modification of not more than
____ years, and a weighted
average remaining term to
maturity of approximately ____
months as of the Cut-off Date.
The [Mortgage Loans] [Contracts]
will bear interest at Mortgage
Rates that ranged from ____% to
____% per annum as of the Cut-off Date, with a
weighted
average Mortgage Rate of
approximately ____% per annum as
of the Cut-off Date.
[Approximately ____% of the
[Mortgage Loans] [Contracts]
will be refinance [Mortgage
Loans] [Contracts].] The
[Mortgage Loans] [Contracts]
were purchased by the Company[,
through [Residential Funding]
[affiliates,]] from [____
sellers unaffiliated with the
Company] [GMAC Mortgage, an
indirect parent of the Company,
and its affiliates].
[[All][____%] of the [Mortgage
Loans] were purchased by the
Company indirectly through
[Residential
Funding][affiliates], from [___
sellers] [_______] ([each, a]
[the] "Mortgage Collateral
Seller") under the Program (such
Mortgage Loans, the "Program
Loans"). [INSERT OTHER
CHARACTERISTICS AS APPROPRIATE]
See "Description of the
[Mortgage] [Contract] Pool"
herein and "The Trust Funds" in
the Prospectus.
The Offered Certificates . . . . . . The Senior Certificates in the
aggregate and the Class M
Certificates will evidence
initial undivided interests of
approximately ____% and ____%,
respectively, in the Trust Fund.
The Offered Certificates will
have the following Pass-Through
Rates and Certificate Principal
Balances as of the Cut-off Date:
Class A-1 Certificates ____%
$_______ Senior
Class A-2 Certificates ____%
$_______ Senior
Class A-4 Certificates 0%
$_______ Principal Only
Class A-5 Certificates Variable
Rate $ 0
Stripped Interests
Class R Certificates ____%
$_______ Residual
Class M Certificates ____%
$_______ Mezzanine
[Certificate Registration. . . . . . The Senior Certificates, (other
than the [Principal Only,
Stripped Interests and Residual
Certificates]) will be
represented by one or more
certificates registered in the
name of Cede & Co., as nominee
of The Depository Trust Company
("DTC"). No person acquiring an
interest in the Senior
Certificates, (other than the
[Principal Only, Stripped
Interests and Residual
Certificates]) will be entitled
to receive a Certificate of such
class in fully registered,
certificated form except under
the limited circumstances
described in the Prospectus
under "Description of the
Certificates Form of
Certificates." The [Principal
Only, Stripped Interests,
Residual and Class M
Certificates] will be offered in
fully registered, certificated
form. See "Description of the
Certificates Form of
Certificates" in the
Prospectus.]
Pass-Through Rates on
the Offered Certificates . . . . . The Pass-Through Rates on all
classes of the Offered
Certificates (other than the
Principal Only Certificates,
which are not entitled to
distributions of interest, and
the Stripped Interests
Certificates) are the fixed
rates set forth above.
On each Distribution Date, the
Pass-Through Rate on the
Stripped Interests Certificates
will equal the weighted average
of the Pool Strip Rates on each
[Mortgage Loan] [Contract] with
a Net Mortgage Rate in excess of
____% per annum. The "Pool
Strip Rate" on each [Mortgage
Loan] [Contract] is equal to the
Net Mortgage Rate thereon minus
____%. The "Net Mortgage Rate"
on each [Mortgage Loan]
[Contract] is equal to the
Mortgage Rate thereon minus the
rate per annum at which the
related servicing fee accrues
(the "Servicing Fee Rate"). The
Pool Strip Rates on the
[Mortgage Loans] [Contracts]
range from ____% to ____% per
annum. The initial Pass-Through
Rate on the Stripped Interests
Certificates is approximately
____% per annum. The Stripped
Interests Certificates have no
Certificate Principal Balance
and will accrue interest at the
then-applicable Pass-Through
Rate on the Notional Amount.
The "Notional Amount" of the
Stripped Interests Certificates
as of any date of determination
will be equal to the aggregate
Certificate Principal Balance of
the Certificates of all classes
as of such date.
[The Pass-Through Rate
applicable to the Offered
Certificates for any
Distribution Date will equal the
weighted average of the Net
Mortgage Rates on the [Mortgage
Loans] [Contracts] as of the Due
Date in the month preceding the
month in which such Distribution
Date occurs. The Net Mortgage
Rate with respect to each
[Mortgage Loan] [Contract] as of
the Cut-off Date will be set
forth in the [Mortgage Loan]
[Contract] Schedule attached to
the Pooling and Servicing
Agreement. As of the Cut-off
Date, the weighted average Net
Mortgage Rate is [______]% per
annum. The Net Mortgage Rate on
each [Mortgage Loan] [Contract]
will be adjusted on each
Adjustment Date to equal the
Index (rounded to the nearest
multiple of [_____]%) plus a
fixed percentage per annum for
each [Mortgage Loan] [Contract]
as set forth in the [Mortgage
Loan] [Contracts] Schedule
attached to the Pooling and
Servicing Agreement (the "Gross
Margin"), subject to the
Periodic Rate Cap, Maximum Net
Mortgage Rate and Minimum Net
Mortgage Rate (each as defined
herein) for such [Mortgage Loan]
[Contract]. The Gross Margins
for the [Mortgage Loans]
[Contracts] will be at least
[____]% per annum but not more
than [____]% per annum as of the
Cut-off Date, with an initial
weighted average Gross Margin of
[______]% per annum. The Net
Mortgage Rate on each Converted
[Mortgage Loan] [Contract]
remaining in the [Mortgage]
[Contract] Pool will equal the
Mortgage Rate thereon less
[____]% per annum.]
[The Pass-Through Rate on the
Offered Certificates on the
first Distribution Date will be
[______]% per annum, and is
expected to change thereafter
because the weighted average of
the Net Mortgage Rates is
expected to change for
succeeding Distribution Dates.]
See "Description of the Offered
Certificates Interest
Distributions" herein.
The Class B Certificates . . . . . . The Class B Certificates have an
aggregate initial Certificate
Principal Balance of
approximately $__________,
evidencing an initial undivided
interest of approximately ____%
in the Trust Fund, and a Pass-Through Rate
of ____% per annum.
The Class B Certificates are not
being offered hereby. [The
Company expects that the Class B
Certificates will be privately
placed directly or indirectly
with one or more institutional
investors.]
Accrual Certificates . . . . . . . . The Accrual Certificates have an
initial Certificate Principal
Balance of $___________ and a
Pass-Through Rate equal to ____%
per annum. The Accrual
Certificates are not being
offered hereby.
Interest Distributions . . . . . . . Holders of each class of Offered
Certificates (the
"Certificateholders") (other
than the holders of the
Principal Only Certificates)
will be entitled to receive
distributions in an amount equal
to the Accrued Certificate
Interest on such class on each
Distribution Date (i) in the
case of each class of Senior
Certificates, to the extent of
the Available Distribution
Amount (as defined herein) for
such Distribution Date except as
otherwise set forth herein (in
the aggregate, the "Senior
Interest Distribution Amount")
and (ii) in the case of the
Class M Certificates, to the
extent of the Available
Distribution Amount for such
Distribution Date after (a)
distributions of interest and
principal to the holders of the
Senior Certificates and (b)
reimbursement of certain
Advances (as defined herein) to
the [Master] Servicer[s].
With respect to any Distribution
Date, "Accrued Certificate
Interest" will be equal to (a)
in the case of each class of
Offered Certificates (other than
the Principal Only Certificates
and the Stripped Interests
Certificates), one month's
interest accrued on the
Certificate Principal Balance of
such class, at the Pass-Through
Rate on such class, and (b) in
the case of the Stripped
Interests Certificates, one
month's interest accrued on the
Notional Amount thereof at the
Pass-Through Rate on such class
for such Distribution Date; in
each case less any interest
shortfalls not covered with
respect to such class by
Subordination (as defined
herein) or by the [Master]
Servicer[s] (as described
below), including any Prepayment
Interest Shortfall (as defined
herein), to the extent allocated
thereto for such Distribution
Date. The Principal Only
Certificates are not entitled to
receive any distribution of
interest.
See "Description of the Offered
Certificates Interest
Distributions" herein.
Principal Distributions. . . . . . . On each Distribution Date, to
the extent of the portion of the
Available Distribution Amount
remaining after the Senior
Interest Distribution Amount is
distributed, holders of the
Principal Only Certificates will
be entitled to receive a
distribution allocable to
principal (the "Class A-4
Principal Distribution Amount")
that will include (i) the
applicable Discount Fraction (as
defined below) of scheduled
principal payments due on or,
after the Credit Support
Depletion Date, received with
respect to each item of Discount
Mortgage Collateral (as defined
below), (ii) the applicable
Discount Fraction of the
principal portion of any
unscheduled collections (other
than those received in
connection with a Final
Disposition described in clause
(iii) below) on each item of
Discount Mortgage Collateral,
including prepayments,
repurchases, Liquidation
Proceeds and Insurance Proceeds,
to the extent applied as
recoveries of principal, and
(iii) in connection with the
Final Disposition (as defined
herein) of an item of Mortgage
Collateral that occurs prior to
the Credit Support Depletion
Date and that did not result in
any Excess Special Hazard
Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or
Extraordinary Losses (each as
defined herein), an amount equal
to the applicable Discount
Fraction of the Stated Principal
Balance of such item of Discount
Mortgage Collateral, subject to
the limitations set forth
herein. See "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates" herein.
"Discount Mortgage Collateral"
is any [Mortgage Loan][Contract]
with a Net Mortgage Rate less
than [____]%. With respect to
each item of Discount Mortgage
Collateral, the "Discount
Fraction" thereof is equal to a
fraction the numerator of which
is [____]% minus the Net
Mortgage Rate for such [Mortgage
Loan][Contract] and the
denominator of which is [____]%.
The [Mortgage Loans] [Contracts]
that do not constitute Discount
Mortgage Collateral are referred
to herein as the "Non-Discount
Mortgage Collateral." See
"Description of the Offered
Certificates General" herein.
On each Distribution Date, to
the extent of the portion of the
Available Distribution Amount
remaining after the Senior
Interest Distribution Amount and
Class A-4 Principal Distribution
Amount are distributed, holders
of the Senior Certificates
(other than Principal Only
Certificates and the Stripped
Interests Certificates) will be
entitled to receive a
distribution allocable to
principal in the manner and
priority set forth herein. See
"Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates" herein.
Distributions in respect of
principal of the Senior
Certificates on any Distribution
Date will be allocated to the
classes then entitled to such
distributions, as described
herein. See " Special
Prepayment Considerations" and
" Special Yield Considerations"
and "Certain Yield and
Prepayment Considerations"
herein. The Stripped Interests
Certificates will not receive
any principal distributions.
On each Distribution Date,
holders of the Class M
Certificates will be entitled to
receive a distribution of
principal to the extent of the
portion of the Available
Distribution Amount remaining
after (i) distributions in
respect of interest and
principal to the holders of the
Senior Certificates, (ii)
reimbursements for certain
Advances to the [Master]
Servicer[s], and (iii)
distributions in respect of
interest to the holders of the
Class M Certificates. Such
principal distributions will be
made to the Class M Certificates
in the respective amounts
described herein. See
"Description of the Offered
Certificates Principal
Distributions on the Class M
Certificates" herein.
[Advances. . . . . . . . . . . . . . The [Master] Servicer[s] [is]
[are] required to make advances
("Advances") in respect of
delinquent payments of principal
and interest on the [Mortgage
Loans] [Contracts] subject to
the limitations described
herein. See "Description of the
Offered Certificates Advances"
herein.]
Allocation of Losses; Subordination. . . . Subject to the limitations set
forth below, Realized Losses (as
defined herein) on the [Mortgage
Loans] [Contracts] will be
allocated as follows: first, to
the Class B Certificates;
second, to the Class M
Certificates until, in each
case, the Certificate Principal
Balance of each such class has
been reduced to zero; and
thereafter, if any such Realized
Loss is on Discount Mortgage
Collateral, to the Principal
Only Certificates in an amount
equal to the related Discount
Fraction of the principal
portion of such Realized Loss,
and the remainder of such
Realized Losses and the entire
amount of such Realized Losses
on Non-Discount Mortgage
Collateral to the remaining
classes of Senior Certificates
on a pro rata basis, as
described herein under
"Description of the Offered
Certificates Allocation of
Losses; Subordination." The
Subordination provided to the
Senior Certificates by the Class
B Certificates and Class M
Certificates and the
Subordination provided to the
Class M Certificates by the
Class B Certificates will cover
Realized Losses on the [Mortgage
Loans] [Contracts] that are
Defaulted Mortgage Losses, Fraud
Losses, Bankruptcy Losses and
Special Hazard Losses up to the
limits set forth below. The
aggregate amounts of Realized
Losses which may be allocated by
means of Subordination to cover
Fraud Losses, Bankruptcy Losses
and Special Hazard Losses
Defaulted Mortgage Losses, are
initially limited to
$[_________], $[________] and
$[_________], respectively.]
[All of the foregoing amounts
are subject to periodic
reduction as described herein
under "Description of the
Offered Certificates Allocation
of Losses; Subordination" and
may be further reduced.]
If the Certificate Principal
Balances of the Class B
Certificates and Class M
Certificates are reduced to
zero, all additional losses
(including, without limitation,
all Defaulted Mortgage Losses,
Special Hazard Losses, Fraud
Losses and Bankruptcy Losses)
will be allocated among the
Senior Certificates pro rata, as
more fully described herein.
See "Description of the Offered
Certificates Allocation of
Losses; Subordination."
In addition, any Special Hazard
Losses, Fraud Losses and
Bankruptcy Losses in excess of
the respective amounts of
coverage therefor and any
Extraordinary Losses on any
items of Non-Discount Mortgage
Collateral will be allocated on
a pro rata basis among the
Senior Certificates (other than
the Principal Only
Certificates), Class M
Certificates and Class B
Certificates. The principal
portion of such losses on items
of Discount Mortgage Collateral
will be allocated to the
Principal Only Certificates in
an amount equal to the related
Discount Fraction thereof, and
the remainder of such losses on
Discount Mortgage Collateral
will be allocated among the
remaining Certificates on a pro
rata basis as described above.
See "Description of the Offered
Certificates Allocation of
Losses; Subordination" herein.
Neither the Offered Certificates
nor the [Mortgage Loans]
[Contracts] are insured or
guaranteed by any governmental
agency or instrumentality
[(except in the case of [FHA]
[VA] [Loans [Contracts])] or by
the Company, the [Master]
Servicer[s], GMAC Mortgage or
any affiliate thereof. See
"Risk Factors Limited
Obligations" in the Prospectus.
[Optional Termination. . . . . . . . At its option, on any
Distribution Date when the
aggregate principal balance of
the [Mortgage Loans] [Contracts]
is less than ___% of the
aggregate principal balance of
the [Mortgage Loans] [Contracts]
as of the Cut-off Date, the
[Master] Servicer[s] or the
Company may (i) purchase all
remaining Mortgage Collateral
from the Trust Fund and other
assets thereof, and thereby
effect early retirement of the
Certificates or (ii) purchase in
whole, but not in part, the
Certificates. See "The Pooling
and Servicing
Agreement Termination" herein
and "The Pooling and Servicing
Agreement Termination;
Retirement of Certificates" in
the Prospectus.]
Special Prepayment Considerations The rate of principal payments on
the Offered Certificates,
collectively, will depend on the
rate and timing of principal
payments (including prepayments,
defaults and liquidations) on the
Mortgage Collateral. As is the
case with mortgage-backed
securities generally, the Offered
Certificates are subject to
substantial inherent cash-flow
uncertainties because any of the
[Mortgage Loans] [Contracts] may be
prepaid at any time. Generally,
when prevailing mortgage interest
rates are increasing, prepayment
rates on [mortgage loans]
[manufactured housing contracts]
tend to decrease, resulting in a
reduced return of principal to
investors at a time when
reinvestment at such higher
prevailing rates would be
desirable. Conversely, when
prevailing mortgage interest rates
are declining, prepayment rates on
[mortgage loans] [manufactured
housing contracts] tend to
increase, resulting in a greater
return of principal to investors at
a time when reinvestment at
comparable yields may not be
possible. See "Certain Yield and
Prepayment Considerations General"
herein.
[Certain types of [Mortgage
Loans] [Contracts] included in
the [Trust Fund] have
characteristics that may make
them more likely to default than
other [mortgage loans]
[manufactured housing
contracts]. [CHARACTERISTICS OF
MORTGAGE COLLATERAL THAT MAY
POSE INCREASED RISKS OF DEFAULT
TO BE INSERTED AS NECESSARY.]
[Such [Mortgage Loans]
[Contracts] pose a greater risk
of default and liquidation than
might otherwise be expected by
investors in the Certificates.
See "Risk Factors" herein.]
The multiple class structure of
the Offered Certificates results
in the allocation of prepayments
among certain classes as follows
[TO BE INCLUDED AS APPROPRIATE]:
[Sequentially paying classes:
[All] classes of the Senior
Certificates are subject to
various priorities for payment
of principal as described herein
under "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates. Distributions on
classes having an earlier
priority of payment will be
immediately affected by the rate
of prepayment of the [Mortgage
Loans] [Contracts] early in the
life of the [Mortgage]
[Contract] Pool. Distributions
on classes with a later priority
of payment will not be directly
affected by the rate of
prepayment until such time as
principal is distributable on
such classes; however, the
timing of commencement of
principal distributions and the
weighted average lives of such
classes will be affected by the
rate of prepayment experienced
both before and after the
commencement of principal
distributions on such classes.]
[Planned Amortization Class
Certificates ("PAC
Certificates"): Principal
distributions on the PAC
Certificates will be payable in
amounts determined based on
schedules as described herein
under "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates," provided that the
rate of prepayment of the
[Mortgage Loans] [Contracts]
each month remains between
approximately ____% SPA (as
defined herein) and ____% SPA.
However, as discussed herein,
actual principal distributions
may be greater or less than the
described amounts. If the rate
of prepayment of the [Mortgage
Loans] [Contracts] is
consistently higher than ____%
SPA, then the Companion
Certificates will be retired
before all of the PAC
Certificates are retired, and
the rate of principal
distributions and the weighted
average lives of the remaining
PAC Certificates will become
significantly more sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts] and principal
distributions thereon will be
more likely to deviate from the
described amounts.]
[Targeted Amortization Certif-
icates ("TAC Certificates"):
Principal distributions on the
TAC Certificates would be
payable in amounts determined
based on schedules as described
herein under "Description of the
Offered Certificates Principal
Distributions on the Senior
Certificates," if the rate of
prepayment of the [Mortgage
Loans] [Contracts] were to
remain at a constant level of
approximately ____% SPA.
However, as discussed herein,
actual principal distributions
are likely to deviate from the
described amounts, because it is
unlikely that the actual rate of
prepayment of the [Mortgage
Loans] [Contracts] each month
will remain at or near ____%
SPA. If the Companion
Certificates are retired before
all of the TAC Certificates are
retired, the rate of principal
distributions and the weighted
average lives of the remaining
TAC Certificates will become
significantly more sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts], and
principal distributions thereon
will be more likely to deviate
from the described amounts.]
[Companion Certificates:
Because of the application of
amounts available for principal
distributions among the Senior
Certificates in any given month,
first to the [PAC] [TAC]
Certificates up to the described
amounts and then to the
Companion Certificates, the rate
of principal distributions and
the weighted average lives of
the Companion Certificates will
be extremely sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts]. The
weighted average lives of the
Companion Certificates will be
significantly more sensitive to
changes in the rate of
prepayment than that of either
the [PAC] [TAC] Certificates or
a fractional undivided interest
in the [Mortgage Loans]
[Contracts].]
[Accrual Certificates: A high
rate of prepayments on the
[Mortgage Loans] [Contracts]
could result in the reduction of
the Certificate Principal
Balances of the Senior
Certificates (other than the
Accrual Certificates and
Principal Only Certificates) to
zero (and the occurrence of the
Accretion Termination Date)
earlier than anticipated. The
accrual of interest on the
Accrual Certificates may end and
the reduction of the Certificate
Principal Balance of the Accrual
Certificates may commence
earlier than anticipated.]
[Subordination features: As
described herein under
"Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates" and " Principal
Distributions on the Class M
Certificates," during certain
periods all or a
disproportionately large
percentage of principal
prepayments on the [Mortgage
Loans] [Contracts] will be
allocated among the Senior
Certificates, and during certain
periods no such prepayments or,
relative to the related Class M
Percentage, a disproportionately
small or large percentage of
such prepayments will be
distributed to the Class M
Certificates. To the extent
that no such prepayments are
distributed on the Class M
Certificates, the Subordination
afforded to the Senior
Certificates by the Class M
Certificates (together with the
Class B Certificates), in the
absence of offsetting Realized
Losses allocated thereto, will
be increased.]
See "Description of the Offered
Certificates Principal
Distributions on the Senior
Certificates," " Principal
Distributions on the Class M
Certificates" and "Certain Yield
and Prepayment Considerations"
herein, and "Maturity and
Prepayment Considerations" in
the Prospectus. For further
information regarding the effect
of principal prepayments on the
weighted average lives of the
Offered Certificates (other than
the Stripped Interests
Certificates), see the table
entitled "Percentage of Initial
Certificate Balance Outstanding
at the Following Percentages of
SPA" herein.
Special Yield Considerations . . . . The yield to maturity on each
respective class of the Offered
Certificates will depend on the
rate and timing of principal
payments (including payments due
to prepayments, defaults and
liquidations) on the [Mortgage
Loans] [Contracts] and the
allocation thereof (and of any
losses on the [Mortgage Loans]
[Contracts]) to reduce the
Certificate Principal Balance or
Notional Amount of such class,
as well as other factors such as
the Pass-Through Rate (and, in
the case of the Stripped
Interests Certificates, any
adjustments thereto) and the
purchase price for such
Certificates. The yield to
investors on any class of
Offered Certificates may be
adversely affected by any
allocation thereto of Prepayment
Interest Shortfalls on the
[Mortgage Loans] [Contracts],
which shortfalls are expected to
result from distribution of
interest to the date of
prepayment only (rather than a
full month's interest) in
connection with prepayments in
full and the lack of any
distribution of interest on the
amount of any partial
prepayments. Prepayment
Interest Shortfalls resulting
from principal prepayments in
full in a calendar month will
not adversely affect the yield
to investors in the Offered
Certificates to the extent such
Prepayment Interest Shortfalls
do not exceed the Servicing Fee
for such month.
In general, if a class of
Offered Certificates is
purchased at a premium and
principal distributions thereon
occur at a rate faster than
anticipated at the time of
purchase, the investor's actual
yield to maturity will be lower
than that assumed at the time of
purchase. Conversely, if a
class of Offered Certificates is
purchased at a discount and
principal distributions thereon
occur at a rate slower than that
assumed at the time of purchase,
the investor's actual yield to
maturity will be lower than that
originally anticipated.
The Senior Certificates were
structured based on a number of
assumptions, including a
prepayment assumption of ____%
SPA and weighted average lives
corresponding thereto as set
forth herein under " Special
Prepayment Considerations." The
yield assumptions for the
respective classes that are to
be offered hereunder will vary
as determined at the time of
sale.
The multiple class structure of
the Offered Certificates causes
the yield of certain classes to
be particularly sensitive to
changes in the rate of
prepayment of the [Mortgage
Loans] [Contracts] and other
factors, as follows [TO BE
INCLUDED AS APPROPRIATE]:
[Principal Only Certificates:
Generally, the amounts payable
with respect to the Principal
Only Certificates are derived
only from principal payments on
the Discount Mortgage
Collateral. As a result, the
yield on the Principal Only
Certificates will be adversely
affected by slower than expected
payments of principal (including
prepayments, defaults and
liquidations) on the Discount
Mortgage Collateral. Because
the Discount Mortgage Collateral
have lower Net Mortgage Rates
than the Non-Discount Mortgage
Collateral, and because the
Mortgage Collateral with lower
Net Mortgage Rates are likely to
have lower Mortgage Rates, the
Discount Mortgage Collateral are
generally likely to prepay at a
slower rate than the
Non-Discount Mortgage
Collateral. See "Certain Yield
and Prepayment Considerations,"
especially " Principal Only
Certificate and Stripped
Interests Certificate Yield
Considerations" herein.]
[Interest strip and inverse
floater classes: The yield to
investors on the Class [_]
Certificates will be extremely
sensitive to the rate and timing
of principal payments on the
Mortgage Collateral (including
prepayments, defaults and
liquidations), which may
fluctuate significantly over
time. A rapid rate of principal
payments on the [Mortgage Loans]
[Contracts] could result in the
failure of investors in the
Class [_] Certificates to
recover their initial
investments, and a slower than
anticipated rate of principal
payments on the [Mortgage Loans]
[Contracts] could adversely
affect the yield to investors on
the Class [_] Certificates.]
[Stripped Interests
Certificates: In addition to
the foregoing, the yield on the
Stripped Interests Certificates
will be materially adversely
affected to a greater extent
than the yields on the other
Senior Certificates if the
[Mortgage Loans] [Contracts]
with higher Mortgage Rates
prepay faster than the [Mortgage
Loans] [Contracts] with lower
Mortgage Rates, because holders
of the Stripped Interests
Certificates generally have
rights to relatively larger
portions of interest payments on
the [Mortgage Loans] [Contracts]
with higher Mortgage Rates than
on [Mortgage Loans] [Contracts]
with lower Mortgage Rates.]
[Adjustable rate (including
inverse floater) classes: The
yield on the Class [_]
Certificates will be sensitive,
and the yield on the Class [_]
Certificates will be extremely
sensitive, to fluctuations in
the level of the Index. The
Pass-Through Rate on the Class
[_] Certificates will vary
inversely with, and at a
multiple of, the Index.]
[Inverse floater companion
classes: In addition to the
foregoing, in the event of
relatively low prevailing
interest rates (including the
Index) and relatively high rates
of principal prepayments over an
extended period, while investors
in the [identify inverse floater
companion classes] may then be
experiencing a high current
yield on such Certificates, such
yield may be realized only over
a relatively short period, and
it is unlikely that such
investors would be able to
reinvest such principal
prepayments on such Certificates
at a comparable yield.]
[Accrual Certificates: Interest
shortfalls allocated to the
Accrual Certificates will reduce
the amount of Accrued
Certificate Interest added to
the Certificate Principal
Balance thereof and, therefore,
will reduce the amount of
interest that will accrue in the
future on such Certificates than
would otherwise be the case
absent such shortfalls. Because
Accrual Certificates are not
entitled to receive any
distributions of interest until
the Accretion Termination Date,
the Accrual Certificates will
likely experience greater price
and yield volatility than would
pass-through certificates which
are otherwise similar but which
are entitled to current
distributions of interest.]
[Certificates with Subordination
features: The yield to maturity
on the Class M Certificates will
be extremely sensitive to losses
due to defaults on [Mortgage
Loans] [Contracts] (and the
timing thereof) after the
Certificate Principal Balance of
the Class B Certificates has
been reduced to zero, because
the entire amount of such losses
will be allocable to the Class M
Certificates, as described
herein under "Description of the
Offered Certificates Allocation
of Losses; Subordination."
Furthermore, as described herein
under "Certain Yield and
Prepayment Considerations," the
timing of the receipt of
principal and interest by the
Class M Certificates may be
adversely affected by losses on
the [Mortgage Loans] [Contracts]
even if such class does not
ultimately bear such loss.]
[Residual Certificates: Holders
of the Residual Certificates are
entitled to receive
distributions of principal and
interest as described herein
under "Description of the
Offered Certificates Interest
Distributions" and " Principal
Distributions on the Senior
Certificates," however, holders
of such Certificates may have
tax liabilities with respect to
their Certificates during the
early years of their term that
substantially exceed the
principal and interest payable
thereon during such periods. In
addition, such distributions
will be reduced to the extent
that they are subject to United
States federal income tax
withholding.]
See "Certain Yield and
Prepayment Considerations"
herein.
Certain Federal Income
Tax Consequences . . . . . . . . . [An election will be made to
treat the Trust Fund as a "real
estate mortgage investment
conduit" (a "REMIC") for federal
income tax purposes. Upon the
issuance of the Offered
Certificates, [Orrick,
Herrington & Sutcliffe] [Thacher
Proffitt & Wood], New York, New
York, counsel to the Company,
will deliver its opinion
generally to the effect that,
assuming compliance with all
provisions of the Pooling and
Servicing Agreement, the Trust
Fund will qualify as a REMIC
under Sections 860A through 860G
of the Internal Revenue Code of
1986 (the "Code").]
[For federal income tax
purposes, the Residual
Certificates will be the sole
class of "residual interests" in
the Trust Fund and the Offered
Certificates (other than the
Residual Certificates) [and the
__________ Certificates] will
represent ownership of "regular
interests" in the Trust Fund and
will generally be treated as
representing ownership of debt
instruments issued by the Trust
Fund.]
[Under the REMIC Regulations (as
defined herein), the Residual
Certificates will not be
regarded as having "significant
value" for purposes of applying
the rules relating to "excess
inclusions." In addition, the
Residual Certificates may
constitute "noneconomic"
residual interests for purposes
of the REMIC Regulations.
Transfers of the Residual
Certificates will be restricted
under the Pooling and Servicing
Agreement to United States
persons (as defined in the
Prospectus under "Certain
Federal Income Tax
Consequences REMICs Foreign
Investors in REMIC
Certificates") in a manner
designed to prevent a transfer
of a noneconomic residual
interest from being disregarded
under the REMIC Regulations.
See "Certain Federal Income Tax
Consequences Special Tax
Considerations Applicable to
Residual Certificates" herein
and "Certain Federal Income Tax
Consequences REMICs Taxation of
Owners of REMIC Residual
Certificates Excess Inclusions"
and " Noneconomic REMIC Residual
Certificates" in the
Prospectus.]
[The Residual Certificateholders
may be required to report an
amount of taxable income with
respect to the early years of
the REMIC's term that
significantly exceeds
distributions on the Residual
Certificates during such years,
with corresponding tax
deductions or losses deferred
until the later years of the
REMIC's term. Accordingly, on a
present value basis, the tax
detriments occurring in the
earlier years may substantially
exceed the sum of any tax
benefits in the later years. As
a result, the Residual
Certificateholders' after-tax
rate of return may be zero or
negative, even if their pre-tax
rate of return is positive.]
[See "Certain Yield and
Prepayment Considerations,"
especially " Additional Yield
Considerations Applicable Solely
to the Residual Certificates"
and "Certain Federal Income Tax
Consequences Special Tax
Considerations Applicable to
Residual Certificates" herein.]
For further information
regarding the federal income tax
consequences of investing in the
Offered Certificates, see
"Certain Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA Considerations . . . . . . . . [ERISA CONSIDERATIONS TO BE
INCLUDED AS NECESSARY] See
"ERISA Considerations" [herein
and] in the Prospectus.
Ratings. . . . . . . . . . . . . . . It is a condition of the
issuance of the Senior
Certificates and the Class M
Certificates that they be rated
"___" and "___", respectively,
by ________________________ and
"___" and "___", respectively,
by _________________________. A
security rating is not a
recommendation to buy, sell or
hold securities and may be
subject to revision or
withdrawal at any time by the
assigning rating organization.
A security rating does not
address the frequency of
prepayments of the [Mortgage
Loans] [Contracts], or the
corresponding effect on yield to
investors. The rating of the
Stripped Interests Certificates
does not address the possibility
that the holders thereof may
fail to fully recover their
initial investment. See
"Certain Yield and Prepayment
Considerations" and "Ratings"
herein and "Yield
Considerations" in the
Prospectus.
Legal Investment Matters . . . . . . The [Senior] Certificates will
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984, as
amended ("SMMEA"), for so long
as they are rated in one of the
two highest rating categories by
at least one nationally
recognized statistical rating
organization, and, as such, will
be legal investments for certain
entities to the extent provided
in SMMEA. [The Class M
Certificates will not constitute
"mortgage related securities"
for purposes of SMMEA.]
Institutions whose investment
activities are subject to legal
investment laws and regulations
or to review by regulatory
authorities should consult with
their legal advisors in
determining whether and to what
extent the Offered Certificates
constitute legal investments
under SMMEA or are subject to
restrictions on investment,
capital requirements or
otherwise. See "Legal
Investment Matters" herein and
in the Prospectus.
<PAGE>
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things, the
items discussed
under "Risk Factors" in the Prospectus and the following factors in connection
with the purchase
of the Certificates:]
[APPROPRIATE RISK FACTORS REGARDING MORTGAGE COLLATERAL TO BE
INSERTED AS NECESSARY]
DESCRIPTION OF THE [MORTGAGE] [CONTRACT] POOL
General
The Offered Certificates will evidence ownership interests in the Trust
Fund created by the
Company, which will consist of a pool of [fixed] [adjustable] rate
[conventional] [FHA-insured]
[VA-guaranteed] [Mortgage Loans][Contracts] and certain other property. The
Mortgage
Collateral
will be conveyed by the Company to the Trust Fund pursuant to a pooling and
servicing
agreement,
dated as of ______ __, 199_ (the "Pooling and Servicing Agreement"), by and
among the
Company, the [Master] Servicer[s] and the Trustee. A copy of the Pooling and
Servicing
Agreement will be filed with the Securities and Exchange Commission as an
exhibit to a Current
Report on Form 8-K to be filed within
15 days after the issuance of the Certificates (the "Form
8-K").
The Mortgage Collateral will be
assigned to the Trustee pursuant to the Pooling and
Servicing Agreement together with
all principal and interest due on or with respect to the
[Mortgage
Loans] [Contracts] after the Cut-off Date.
The Trustee will, concurrently with such assignment,
authenticate and deliver the Certificates.
[Residential Funding] [__________]
will act as [Master] Servicer[s] for the Trust Fund (in
such capacity, [each a] [the]
"[Master] Servicer"). The [Master] Servicer[s] will service the
[Mortgage Loans] [Contracts] [directly]
[through one or more Sub-Servicers] [who will provide
customary servicing functions with
respect to the [Mortgage Loans] [Contracts] pursuant to the
terms set forth in the [Pooling and
Servicing Agreement] [respective Sub-Servicing Agreements].
The [Mortgage Loans] [Contracts]
were acquired [directly] [indirectly through Residential
Funding] by the Company
[on _________ __, 199_] [from time to time] from [NAME OF
SELLER] [unaffiliated Mortgage Collateral
Sellers] [pursuant to the Program]. [See " The
Program" below.] [__]% of the
Mortgage Loans were purchased from [_____] and [____]% of
the
Mortgage Loans were purchased from
[________], both [affiliates of the Company] [Unaffiliated
Sellers]. Except as set forth above,
no Mortgage Collateral Seller sold more than 10.0% of the
Mortgage Loans to Residential Funding.
None of the [Mortgage Loans]
[Contracts] were originated prior to _______ __, 19__ or
will have a maturity date later
than _______ __, ____. No [Mortgage Loan] [Contract] will have
a remaining term to maturity as of
the Cut-off Date of less than ____ months. The weighted
average remaining term to maturity
of the [Mortgage Loans] [Contracts] as of the Cut-off Date
will
be approximately ____ months. The
weighted average original term to maturity of the
[Mortgage
Loans] [Contracts] as of the Cut-off
Date will be approximately ____ months. All of the
[Mortgage
Loans] [Contracts] have principal and
interest payable monthly [on the ______ day of each
month]
(the "Due Date") [on a level debt
service basis] [subject to change due to adjustment in the
Mortgage Rate]. As of the Cut-off
Date, no [Mortgage Loan] [Contract] will be one month or
more
delinquent in payment of principal and interest.
[In connection with each Mortgage
Loan that is secured by a leasehold interest, the related
Mortgage Collateral Seller will have
represented to the Company that, among other things: (i)
the
use of leasehold estates
for residential properties is an accepted practice in the area where the
related Mortgaged Property is
located; (ii) residential property in such area consisting of
leasehold
estates is readily marketable; (iii)
the lease is recorded and no party is in any way in breach of
any
provision of such lease;
(iv) the leasehold is in full force and effect and is not subject to any prior
lien or encumbrance by which the
leasehold could be terminated or subject to any charge or
penalty;
and (v) the remaining term of the lease
does not terminate less than ten years after the maturity
date
of each such Mortgage Loans.]
[Mortgage Rate Adjustment]
[The Mortgage Rate on each Mortgage
Loan will adjust semi-annually on the Adjustment
Date specified in the related Mortgage
Note to a rate equal to the sum (rounded to the nearest
multiple of ___%) of the Index
described below and a fixed percentage set forth in the related
Mortgage Note (the "Gross Margin"),
subject to certain limitations described herein. The
amount
of the monthly payment on each Mortgage
Loan will be adjusted semi-annually on the first day
of
the month following the
month in which the Adjustment Date occurs to equal the amount
necessary
to pay interest at the
then-applicable Mortgage Rate and fully amortize the outstanding principal
balance of the Mortgage Loan over
its remaining term to stated maturity. As of the Cut-off Date,
___% of the Mortgage Loans will have
reached their first Adjustment Date. The Mortgage
Loans
will have different Adjustment
Dates, Gross Margins and limitations on the Mortgage Rate
adjustments, as described below.]
[Each Mortgage Note contains an
interest rate adjustment cap (the "Periodic Rate Cap")
which limits the adjustment
of the Mortgage Rate to not more than ___% above or below the
previous Mortgage Rate;
provided that, with respect to ____% of the Mortgage Loans, the
Periodic
Rate Cap applicable to the first
Adjustment Date is 3% per annum. The Mortgage Rate on a
Mortgage Loan
may not exceed the maximum Mortgage Rate (the "Maximum Mortgage Rate")
or be less than the minimum
Mortgage Rate (the "Minimum Mortgage Rate") specified for such
Mortgage Loan in the related
Mortgage Note. The Minimum Mortgage Rate for each Mortgage
Loan will be equal to the Gross Margin.
The Minimum Mortgage Rates will range from ___% to
___%, with a weighted average
Minimum Mortgage Rate as of the Cut-off Date of ___%. The
Maximum Mortgage Rates will
range from ___% to ___%, with a weighted average Maximum
Mortgage Rate as of the Cut-off
Date of ___%. No Mortgage Loan provides for payment caps
on
any Adjustment Date which would result
in deferred interest or negative amortization.]
[The Index applicable to the
Mortgage Loans will be a per annum rate equal to the average
of interbank offered rates for
six-month U.S. dollar-denominated deposits in the London market
based on quotations of major banks
("LIBOR") as published by Fannie Mae and as most recently
available as of the date
forty-five days prior to the Adjustment Date, or, with respect to _____
Mortgage Loans, representing
approximately ___% of the Mortgage Loans, the Index shall be
LIBOR as published in
The Wall Street Journal and as most recently available as of the first
business day of the month
immediately preceding the month in which the Adjustment Date
occurs.
In the event that the Index
is no longer available, an index reasonably acceptable to the Trustee
that
is based on comparable information will be selected by the Master Servicer.]
[Listed below are
levels of LIBOR as published by Fannie Mae that are or would have been
applicable to mortgage loans having
the following adjustment dates for the indicated years. Such
average yields may fluctuate
significantly from month to month as well as over longer periods
and
may not increase or decrease in a
constant pattern from period to period. There can be no
assurance
that levels of LIBOR published in
The Wall Street Journal for the corresponding periods would
have
been at the same levels as those set
forth below. The following does not purport to be
representative of future levels of
LIBOR (as published by Fannie Mae or The Wall Street
Journal).
No assurance can be given as to the level of LIBOR on any Adjustment Date or
during the life of
any Mortgage Loan.]
LIBOR
Adjustment Date 1990 1991 1992 1993 1994
January 1. . . . . . 8.438% 8.063% 5.359% 3.641% 3.500%
February 1 . . . . 8.313 8.375 4.938 3.891 3.516
March 1. . . . . . .8.313 8 .563 4.250 3.641 3.500
April 1. . . . . . . 8.438 7.125 4.250 3.438 3.391
May 1. . . . . . . . 8.438 6.891 4.375 3.328 4.000
June 1 . . . . . . . 8.688 6.531 4.547 3.375 4.250
July 1 . . . . . . . 9.000 6.313 4.266 3.313 4.625
August 1 . . . . 8.500 6.188 4.250 3.438 5.000
September 1. .8.438 6.563 4.125 3.563 5.250
October 1. . . 8.047 6.313 3.625 3.563 5.328
November 1 .8.188 5.875 3.625 3.438 5.328
December 1 . 8.422 5.688 3.313 3.375 5.688
[The initial Mortgage Rate in effect on a Mortgage Loan generally will be
lower, and may
be significantly lower, than the sum of the Index that would have been
applicable at origination
and
the Gross Margin. Therefore, unless the Index declines after origination of a
Mortgage Loan, the
related Mortgage Rate will generally increase on the first Adjustment Date
following origination
of
such Mortgage Loan subject to the Periodic Rate Cap. The repayment of the
Mortgage Loans
will
be dependent on the ability of the Mortgagors to make larger monthly payments
following
adjustments of the Mortgage Rate. Mortgage Loans that have the same initial
Mortgage Rate
may
not always bear interest at the same Mortgage Rate because such Mortgage Loans
may have
different Adjustment Dates
(and the Mortgage Rates therefore may reflect different Index
values),
Gross Margins, Maximum Mortgage
Rates and Minimum Mortgage Rates. The Net Mortgage
Rate
with respect to each Mortgage
Loan as of the Cut-off Date will be set forth in the Mortgage Loan
Schedule attached to the
Pooling and Servicing Agreement. The Net Mortgage Rate on each
Mortgage Loan will be adjusted on
each Adjustment Date to equal the sum of the Index as
specified
in the related Mortgage Note
(rounded to the nearest multiple of ___%) and a fixed percentage
per
annum for each Mortgage
Loan as set forth in the Mortgage Loan Schedule attached to the
Pooling
and Servicing Agreement
(the "Gross Margin"), provided that the Net Mortgage Rate on any
Mortgage Loan on any Adjustment
Date may not increase or decrease by more than the Periodic
Rate Cap.
The Gross Margins
for the Mortgage Loans will be at least ___% per annum but not
more than ___% per annum as of the
Cut-off Date. The Net Mortgage Rate on any Mortgage
Loan
may not exceed the maximum
Net Mortgage Rate (the "Maximum Net Mortgage Rate") or be
less
than the
minimum Net Mortgage Rate (the "Minimum Net Mortgage Rate") for such Mortgage
Loan.]
Mortgage Pool Characteristics
[The Mortgage Pool will have
the following characteristics as of the Cut-off Date:]
[Number of Mortgage Loans ____
Initial Pass-Through Rate on the Certificates (1) ____%
Range of Net Mortgage Rates (2) ____% - ____%
Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Gross Margins:
Weighted Average ____%
Range ____% - ____%
Minimum Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Minimum Net Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Maximum Mortgage Rates:
Weighted Average ____%
Range ____% - ____%
Maximum Net Mortgage Rates:
Weighted Average ____%
Range ____ - ____%
Weighted Average Months to next Adjustment Date
after _______ __, 199_ (3) 3]
____________________
(1) The Pass-Through Rate on
the Certificates will be equal to the weighted average of the Net
Mortgage Rates on the Mortgage Loans.
(2)The Net Mortgage
Rates are calculated as described under "Description of the
Certificates Interest
Distributions" herein, and the Net Mortgage Rate as to each
Mortgage Loan on and after
its initial Adjustment Date will be generally equal to the Index
plus the Gross Margin,
rounded as described herein, subject to the Periodic Rate Cap,
Maximum Net Mortgage Rate
and Minimum Net Mortgage Rate. The Net Mortgage Rates
may be less than or greater
than the sum of the Index and the Gross Margin during certain
periods as a result of
the Periodic Rate Caps and Maximum Net Mortgage Rates and
Minimum Net Mortgage Rates.
(3) The Weighted Average
Months to next Adjustment Date will be equal to the weighted
average of the number
of months until the Adjustment Date next following __________,
199__.
<PAGE>
[The following table sets forth the number, aggregate principal
balance and percentage of
Mortgage Loans as of the Cut-off Date having their next
Adjustment Dates in the months and years
set forth below.]
[Month and Year of
Next Adjustment Dates Number of
Mortgage Loans Aggregate Principal
Balance Percentage of
Mortgage Loans
January 199_ . . . . . . . ___ $ __________ ______%
February 199_. . . . . . ___ __________ _______
March 199_ . . . . . . . ___ __________ _______
April 199_ . . . . . . . . ___ __________ _______
________________ . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
___
__________
_______
________________ . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . -- $ __________ _____%]
[All percentages
of the Mortgage Loans described herein are approximate percentages
(except as otherwise indicated)
by aggregate principal balance as of the Cut-off Date.]
[None of the Mortgage Loans
will have been originated prior to __________, 199_ or will
have a maturity date
later than ___________, ____. No Mortgage Loan will have a remaining
term
to stated maturity as of the
Cut-off Date of less than ___ months. The weighted average
remaining
term to stated maturity of
the Mortgage Loans as of the Cut-off Date will be ___ months. The
weighted average original term
to maturity of the Mortgage Loans as of the Cut-off Date will be
___ months.]
[As of the Cut-off Date, no
Mortgage Loan will be ___ month [s] or more delinquent in
payment of principal and interest.]
[The Mortgage Loans are generally
assumable pursuant to the terms of the related
Mortgage Note. See "Maturity and Prepayment Considerations" in the Prospectus.]
[No Mortgage Loan provides for deferred interest or negative amortization.]
[None of the Mortgage Loans will be Buydown Mortgage Loans.]
[[____]% of the [Mortgage Loans]
[Contracts] were made to International Borrowers as
of the date of origination.
As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the [Mortgage Loans]
[Contracts] that were made to International Borrowers
(defined
herein) was approximately [____]%.
As of the Cut-off Date, the average unpaid principal
balance
of the [Mortgage Loans] [Contracts]
made to International Borrowers was approximately
$[__________].]
[[____]% of the Mortgage Loans
are Mortgage Loans with Loan-to-Value Ratios greater
than 80% that did not require
primary mortgage insurance. The weighted average Loan-to-Value
Ratio of such Mortgage Loans was approximately ___% as of the Cut-off Date.]
[Set forth below is a
description of certain additional characteristics of the Mortgage Loans
as of the Cut-off Date
(except as otherwise indicated). All percentages of the Mortgage Loans
are
approximate percentages by
aggregate principal balance as of the Cut-off Date (except as
otherwise
indicated). Unless otherwise
specified, all principal balances of the Mortgage Loans are as of the
Cut-off Date and are rounded to the nearest dollar.]
[Set forth below is a
description of certain additional characteristics of the [Mortgage
Loans] [Contracts] as of
the Cut-off Date (expressed as a percentage of the outstanding aggregate
principal balance of the
[Mortgage Loans] [Contracts] having such characteristics relative to the
outstanding aggregate
principal balance of all [Mortgage Loans] [Contracts]). Unless otherwise
specified, all principal
balances of the [Mortgage Loans] [Contracts] are as of the Cut-off Date
and
are rounded to the nearest dollar.]
<PAGE>
Mortgage Rates
Mortgage Rates Number Principal Balance Percentage of
[Mortgage] [Contract] Pool
$ . . %
.
.
Total. . . . . . . . . . . . . . . . . . $ . . %
As of the Cut-off Date, the
weighted average Mortgage Rate of the [Mortgage Loans]
[Contracts] was approximately _________% per annum.
[Net Mortgage Rates
Net Mortgage Rates Number Principal Balance Percentage of
[Mortgage] [Contract] Pool
$ . . %
.
.
Total. . . . . . . . . . . . $ . . %
As of the Cut-off Date,
the weighted average Net Mortgage Rate of the [Mortgage Loans]
[Contracts] was approximately ____% per annum.]
[Gross Margins
Gross Margins Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
$ . . %
.
.
Total. . . . . . . . . .$ . . %
As of the Cut-off Date, the weighted average Gross Margin on the [Mortgage
Loans] [Contracts] was approximately ____%.]
[[Minimum] [Maximum] Mortgage Rates
[Minimum] [Maximum]
Mortgage Rates Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
$ . . %
Total. . . . . . . . . . . $ . . %
As of the Cut-off Date,
the weighted average [minimum] [maximum] Mortgage Rate of
the [Mortgage Loans] [Contracts] was approximately _________% per annum.]
Original [Mortgage Loan] [Contract] Principal Balances
Principal Balance Number Principal Balance Percentage of
[Mortgage][Contract]
Pool
$ $ . . %
Total. . .. . . . . .$ . . %
As of the Cut-off Date,
the average unpaid principal balance of the [Mortgage Loans]
[Contracts] will be approximately $_______.
[Remaining Months to Maturity
Remaining Months
to Maturity Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
$ . . %
Total . . . . . . . . . $ . . %
As of the Cut-off Date,
the weighted average remaining months to maturity of the
[Mortgage Loans] [Contracts] was approximately ____ months.]
[Months Since Origination
Months
Since Origination Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
$ . . %
Total . . . . . $ . . %
As of the Cut-off Date,
the weighted average months since origination of the [Mortgage
Loans] [Contracts] was approximately ____ months.]
Original Loan-To-Value Ratios
Loan-to-Value
Ratio Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
$ . . %
Total . . . . . . . . . . . .$ . . %
The weighted average
Loan-to-Value Ratio at origination of the [Mortgage Loans]
[Contracts] will have been approximately __.__%.
Geographic Distributions of Mortgaged Properties
State Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
$ . . %
Total . . . . . . .. . . $ . . %
[(1) "Other" includes states
that contain less than [__]% of the [Mortgage] [Contract] Pool.]
[No more than _____% of
the [Mortgage Loans] [Contracts] will be secured by Mortgaged
Properties located in any one zip code area.]<PAGE>
Mortgaged Property Types
Property Number Principal Balance Percentage of
Mortgage Pool
Single-family detached . . $ . . %
Planned Unit Developments
(detached) . . . . . . . . . . . .
Two- to four-family units. .
Condo Low-Rise (less than 5
stories) . . . . . . . . . . . . . . . .
Condo Mid-Rise (5 to 8
stories) . . . . . . . . . . . . . . .
Condo High-Rise (9 stories or
more . . . . . . . . . . . . . . . . ..
Townhouse. . . . . . . . . . . .
Planned Unit Developments
(attached) . . . . . . . . . . . . .
Total . . . . . . . . . . $ . . %]
[[Mortgage Loan] [Contracts] Purposes
Loan Purpose Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
Purchase . . . . . . . . . . .
Rate/Term Refinance. . $ . . %
Equity Refinance . . . .
Total . .$ . . %]
[The weighted average
Loan-to-Value Ratio at origination
of [Mortgage Loans] [Contracts]
made to finance the purchase of the
related Mortgaged Properties will have been approximately
_____%. The weighted average Loan-to-Value
Ratio at origination of equity refinance
[Mortgage
Loans] [Contracts] will have
been approximately _____%. The weighted average Loan-to-Value
Ratio at origination of rate and
term refinance [Mortgage Loans] [Contracts] will have been
approximately _____%.]
[Mortgage Loan] Documentation
Type of Program Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
Full Documentation . . . $ . . %
Limited
Documentation(1) . . .
No Documentation . .
Total . . . . . . . . . $ . . %]
(1) Includes self-employed Mortgagors.
Occupancy Types
Occupancy Number Principal Balance Percentage of
[Mortgage] [Contract]
Pool
Primary Residence. $ . . %
Second/Vacation.
Investment Property.
Total . . . . . . . $ . . %
[Specific information with respect to the [Mortgage Loans]
[Contracts] will be available to purchasers of the Certificates on
or before the time of issuance of such Certificates (the "Closing
Date"). If not included in the Prospectus Supplement, such
information will be included in the Form 8-K.]
Representations and Warranties
[Pursuant to the terms of the Pooling and Servicing Agreement,
the Company will assign the representations and warranties made by
the Mortgage Collateral Seller[s] to the Trustee for the benefit of
the Certificateholders. These representatives and warranties
include: [LIST OF SPECIFIC REPRESENTATIONS AND WARRANTIES].
[In addition, [the Company] [Residential Funding] will make
certain limited representations and warranties regarding the
[Mortgage Loans] [Contracts], as of the date of issuance of the
Certificates. [DISCLOSE DEVIATIONS FROM LIST OF SPECIFIC
REPRESENTATIONS AND WARRANTIES IN "THE TRUST FUNDS -
REPRESENTATIONS
WITH RESPECT TO MORTGAGE COLLATERAL"].
[To the extent that the related Mortgage Collateral Seller[s]
[does] [do] not repurchase a [Mortgage Loan][Contract] in the event
of a breach of its representations and warranties with respect to
such [Mortgage Loan][Contract], neither the Company nor Residential
Funding will be required to repurchase such [Mortgage
Loan][Contract] unless such breach also constitutes a breach of one
of the Company's or Residential Funding's representations and
warranties with respect to such [Mortgage Loan][Contract] and such
breach materially and adversely affects the interests of the
Certificateholders in any such [Mortgage Loan][Contract]. See "The
Trust Funds Repurchases of Mortgage Collateral" and " Limited Right
of Substitution" in the Prospectus. In addition, neither the
Company nor Residential Funding will be required to repurchase any
[Mortgage Loan][Contract] in the event of a breach of its
representations and warranties with respect to such [Mortgage
Loan][Contract] if the substance of any such breach also constitutes
fraud in the origination of such affected [Mortgage Loan][Contract].
A limited amount of losses on [Mortgage Loans][Contracts] as to
which there was fraud in the origination of such [Mortgage
Loans][Contracts] will be covered by the Subordination (as defined
herein) provided by the Class M Certificates and Class B
Certificates as described herein under "Description of the Offered
Certificates Allocation of Losses; Subordination."]
[The Program
General. Residential Funding commenced an Expanded Criteria
Loan Program (the "Program") primarily for the purchase of mortgage
loans that generally would not qualify for other first mortgage
purchase programs such as those run by Fannie Mae or Freddie Mac or
by Residential Funding in connection with securities issued by the
Company's affiliate, Residential Funding Mortgage Securities I, Inc.
For example, borrowers of Program Loans may be United States
citizens employed abroad, non-permanent resident aliens employed in
the United States and persons who are citizens and residents of a
country other than the United States, including foreign corporations
formed for the purpose of owning real estate (collectively,
"International Borrowers"). Program Loans include Mortgage Loans
secured by investment properties, Mortgage Loans secured by smaller
or larger parcels of land, Mortgage Loans with higher Loan-to-Value
Ratios than would be included in such other programs and Mortgage
Loans with Loan-to-Value Ratios over 80% that do not require primary
mortgage insurance. The inclusion of such Mortgage Loans may present
certain risks that are not present in such other programs.
[All][____%] of the Mortgage Loans are Program Loans originated
under the Program. The Program Loans were underwritten in
conformity with or in a manner generally consistent with the
standards described below. The Program is administered by
Residential Funding on behalf of the Company.
Qualifications of Program Sellers. The Mortgage Collateral
Sellers that participate in the Program (each, an "Program Seller")
have been selected by Residential Funding on the basis of criteria
set forth in Residential Funding's Seller Guide (as applicable to
the Program Loans, the "Program Seller Guide"). See "The Trust
Funds Mortgage Collateral Sellers" in the Prospectus.
Program Underwriting Standards. In accordance with the
Program Seller Guide, the Program Seller is required to review an
application designed to provide to the original lender pertinent
credit information concerning the mortgagor. As part of the
description of the mortgagor's financial condition, each mortgagor
is required to furnish information (which may have been supplied
solely in such application) with respect to its assets, liabilities,
income (except as described below), credit history and employment
history, and to furnish an authorization to apply for a credit
report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. The mortgagor
may also be required to authorize verifications of deposits at
financial institutions where the mortgagor had demand or savings
accounts. In the case of investment properties, income derived from
the mortgaged property may be considered for underwriting purposes.
With respect to mortgaged property consisting of a vacation or
second home, generally no income derived from the property is
considered for underwriting purposes. In the case of certain
borrowers with acceptable payment histories, no income will be
required to be stated (or verified) in connection with the loan
application.
Based on the data provided in the application and certain
verifications (if required), a determination is made by the original
lender that the mortgagor's monthly income (if required to be
stated) will be sufficient to enable the mortgagor to meet its
monthly obligations on the mortgage loan and other expenses related
to the property (such as property taxes, utility costs, standard
hazard insurance) and other fixed obligations other than housing
expenses. Generally, scheduled payments on a mortgage loan during
the first year of its term plus taxes and insurance and all
scheduled payments on obligations that extend beyond ten months
(including those mentioned above and other fixed obligations)
generally equal no more than specified percentages of the
prospective mortgagor's gross income. The originator may also
consider the amount of liquid assets available to the mortgagor
after origination.
Certain of the Mortgage Loans have been originated under
"reduced documentation" or "no stated income" programs which require
less documentation and verification than do traditional "full
documentation" programs. Generally, under a "reduced documentation"
program, no verification of a mortgagor's stated income is
undertaken by the originator. Under a "no stated income" program,
certain borrowers with acceptable payment histories will not be
required to provide any information regarding income and no other
investigation regarding the borrower's income will be undertaken.
The underwriting for such mortgage loans may be based primarily or
entirely on an appraisal of
the Mortgaged Property and the Loan-to-Value Ratio at origination.
The adequacy of the mortgaged property as security for
repayment of the related mortgage loan generally is determined by an
appraisal in accordance with appraisal procedure guidelines set
forth in the Program Seller Guide. Appraisers may be staff
appraisers employed by the originator. The appraisal procedure
guidelines generally require the appraiser or an agent on its behalf
to personally inspect the property and to verify whether the
property is in good condition and that construction, if new, has
been substantially completed. The appraiser is required to consider
a market data analysis of recent sales of comparable properties and,
when deemed applicable, an analysis based on income generated from
the property, or replacement cost analysis based on the current cost
of constructing or purchasing a similar property. In certain
instances, the Loan-to-Value Ratio is based on the appraised value
as indicated on a review appraisal conducted by the Mortgage
Collateral Seller or originator.
As used in this section, "Loan-to-Value Ratio" shall generally
mean the ratio, expressed as a
percentage, of (a) the principal amount of the Mortgage Loan at
origination, over (b) the lesser of the sales price or the appraised
value of the related Mortgaged Property at origination, or in the
case of a refinanced or modified Mortgage Loan, the lesser of the
appraised value determined at origination or at the time of the
refinancing or modification.
Prior to assigning the Mortgage Loans to the Depositor,
Residential Funding reviewed the underwriting documentation for
[each] Mortgage Loan[s] [purchased from Program Sellers] and
determines that [each] [the] Mortgage Loan[s] [was] [were]
originated generally in accordance with or in a manner generally
consistent with the underwriting standards set forth in the Program
Seller Guide.
Because of the program criteria and underwriting standards
described above, Program Loans may experience greater rates of
delinquency, foreclosure and loss than mortgage loans required to
satisfy more stringent underwriting standards.
[Underwriting Standards]
[DESCRIBE UNDERWRITING STANDARDS FOR [MORTGAGE LOANS] [CONTRACTS]
NOT PURCHASED THROUGH PROGRAM IF APPROPRIATE]
[Delinquency and Foreclosure Experience]
[INSERT MORTGAGE COLLATERAL SELLER'S PORTFOLIO DELINQUENCY AND
LOSS
EXPERIENCE IF APPROPRIATE.]
[[Mortgage Collateral Seller], which originated __% of the
Mortgage Loans, has sold the servicing rights to substantially all
of the mortgage loans that it has originated using the underwriting
standards described above to various servicers. Accordingly, the
delinquency and loss experience for those mortgage loans is not
available.]
DESCRIPTION OF THE OFFERED CERTIFICATES
General
[The Offered Certificates, together with the Accrual
Certificates and the Class B Certificates] will evidence the entire
beneficial ownership interest in the Trust Fund. The Trust Fund
will consist of (1) the [Mortgage Loans] [Contracts]; (2) such
assets as from time to time are identified as deposited in respect
of the [Mortgage Loans] [Contracts] in the Custodial Account and in
the Certificate Account and belonging to the Trust Fund; (3)
property acquired by foreclosure of such [Mortgage Loans]
[Contracts] [or by a deed in lieu of foreclosure]; and (4) any
applicable Primary Insurance Policies and all proceeds thereof
(collectively, the "Mortgage Collateral").
The Principal Only Certificates will be entitled to payments
based on the Discount Fraction of the Discount Mortgage Collateral.
"Discount Mortgage Collateral" is any [Mortgage Loan] [Contract]
with a Net Mortgage Rate less than [___]%. With respect to each
item of Discount Mortgage Collateral, the "Discount Fraction" is
equal to a fraction, expressed as a percentage, the numerator of
which is [___]% minus the Net Mortgage Rate for such Discount
Mortgage Collateral and the denominator of which is [___]%. The
Mortgage Collateral other than the Discount Mortgage Collateral are
referred to herein as the "Non-Discount Mortgage Collateral."
Available Distribution Amount
The "Available Distribution Amount" for any Distribution Date
is equal to (i) the aggregate amount of scheduled payments on the
[Mortgage Loans][Contracts] due on the related Due Date and received
on or prior to the related Determination Date, after deduction of
the related servicing fees and any subservicing fees (collectively,
the "Servicing Fees"), (ii) certain unscheduled payments, including
Mortgagor prepayments on the [Mortgage Loans][Contracts], Insurance
Proceeds, Liquidation Proceeds and proceeds from repurchases of and
substitutions for the [Mortgage Loans][Contracts] occurring during
the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable
therefrom to the [Master] Servicer[s] [and any Subservicer]. In
addition to the foregoing amounts, with respect to unscheduled
collections, not including Mortgagor prepayments, the [Master]
Servicer[s] may elect to treat such amounts as included in the
Available Distribution Amount for the Distribution Date in the month
of receipt, but is not obligated to do so. With respect to any
Distribution Date, (a) the Due Date is the first day of the month in
which such Distribution Date occurs and (b) the Determination Date
is the 20th day of the month in which such Distribution Date occurs
(or, if such day is not a business day, the next business day).
Interest Distributions
Holders of each class of Offered Certificates (other than
Principal Only Certificates) will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest
on such class on each Distribution Date, to the extent of the
Available Distribution Amount (as defined below) for such
Distribution Date, commencing on the first Distribution Date in the
case of all classes of Senior Certificates [other than the Accrual
Certificates and commencing on the Accretion Termination Date (as
defined below) in the case of the Accrual Certificates]. Holders of
the Class M Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest
on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date after distributions
of interest and principal to the Senior Certificates [and
reimbursements for certain Advances to the [Master] Servicer[s]].
With respect to any Distribution Date, "Accrued Certificate
Interest" will be equal to (a) in the case of each class of Offered
Certificates (other than the Principal Only Certificates and the
Stripped Interests Certificates), one month's interest accrued on
the Certificate Principal Balance of the Certificates of such class
at the Pass-Through Rate on such class and (b) in the case of the
Stripped Interests Certificates, one month's interest accrued on the
Notional Amount of
the Certificates of such class at the then-applicable Pass-Through Rate on
such class. In each case less
interest shortfalls, if any, for such Distribution Date not covered
by the Subordination, including in each case (i) any Prepayment
Interest Shortfall (as defined below) to the extent not covered by
the [Master] Servicer[s], as described below, (ii) the interest
portions of Realized Losses including Special Hazard Losses in
excess of the Special Hazard Amount ("Excess Special Hazard
Losses"), Fraud Losses in excess of the Fraud Amount ("Excess Fraud
Losses"), Bankruptcy Losses in excess of the Bankruptcy Amount
("Excess Bankruptcy Losses") and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and
certain other risks ("Extraordinary Losses") not covered by the
Subordination, (iii) the interest portion of any Advances that were
made with respect to delinquencies that were ultimately determined
to be Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses and (iv) any interest
shortfalls not covered by Subordination, including interest
shortfalls relating to the Relief Act or similar legislation or
regulations, all allocated among all the Certificates in proportion
to the respective amounts of Accrued Certificate Interest for such
Distribution Date on each such class. In the case the Class M
Certificates, Accrued Certificate Interest will be further reduced
by the allocation of the interest portion of certain losses thereto,
if any, as described below under " Allocation of Losses;
Subordination." Accrued Certificate Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day months. The
distributions of interest on any Distribution Date for all classes
of Certificates will reflect interest accrued, and receipts with
respect thereto, on the [Mortgage Loans][Contracts] for the
preceding calendar month, as may be reduced by any Prepayment
Interest Shortfall and other shortfalls in the collections of
interest as described below.
[The Accretion Termination Date for the Accrual Certificates
is the earlier to occur of (i) the Distribution Date on which the
Certificate Principal Balances of the Class A-1 and Class A-2 have
been reduced to zero and (ii) the Credit Support Depletion Date (as
defined herein). On each Distribution Date preceding the Accretion
Termination Date, an amount equal to the amount of Accrued
Certificate Interest on the Accrual Certificates for such date will
be added to the Certificate Principal Balance thereof, and such
amount will be distributed to the holders of the then outstanding
Senior Certificates (other than the Principal Only Certificates) in
reduction of the Certificate Principal Balances thereof, as
described herein. On each Distribution Date on or after the
Accretion Termination Date, the entire amount of Accrued Certificate
Interest on the Accrual Certificates for such date will be payable
to the holders of the Accrual Certificates, to the extent not
required to fully retire the remaining Senior Certificates on the
Accretion Termination Date; provided, however, that if the Accretion
Termination Date is the Credit Support Depletion Date, the entire
amount of Accrued Certificate Interest on the Accrual Certificates
for such Distribution Date will be payable to the holders of the
Accrual Certificates.]
The "Prepayment Interest Shortfall" for any Distribution Date
is equal to the aggregate shortfall, if any, in collections of
interest (adjusted to the related Net Mortgage Rates), resulting
from Mortgagor prepayments on the [Mortgage Loans] [Contracts]
during the preceding calendar month. Such shortfalls will result
because interest on prepayments in full is distributed only to the
date of prepayment, and because no interest is distributed on
prepayments in part, as such prepayments are applied to reduce the
outstanding principal balance of the related [Mortgage Loans]
[Contracts] as of the Due Date in the month of prepayment. [With
respect to any Distribution Date, any Prepayment Interest Shortfalls
resulting from prepayments in full for such Distribution Date will
be offset by the [Master] Servicer[s], but only to the extent such
Prepayment Interest Shortfalls do not exceed an amount equal to
[one-twelfth of 0.___% of the Stated Principal Balance of the
[Mortgage Loans][Contracts] immediately preceding such Distribution
Date]. Prepayment Interest Shortfalls will be offset by the Master
Servicer first, by a reduction in the Servicing Fee and second, by
a reduction in other servicing compensation of the [Master]
Servicer[s].
If on any Distribution Date the Available Distribution Amount
is less than Accrued Certificate Interest on the Senior Certificates
for such Distribution Date, the shortfall will be allocated among
the holders of all classes of Senior Certificates (other than the
Principal Only Certificates) in proportion to the respective amounts
of Accrued Certificate Interest for such Distribution Date on each
such class. In addition, the amount of any interest shortfalls that
are covered by Subordination (specifically, interest shortfalls not
described in clauses (i) through (iv) in the third preceding
paragraph) will be unpaid Accrued Certificate Interest and will be
distributable to holders of the Certificates of such classes
entitled to such amounts on subsequent Distribution Dates, to the
extent of available funds after interest distributions as required
herein. Such shortfalls could occur, for example, if delinquencies
on the [Mortgage Loans][Contracts] were exceptionally high and were
concentrated in a particular month and Advances by the [Master]
Servicer[s] did not cover the shortfall. Any such amounts so
carried forward will not bear interest.
[Prior to the Accretion Termination Date, interest shortfalls
to be allocated to the Accrual Certificates will be so allocated by
reducing the amount that is added to the Certificate Principal
Balance of the Accrual Certificates in respect of Accrued
Certificate Interest on such Distribution Date. This reduction will
correspondingly reduce the amount distributed in respect of
principal on the applicable Distribution Date to the holders of the
Senior Certificates (other than the Principal Only Certificates) and
will cause the Certificate Principal Balances of the outstanding
Senior Certificates (other than the Principal Only Certificates) to
be reduced to zero later than would otherwise be the case.]
The Pass-Through Rates on each class of Offered Certificates,
other than the Principal Only Certificates (which are not entitled
to distributions of interest) and the Stripped Interests
Certificates, are fixed and are set forth on the cover hereof. The
Pass-Through Rate on the Stripped Interests Certificates on each
Distribution Date will equal the weighted average, as of the Due
Date in the month preceding the month in which such Distribution
Date occurs, of the Pool Strip Rates on each [Mortgage
Loan][Contract] with a Net Mortgage Rate in excess of [___]% per
annum. The "Pool Strip Rate" on each [Mortgage Loan][Contract] is
equal to the Net Mortgage Rate thereon minus [___]%. The "Net
Mortgage Rate" on each [Mortgage Loan][Contract] is equal to the
Mortgage Rate thereon minus the Servicing Fee Rate. The Pool Strip
Rates on the [Mortgage Loans][Contracts] range from [___]% to [___]%
per annum. The initial Pass-Through Rate on the Stripped Interests
Certificates is approximately [___]% per annum.
[The Pass-Through Rate on each class of the Offered
Certificates for any Distribution Date will equal the weighted
average of the Net Mortgage Rates on the outstanding [Mortgage
Loans] [Contracts] for the month preceding such Distribution Date,
determined as of the close of business on the Due Date occurring in
such month (or, with respect to the first Distribution Date, as of
the Cut-off Date). The Net Mortgage Rate with respect to each
[Mortgage Loan] [Contract] as of the Cut-off Date will be set forth
in the [Mortgage Loan] [Contract] Schedule attached to the Pooling
and Servicing Agreement. As of the Cut-off Date, the weighted
average Net Mortgage Rate will be [______]% per annum. Accordingly,
the initial Pass-Through Rate on the Offered Certificates will be
[______]% per annum.]
[On each Adjustment Date applicable to each [Mortgage Loan]
[Contract], the Net Mortgage Rate on such [Mortgage Loan] [Contract]
will be adjusted to a rate equal to the sum of the Index (rounded to
the nearest multiple of [_____]%) and a fixed percentage per annum
for each [Mortgage Loan] [Contract] as set forth in the [Mortgage
Loan] [Contract] Schedule attached to the Pooling and Servicing
Agreement; provided that the Net Mortgage Rate on any [Mortgage
Loan] [Contract] on any Adjustment Date may not increase or decrease
by more than [____]% (the "Periodic Rate Cap"), except with respect
to one [Mortgage Loan] [Contract], constituting [___]% of the
[Mortgage Loans] [Contracts], on the first Adjustment Date thereof
the Net Mortgage Rate thereon may not adjust to a rate lower than
the related Gross Margin. The Net Mortgage Rate on any [Mortgage
Loan] [Contract] may not exceed the Maximum Net Mortgage Rate or
decrease below the Minimum Net Mortgage Rate applicable to such
[Mortgage Loan] [Contract] as specified in the Pooling and Servicing
Agreement. The Gross Margins for the [Mortgage Loans] [Contracts]
will be at least [_____]% per annum but not more than [_____]% per
annum as of the Cut-off Date, with an initial weighted average Gross
Margin of [______]% per annum. The Net Mortgage Rate on each
Converted [Mortgage Loan] [Contract] remaining in the [Mortgage]
[Contract] Pool will be equal to the Mortgage Rate thereon less
[_____]% per annum.]
As described herein, the Accrued Certificate Interest
allocable to each class of Offered Certificates is based on the
Certificate Principal Balance thereof or, in the case of the
Stripped Interests Certificates, on the Notional Amount. The
Certificate Principal Balance of any Offered Certificate, as of any
date of determination is equal to the initial Certificate Principal
Balance thereof, reduced by the aggregate of (a) all amounts
allocable to principal previously distributed with respect to such
Certificate and (b) any reductions in the Certificate Principal
Balance thereof deemed to have occurred in connection with
allocations of Realized Losses in the manner described herein under
" Allocation of Losses; Subordination"; provided that, after the
Certificate Principal Balance of the Class B Certificates has been
reduced to zero, the Certificate Principal Balance of the Class M
Certificates shall equal the excess, if any, of (a) the then
aggregate Stated Principal Balance (as defined herein) of all of the
[Mortgage Loans][Contracts] over (b) the then aggregate Certificate
Principal Balance of all classes of Senior Certificates then
outstanding. The "Notional Amount" of the Stripped Interests
Certificates as of any date of determination is equal to the
aggregate Certificate Principal Balance of the Certificates of all
classes as of such date. Reference to the Notional Amount of a
Stripped Interests Certificate is solely for convenience in certain
calculations and does not represent the right to receive any
distributions allocable to principal.
Principal Distributions on the Senior Certificates
Except as otherwise provided below, holders of the Senior
Certificates (other than the Stripped Interests, which are not
entitled to receive any principal distributions, and the Principal
Only Certificates) will be entitled to receive on each Distribution
Date, to the extent of the portion of the Available Distribution
Amount remaining after the Senior Interest Distribution Amount is
distributed to such holders and the Class A-4 Principal Distribution
Amount (as described below) is so distributed, a distribution
allocable to principal in the following amount:
(i) the product of (a) the then-applicable Senior
Percentage and (b) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly
payments on the [Mortgage Loans] [Contracts] (other than
the related Discount Fraction of the principal portion of
such payments, with respect to each item of Discount
Mortgage Collateral due on the related Due Date, whether
or not received on or prior to the related Determination
Date, less the principal portion of Debt Service
Reductions (as defined below) which, together with other
Bankruptcy Losses, are in excess of the Bankruptcy
Amount;
(2) the principal portion of all proceeds of the
repurchase of a [Mortgage Loan] [Contract] (or, in the
case of a substitution, certain amounts representing a
principal adjustment) (other than the related Discount
Fraction of the principal portion of such proceeds, with
respect to each item of Discount Mortgage Collateral) as
required by the Pooling and Servicing Agreement during
the preceding calendar month;
(3) the principal portion of all other unscheduled
collections received during the preceding calendar month
(other than full and partial Principal Prepayments made
by the respective Mortgagors and any amounts received in
connection with a Final Disposition (as defined below) of
a [Mortgage Loan] [Contract] described in clause (ii)
below), to the extent applied as recoveries of principal
(other than the related Discount Fraction of the
principal portion of such proceeds, with respect to each
item of Discount Mortgage Collateral);
(ii) in connection with the Final Disposition of a
[Mortgage Loan] [Contract] (a) that occurred in the preceding
calendar month and (b) that did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the lesser
of (1) the then-applicable Senior Percentage of the Stated
Principal Balance of such [Mortgage Loan] [Contract] (other
than the related Discount Fraction of the principal portion of
such proceeds, with respect to each item of Discount Mortgage
Collateral) and (2) the then-applicable Senior Accelerated
Distribution Percentage (as defined below) of the related
collections, including Insurance Proceeds and Liquidation
Proceeds, to the extent applied as recoveries of principal
(other than the related Discount Fraction of the principal
portion of such proceeds, with respect to each item of
Discount Mortgage Collateral);
(iii) the then-applicable Senior Accelerated
Distribution Percentage of the aggregate of all full and
partial Principal Prepayments made by the respective
Mortgagors (other than the related Discount Fraction of the
principal portion of such proceeds, with respect to each item
of Discount Mortgage Collateral) during the preceding calendar
month;
(iv) any Excess Subordinate Principal Amount (as defined
below) for such Distribution Date;
(v) if such Distribution Date is on or prior to the
Accretion Termination Date, the Accrued Certificate Interest
on the Accrual Certificates for such Distribution Date, to the
extent added to the Certificate Principal Balance thereof; and
(vi) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i) through
(iii) and (v) above) that remain undistributed to the extent
that any such amounts are not attributable to Realized Losses
which are allocated to the Subordinate Certificates.
With respect to any Distribution Date, "Senior Principal
Distribution Amount" is equal to the lesser of (a) the Available
Distribution Amount remaining after the Senior Interest Distribution
Amount and the Class A-4 Principal Distribution Amount are
distributed and (b) the sum of the amounts described in clauses (i)
through (vi) of the immediately preceding paragraph. With respect
to any Distribution Date on which the Certificate Principal Balance
of the most subordinate class or classes of Certificates then
outstanding is to be reduced to zero and on which Realized Losses
are to be allocated to such class or classes, the "Excess
Subordinate Principal Amount" is equal to the amount, if any, by
which (1) the amount that would otherwise be distributable in
respect of principal on such class or classes of Certificates on
such Distribution Date is greater than (2) the excess, if any, of
the aggregate of the Certificate Principal Balance of such class or
classes of Certificates immediately prior to such Distribution Date
over the aggregate amount of Realized Losses to be allocated to such
class or classes of Certificates on such Distribution Date.
Holders of the Principal Only Certificates will be entitled to
receive on each Distribution Date, to the extent of the portion of
the Available Distribution Amount remaining after the Senior
Interest Distribution Amount is distributed, a distribution
allocable to principal equal to the Class A-4 Principal Distribution
Amount. The Class A-4 Principal Distribution Amount is equal to the
aggregate of:
(i) the related Discount Fraction of the principal portion
of the scheduled monthly payment on each item of Discount
Mortgage Collateral due on the related Due Date, whether or
not received on or prior to the related Determination Date,
less the Discount Fraction of the principal portion of any
related Debt Service Reductions (as defined below) which
together with other Bankruptcy Losses are in excess of the
Bankruptcy Amount;
(ii) the related Discount Fraction of the principal portion
of all unscheduled collections on each item of Discount
Mortgage Collateral received during the preceding calendar
month (other than amounts received in connection with a Final
Disposition of an item of Discount Mortgage Collateral
described in clause (iii) below), including full and partial
Principal Prepayments, repurchases of Discount Mortgage
Collateral (or, in the case of a substitution, certain amounts
representing a principal adjustment) as required by the
Pooling and Servicing Agreement, Liquidation Proceeds and
Insurance Proceeds, to the extent applied as recoveries of
principal;
(iii) in connection with the Final Disposition of an item of
Discount Mortgage Collateral that did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the
applicable Discount Fraction of the Stated Principal Balance
of such Discount Mortgage Collateral immediately prior to such
Distribution Date net of the principal portion of any related
Realized Loss allocated to the Principal Only Certificates on
such Distribution Date; and
(iv) any amounts, allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i) through
(iii) above), that remain undistributed.
A "Final Disposition" of a defaulted [Mortgage Loan]
[Contract] is deemed to have occurred upon a determination by the
[Master] Servicer[s] that it has received all Insurance Proceeds,
Liquidation Proceeds and other payments or cash recoveries which the
[Master] Servicer[s] reasonably and in good faith expects to be
finally recoverable with respect to such [Mortgage Loan] [Contract].
The "Stated Principal Balance" of a [Mortgage Loan] [Contract]
as of any date of determination is equal to the principal balance
thereof as of the Cut-off Date, after application of all scheduled
principal payments due on or before the Cut-off Date, whether or not
received, reduced by all amounts allocable to principal that have
been distributed to Certificateholders with respect to such
[Mortgage Loan] [Contract] on or before such date, and as further
reduced to the extent that any Realized Loss thereon has been
allocated to one or more classes of Certificates on or before the
date of determination.
The "Senior Percentage," which initially will equal
approximately [____]% and will in no event exceed 100%, will be
adjusted for each Distribution Date to be the percentage equal to
the aggregate Certificate Principal Balance of the Senior
Certificates (other than the Principal Only Certificates)
immediately prior to such Distribution Date divided by the aggregate
Stated Principal Balance of the aggregate amount of all the
[Mortgage Loans] [Contracts] (other than the Discount Fraction of
the Discount Mortgage Collateral) immediately prior to such
Distribution Date. The "Subordinate Percentage" as of any date of
determination is equal to 100% minus the Senior Percentage as of
such date. The initial Senior Percentage is less than the initial
percentage interest in the Trust Fund evidenced by the Senior
Certificates (including the Principal Only Certificates) in the
aggregate, because the Senior Percentage is calculated without
regard to either the Certificate Principal Balance of the Principal
Only Certificates or the Discount Fraction of the Stated Principal
Balance of each item of Discount Mortgage Collateral.
The Senior Accelerated Distribution Percentage for any
Distribution Date occurring prior to [__________ __, ____]
Distribution Date will equal 100%. Thereafter, the Senior
Accelerated Distribution Percentage will be subject to gradual
reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in
respect of principal will have the effect of accelerating the
amortization of the Senior Certificates while, in the absence of
Realized Losses allocated to the Subordinate Certificates,
increasing the proportionate interest in the Trust Fund evidenced by
the Subordinate Certificates. Increasing the proportionate interest
of the Subordinate Certificates relative to that of the Senior
Certificates is intended to preserve the availability of the
Subordination provided by the Subordinate Certificates.
The "Senior Accelerated Distribution Percentage" for any
Distribution Date occurring after the [__________ __, ____]
Distribution Date will be as follows: for any Distribution Date
falling in the [__________] year after the Delivery Date, the Senior
Percentage for such Distribution Date plus [__]% of the Subordinate
Percentage (as defined below) for such Distribution Date; for any
Distribution Date falling in the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; for
any Distribution Date falling in the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; for
any Distribution Date falling in the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date plus
__% of the Subordinate Percentage for such Distribution Date; and
for any Distribution Date after the [__________] year after the
Delivery Date, the Senior Percentage for such Distribution Date
(unless on any such Distribution Date the Senior Percentage exceeds
the initial Senior Percentage, in which case the Senior Accelerated
Distribution Percentage for such Distribution Date will once again
equal 100%). Any scheduled reduction to the Senior Accelerated
Distribution Percentage described above shall not be made as of any
Distribution Date unless either (a)(i) the outstanding principal
balance of [Mortgage Loans][Contracts] delinquent [____] days or
more averaged over the last [____] months, as a percentage of the
aggregate outstanding principal balance of all [Mortgage
Loans][Contracts] averaged over the last [____] months, does not
exceed [____]% and (ii) Realized Losses on the [Mortgage
Loans][Contracts] to date for such Distribution Date if occurring
during the [____], [____], [____], [____] or [____] year (or any
year thereafter) after the Delivery Date are less than [___]%,
[___]%, [___]%, [___]% or [___]%, respectively, of the sum of the
initial Certificate Principal Balances of the Subordinate
Certificates or (b)(i) the outstanding principal balance of
[Mortgage Loans][Contracts] delinquent [___] days or more averaged
over the last [___] months, as a percentage of the aggregate
outstanding principal balance of all [Mortgage Loans][Contracts]
averaged over the last [___] months, does not exceed [___]% and (ii)
Realized Losses on the [Mortgage Loans][Contracts] to date are less
than [___]% of the sum of the initial Certificate Principal Balances
of the Subordinate Certificates. Notwithstanding the foregoing, upon
reduction of the Certificate Principal Balances of the Senior
Certificates (other than the Principal Only Certificates) to zero,
the Senior Accelerated Distribution Percentage will equal 0%.
Distributions of principal on the Senior Certificates (other
than the Stripped Interests Certificates) on each Distribution Date
will be made (after distribution of the Senior Interest Distribution
Amount as described herein under " Interest Distributions"), as
follows:
(i) Prior to the occurrence of the Credit Support
Depletion Date (as defined below):
(a) the Class A-4 Principal Distribution Amount
shall be distributed to the Principal Only Certificates,
in reduction of the Certificate Principal Balance
thereof, until such Certificate Principal Balance is
reduced to zero;
(b) the Senior Principal Distribution Amount
shall be distributed to the Residual Certificates, in
reduction of the Certificate Principal Balance thereof,
until such Certificate Principal Balance is reduced to
zero; and
(c) the balance of the Senior Principal
Distribution Amount remaining after the distributions
described in clauses (i) and (ii) above shall be
distributed in reduction of the Certificate Principal
Balances of the classes set forth below as follows:
(1) first, [____.___]% and [___.______]%
of such amount, concurrently, to the Class A-1
Certificates and Class A-2 Certificates,
respectively, until the Certificate Principal
Balances thereof are reduced to zero; and
(2) second, to the Class A-3 Certificates
until the Certificate Principal Balance thereof
is reduced to zero.
(ii) On or after the occurrence of the Credit Support
Depletion Date, all priorities relating to distributions as
described above in respect of principal among the various
classes of Senior Certificates (other than the Principal Only
Certificates) will be disregarded, an amount equal to the
Discount Fraction of the principal portion of scheduled
payments and unscheduled collections received or advanced in
respect of Discount Mortgage Collateral will be distributed to
the Principal Only Certificates, and the Senior Principal
Distribution Amount will be distributed to all classes of
Senior Certificates (other than the Principal Only
Certificates) pro rata in accordance with their respective
outstanding Certificate Principal Balances and the Senior
Interest Distribution Amount will be distributed as described
under " Interest Distributions."
(iii) If the Certificate Principal Balances of the
Senior Certificates (other than the Principal Only
Certificates) have been reduced to zero prior to the
occurrence of the Credit Support Depletion Date, the Senior
Certificates (other than the Principal Only Certificates) will
be entitled to no further distributions of principal thereon
and the Available Distribution Amount will be paid solely to
the holders of the Principal Only Certificates, the Stripped
Interests Certificates and the Subordinate Certificates, in
each case as described herein.
The "Credit Support Depletion Date" is the first Distribution
Date on which the Senior Percentage equals 100%.
[The following table sets forth for each Distribution Date the
applicable Planned Principal Balances and Targeted Principal
Balances for each class of PAC and TAC Certificates and for the PAC
and TAC Principal Components.
There is no assurance that sufficient funds will be available
on any Distribution Date to reduce the Certificate Principal
Balances of the PAC and TAC Certificates and the amounts of the PAC
and TAC Principal Components to their corresponding Planned
Principal Balances or Targeted Principal Balances, as applicable,
for such Distribution Date, or that distributions on such PAC and
TAC Certificates and PAC and TAC Principal Components will not be
made in excess of such amounts for such Distribution Date.
<PAGE>
Planned Principal Balances and Targeted Principal Balances
Planned Principal Balances and Targeted Principal Balances
Planned Principal Balances Targeted Principal Balances
Distribution Date
Class [__] Class [__] Class [___] Class [ ]
TAC
PAC Principal Principal
Component Component
Initial Balance. . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 199_] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__] . .
[___ 25, 20__ and thereafter]. . . . . . . . . . . . . . . . . . . . .
<PAGE>
The Planned Principal Balances and Targeted Principal Balances
for each Distribution Date set forth in the table above were
calculated based on certain assumptions, including the assumption
that prepayments on the [Mortgage Loans] [Contracts] occur each
month at a constant level between approximately [__]% SPA and
approximately [___]% SPA, in the case of the Planned Principal
Balances and that prepayments on the [Mortgage Loans] [Contracts]
occur at a constant level of approximately [___]% SPA in the case of
the Targeted Principal Balances. The actual characteristics and
performance of the [Mortgage Loans] [Contracts] will differ from the
assumptions used in determining the Planned Principal Balances and
Targeted Principal Balances. The Planned Principal Balances and
Targeted Principal Balances set forth in the table above are final
and binding regardless of any error or alleged error in making such
calculations.
There can be no assurance that funds available for
distributions of principal on the PAC and TAC Certificates and the
PAC and TAC Principal Components will be sufficient to cover, or
will not be in excess of, the related PAC Principal Amount and TAC
Principal Amount for any Distribution Date. Distributions in
reduction of the Certificate Principal Balance of any class of PAC
or TAC Certificates or in reduction of the amount of the PAC or TAC
Principal Components may commence significantly earlier (other than
as to any class or Component for which the above table reflects a
distribution on the first Distribution Date) or later than the first
Distribution Date for such class or Component shown in the above
table. Distributions on any of the PAC and TAC Certificates and the
PAC and TAC Principal Components may end significantly earlier or
later than the last Distribution Date for such class or Component
shown in the above table. See "Prepayment and Yield Considerations"
herein for a further discussion of the assumptions used to produce
the above table and the effect of prepayments on the [Mortgage
Loans] [Contracts] on the rate of payments of principal and on the
weighted average lives of such Certificates.]
The [Master] Servicer[s] may elect to treat Insurance
Proceeds, Liquidation Proceeds and other unscheduled collections
(not including prepayments by the Mortgagors) received in any
calendar month as included in the Available Distribution Amount and
the Senior Principal Distribution Amount for the Distribution Date
in the month of receipt, but is not obligated to do so. If the
[Master] Servicer[s] so elects, such amounts will be deemed to have
been received (and any related Realized Loss shall be deemed to have
occurred) on the last day of the month prior to the receipt thereof.
Principal Distributions on the Class M Certificates
Holders of each class of the Class M Certificates will be
entitled to receive on each Distribution Date, to the extent of the
portion of the Available Distribution Amount remaining after (A) the
sum of the Senior Interest Distribution Amount and the Senior
Principal Distribution Amount is distributed to holders of the
Senior Certificates, (B) reimbursement is made to the [Master]
Servicer[s] for certain Advances remaining unreimbursed following
the final liquidation of the related [Mortgage Loan] [Contract] to
the extent described below under " Advances," (C) the aggregate
amount of Accrued Certificate Interest and principal required to be
distributed to holders of Class M Certificates and (D) the aggregate
amount of Accrued Certificate Interest required to be distributed on
such class of Class M Certificates on such Distribution Date is
distributed to such Class M Certificates, a distribution allocable
to principal in the following amounts:
(i) the product of (a) the then-applicable Class M
Percentage and (b) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly
payments on the [Mortgage Loans] [Contracts] due on the
related Due Date, whether or not received on or prior to
the related Determination Date, less the principal
portion of Debt Service Reductions together with other
Excess Bankruptcy Losses;
(2) the principal portion of all proceeds of the
repurchase of a [Mortgage Loan] [Contract] (or, in the
case of a substitution, certain amounts representing a
principal adjustment) as required by the Pooling and
Servicing Agreement during the preceding calendar month;
and
(3) the principal portion of all other unscheduled
collections received during the preceding calendar month
(other than full and partial Principal Prepayments made
by the respective Mortgagors and any amounts received in
connection with a Final Disposition of a [Mortgage Loan]
[Contract] described in clause (ii) below), to the
extent applied as recoveries of principal;
(ii) such Class M Certificate's pro rata share, based
on the Certificate Principal Balance of the Class M
Certificate relative to the aggregate Certificate Principal
Balance of the Class M and Class B Certificates then
outstanding, of all amounts received in connection with the
Final Disposition of a [Mortgage Loan][Contracts] (other than
the related Discount Fraction of such amounts with respect to
any item of Discount Mortgage Collateral) (1) that occurred
during the preceding calendar month and (2) that did not
result in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, to
the extent applied as recoveries of principal and to the
extent not otherwise payable to the Senior Certificates;
(iii) the portion of full and partial Principal
Prepayments (other than the Discount Fraction of such
Principal Prepayments with respect to any item of Discount
Mortgage Collateral) made by the respective Mortgagors during
the preceding calendar month allocable to the Class M
Certificates, as described below;
(iv) an amount equal to the Excess Subordinate
Principal Amount; and
(v) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i), (ii)
and (iii) above) that remain undistributed to the extent that
any such amounts are not attributable to Realized Losses which
were allocated to the Class B Certificates.
As to the Class M Certificates, on any Distribution Date, any
Accrued Certificate Interest thereon remaining unpaid from any
previous Distribution Date will be distributable to the extent of
available funds. Notwithstanding the foregoing, if the Certificate
Principal Balances of the Class B Certificates have been reduced to
zero, on any Distribution Date, with respect to the Class M
Certificates outstanding on such Distribution Date, Accrued
Certificate Interest thereon remaining unpaid from any previous
Distribution Date (except in the limited circumstances provided in
the Pooling and Servicing Agreement) will not be distributable.
As to the Class M Certificates, on any Distribution Date, any
Accrued Certificate Interest thereon remaining unpaid from any
previous Distribution Date will be distributable to the extent of
available funds. Notwithstanding the foregoing, if the Certificate
Principal Balances of the Class B Certificates have been reduced to
zero, on any Distribution Date, with respect to the Class M
Certificates outstanding on such Distribution Date, Accrued
Certificate Interest thereon remaining unpaid from any previous
Distribution Date (except as in the limited circumstances provided
in the Pooling and Servicing Agreement) will not be distributable.
From the Distribution Date occurring in [__________ ____] (or
if the Certificate Principal Balances of the Senior Certificates
(other than the Principal Only Certificates) have been reduced to
zero prior to such Distribution Date, the Distribution Date on which
such reduction occurred) to, but not including the later to occur of
the Distribution Date occurring in [__________ ____] and the
Distribution Date on which the Class B Percentage first equals or
exceeds [____]% (approximately twice the sum of the initial Class B
Percentages) before giving effect to distributions on such
Distribution Date, the Class M Certificates (if outstanding) will be
entitled to receive 100% of any Principal Prepayments not otherwise
distributable to the Senior Certificates. Thereafter, all Principal
Prepayments not otherwise distributable to the Senior Certificates
will be allocated to the Class M Certificates and Class B
Certificates for which certain loss levels established for such
Subordinate Certificates in the Pooling and Servicing Agreement have
not been exceeded. The related loss level on any Distribution Date
would be satisfied as to the Class B Certificates, only if the sum
of the current percentage interests in the Trust Fund evidenced by
such class and each class, if any, subordinate thereto were at least
equal to the sum of the initial percentage interests evidenced by
such class and each class, if any, subordinate thereto.
As stated above under " Principal Distributions on the Senior
Certificates," the Senior Accelerated Distribution Percentage will
be 100% during the first [___] years after the Delivery Date (unless
the Certificate Principal Balances of the Senior Certificates (other
than the Principal Only Certificates) are reduced to zero before the
end of such period), and will thereafter equal 100% whenever the
Senior Percentage exceeds the initial Senior Percentage.
Furthermore, as set forth herein, the Senior Accelerated
Distribution Percentage will exceed the Senior Percentage during the
[___] through [___] years following the Delivery Date, and scheduled
reductions to the Senior Accelerated Distribution Percentage are
subject to postponement based on the loss and delinquency experience
of the [Mortgage Loans] [Contracts]. Accordingly, the Class M
Certificates will not be entitled to any prepayments for at least
the first [___] years after the Delivery Date (unless the
Certificate Principal Balances of the Senior Certificates (other
than the Principal Only Certificates) are reduced to zero before the
end of such period), and may receive no prepayments or a
disproportionately large or small portion of prepayments (relative
to the Class M Percentage) during certain periods thereafter. See
" Principal Distributions on the Senior Certificates" herein.
Allocation of Losses; Subordination
The Subordination provided to the Senior Certificates by the
Class B Certificates and Class M Certificates and the Subordination
provided to the Class M Certificates by the Class B Certificates
will cover Realized Losses on the [Mortgage Loans] [Contracts] that
are Defaulted [Mortgage] [Contract] Losses, Fraud Losses, Bankruptcy
Losses (each as defined in the Prospectus) and Special Hazard Losses
(as defined herein), to the extent described herein. Any Realized
Losses which do not constitute Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses will
be allocated first, to the Class B Certificates; second, to the
Class M Certificates, in each case until the Certificate Principal
Balance of the Class M Certificates have been reduced to zero; and
third, if any such Realized Losses are on any item of Discount
Mortgage Collateral, to the Principal Only Certificates in an amount
equal to the related Discount Fraction of the principal portion of
such Realized Losses, and the remainder of such Realized Losses and
the entire amount of such Realized Losses on Non-Discount Mortgage
Collateral will be allocated to the remaining classes of Senior
Certificates on a pro rata basis. Any allocation of a Realized Loss
(other than a Debt Service Reduction) to a Certificate will be made
by reducing the Certificate Principal Balance thereof, in the case
of the principal portion of such Realized Loss, and the Accrued
Certificate Interest thereon, in the case of the interest portion of
such Realized Loss, by the amount so allocated as of the
Distribution Date occurring in the month following the calendar
month in which such Realized Loss was incurred. In addition, any
such allocation of a Realized Loss to a Class M Certificate may also
be made by operation of the payment priority to the Senior
Certificates set forth under " Principal Distributions on the Senior
Certificates" and the Class M Certificates. As used herein, "Debt
Service Reduction" means a reduction in the amount of the monthly
payment due to certain bankruptcy proceedings, but does not include
any permanent forgiveness of principal. As used herein,
"Subordination" refers to the provisions discussed above for the
sequential allocation of Realized Losses among the various classes,
as well as all provisions effecting such allocations including the
priorities for distribution of cash flows in the amounts described
herein.
Allocations of the principal portion of Debt Service
Reductions to the Class M Certificates and the Class B Certificates
will result from the priority of distributions of the Available
Distribution Amount as described herein under " Principal
Distributions on the Senior Certificates" and " Principal
Distributions on the Class M Certificates," which distributions
shall be made first to the Senior Certificates and then to the Class
M Certificates. An allocation of the interest portion of a Realized
Loss as well as the principal portion of Debt Service Reductions
will not reduce the level of Subordination, as such term is defined
herein, until an amount in respect thereof has been actually
disbursed to the Senior Certificateholders or the Class M
Certificateholders, as applicable. The holders of the Offered
Certificates will not be entitled to any additional payments with
respect to Realized Losses from amounts otherwise distributable on
any classes of Certificates subordinate thereto (except in limited
circumstances in respect of any Excess Subordinate Principal Amount
and, in the case of the Principal Only Certificates, because an
amount equal to the Discount Fraction of the Stated Principal
Balance of an item of Discount Mortgage Collateral will be paid to
the Principal Only Certificates as described in clause (3) of the
definition of "Class A-4 Principal Distribution Amount").
Accordingly, the Subordination provided to the Senior Certificates
(other than the Principal Only Certificates) and to the Class M
Certificates by the Class B Certificates with respect to Realized
Losses allocated on any Distribution Date will be effected primarily
by increasing the Senior Percentage or the Class M Percentage of
future distributions of principal of the remaining [Mortgage Loans]
[Contracts]. Because the Discount Fraction of the Discount Mortgage
Collateral will not change over time, the protection from losses
provided to the Principal Only Certificates by the Subordinate
Certificates is limited to the prior right of the Principal Only
Certificates to receive distributions in respect of principal as
described herein under " Principal Distributions on the Senior
Certificates". Furthermore, principal losses on the [Mortgage
Loans] [Contracts] that are not covered by Subordination will be
allocated to the Principal Only Certificates only to the extent they
occur on any item of Discount Mortgage Collateral and only to the
extent of the related Discount Fraction of such losses. Such
allocation of principal losses on the Discount Mortgage Collateral
may result in such losses being allocated in an amount that is
greater or less than would have been the case had such losses been
allocated in proportion to the Certificate Principal Balance of the
Principal Only Certificates. Thus, the Senior Certificates (other
than the Principal Only Certificates) will bear the entire amount of
losses that are not covered by Subordination other than the amount
allocable to the Principal Only Certificates, which losses will be
allocated among all classes of Senior Certificates other than the
Principal Only Certificates on a pro rata basis in proportion to
their respective Certificate Principal Balances.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses, Extraordinary Losses or other losses of a type
not covered by the Subordination on Non-Discount Mortgage Collateral
will be allocated on a pro rata basis among the Senior Certificates
(other than the Principal Only Certificates), Class M Certificates
and Class B Certificates (any such Realized Losses so allocated to
the Senior Certificates (other than the Principal Only Certificates)
or Class M Certificates will be allocated without priority among the
various classes of Senior Certificates (other than the Principal
Only Certificates) or Class M Certificates). The principal portion
of such losses on Discount Mortgage Collateral will be allocated to
the Principal Only Certificates in an amount equal to the related
Discount Fraction thereof, and the remainder of such losses on
Discount Mortgage Collateral will be allocated among the remaining
Certificates on a pro rata basis. An allocation of a Realized Loss
on a "pro rata basis" among two or more classes of Certificates
means an allocation to each such class of Certificates on the basis
of its then outstanding Certificate Principal Balance prior to
giving effect to distributions to be made on such Distribution Date
in the case of an allocation of the principal portion of a Realized
Loss or based on the Accrued Certificate Interest thereon in the
case of an allocation of the interest portion of a Realized Loss.
With respect to any defaulted [Mortgage Loan] [Contract] that
is finally liquidated, through foreclosure sale, disposition of the
related Mortgaged Property if acquired on behalf of the
Certificateholders by deed in lieu of foreclosure, or otherwise, the
amount of loss realized, if any, will equal the portion of the
Stated Principal Balance remaining, if any, plus interest thereon
through the last day of the month in which such [Mortgage Loan]
[Contract] was finally liquidated, after application of all amounts
recovered (net of amounts reimbursable to the [Master] Servicer[s]
[or the Subservicer] for Advances and expenses, including attorneys'
fees) towards interest and principal owing on the [Mortgage Loan]
[Contract]. Such amount of loss realized and any Special Hazard
Losses, Fraud Losses and Bankruptcy Losses are referred to herein as
"Realized Losses."
In order to maximize the likelihood of distribution in full of
the Senior Interest Distribution Amount, the Class A-4 Principal
Distribution Amount and the Senior Principal Distribution Amount, on
each Distribution Date, holders of Senior Certificates have a right
to distributions of the Available Distribution Amount that is prior
to the rights of the holders of the Subordinate Certificates, to the
extent necessary to satisfy the Senior Interest Distribution Amount,
the Class A-4 Principal Amount and the Senior Principal Distribution
Amount. Similarly, holders of the Class M Certificates have a right
to distributions of the Available Distribution Amount prior to the
rights of holders of the Class B Certificates.
The application of the Senior Accelerated Distribution
Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the
amortization of the Senior Certificates (other than the Principal
Only Certificates) relative to the actual amortization of the
[Mortgage Loans] [Contracts]. The Principal Only Certificates will
not receive more than the Discount Fraction of any unscheduled
payment relating to any item of Discount Mortgage Collateral. To
the extent that the Senior Certificates (other than the Principal
Only Certificates) are amortized faster than the [Mortgage Loans]
[Contracts], in the absence of offsetting Realized Losses allocated
to the Certificates, the percentage interest evidenced by the Senior
Certificates (other than the Principal Only Certificates) in the
Trust Fund will be decreased (with a corresponding increase in the
interest in the Trust Fund evidenced by the Subordinate
Certificates), thereby increasing, relative to their respective
Certificate Principal Balances, the Subordination afforded to the
Senior Certificates by the Subordinate Certificates collectively.
The aggregate amount of Realized Losses which may be allocated
in connection with Special Hazard Losses (the "Special Hazard
Amount") through Subordination shall initially be equal to
$[__________]. As of any date
of determination following the Cut-off Date, the Special Hazard
Amount shall equal $[__________] less
the sum of (i) any amounts allocated through Subordination in
respect of Special Hazard Losses and (ii) the Adjustment Amount. The
"Adjustment Amount" will be equal to an amount calculated pursuant
to the terms of the Pooling and Servicing Agreement. As used in
this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth in the Prospectus, except that Special Hazard
Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the
lesser of the cost of repair or replacement of the related Mortgaged
Properties.
The aggregate amount of Realized Losses which may be allocated
in connection with Fraud Losses (the "Fraud Loss Amount") through
Subordination shall initially be equal to $[__________]. As of any
date of determination after the Cut-off Date, the Fraud Loss Amount
shall equal (i) prior to the first anniversary of the Cut-off Date
an amount equal to [____]% of the aggregate principal balance of all
of the [Mortgage Loans] [Contracts] as of the Cut-off Date minus the
aggregate amounts allocated through Subordination with respect to
Fraud Losses up to such date of determination and (ii) from the
[__________] to the [__________] anniversary of the Cut-off Date, an
amount equal to (a) the lesser of (1) the Fraud Loss Amount as of
the most recent anniversary of the Cut-off Date and (2) [____]% of
the aggregate principal balance of all of the [Mortgage Loans]
[Contracts] as of the most recent anniversary of the Cut-off Date
minus (b) the aggregate amounts allocated through Subordination with
respect to Fraud Losses since the most recent anniversary of the
Cut-off Date up to such date of determination. On and after the
[__________] anniversary of the Cut-off Date the Fraud Loss Amount
shall be zero and Fraud Losses shall not be allocated through
Subordination.
The aggregate amount of Realized Losses which may be allocated
in connection with Bankruptcy Losses (the "Bankruptcy Amount")
through Subordination will initially be equal to $[__________]. As
of any date of determination on or after the [__________]
anniversary of the Cut-off Date, the Bankruptcy Amount will equal
the excess, if any, of (i) the lesser of (a) the Bankruptcy Amount
as of the business day next preceding the most recent anniversary of
the Cut-off Date (the "Relevant Anniversary") and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing
Agreement, which amount as calculated will provide for a reduction
in the Bankruptcy Amount, over (ii) the aggregate amount of
Bankruptcy Losses allocated solely to the Subordinate Certificates
through Subordination since the Relevant Anniversary.
Notwithstanding the foregoing, the provisions relating to
Subordination will not be applicable in connection with a Bankruptcy
Loss so long as the [Master] Servicer[s] [has] [have] notified the
Trustee in writing that the [Master] Servicer[s] [is] [are]
diligently pursuing any remedies that may exist in connection with
the representations and warranties made regarding the related
[Mortgage Loan] [Contract] and either (i) the related [Mortgage
Loan] [Contract] is not in default with regard to payments due
thereunder or (ii) delinquent payments of principal and interest
under the related [Mortgage Loan] [Contract] and any premiums on any
applicable Primary Hazard Insurance Policy and any related escrow
payments in respect of such [Mortgage Loan] [Contract] are being
advanced on a current basis by the [Master] Servicer[s] or a
Subservicer.
[The Special Hazard Amount, Fraud Amount and Bankruptcy Amount
are subject to further reduction with consent of the Rating
Agencies.]
[Advances]
[Prior to each Distribution Date, the [Master] Servicer[s]
[is] [are] required to make Advances (out of its own funds[,
advances made by a Subservicer] or funds held in the Custodial
Account (as described in the Prospectus) for future distribution or
withdrawal) with respect to any payments of principal and interest
(net of the related Servicing Fees) which were due on the [Mortgage
Loans] [Contracts] on the immediately preceding Due Date and
delinquent on the business day next preceding the related
Determination Date.]
[Such Advances are required to be made only to the extent they
are deemed by the [Master][Servicer[s] to be recoverable from
related late collections, Insurance Proceeds, Liquidation Proceeds
or amounts otherwise payable to the holders of the Subordinate
Certificates. The purpose of making such Advances is to maintain a
regular cash flow to the Certificateholders, rather than to
guarantee or insure against losses. The [Master] Servicer[s] will
not be required to make any Advances with respect to reductions in
the amount of the monthly payments on the [Mortgage Loans]
[Contracts] due to Debt Service Reductions or the application of the
Relief Act or similar legislation or regulation. Any failure by the
[Master] Servicer[s] to make an Advance as required under the
Pooling and Servicing Agreement will constitute an Event of Default
thereunder, in which case the Trustee, as successor [Master]
Servicer[s], will be obligated to make any such Advance, in
accordance with the terms of the Pooling and Servicing Agreement.]
[All Advances will be reimbursable to the [Master] Servicer[s]
on a first priority basis from either (a) late collections,
Insurance Proceeds and Liquidation Proceeds from the [Mortgage
Loans] [Contracts] as to which such unreimbursed Advance was made or
(b) as to any Advance that remains unreimbursed following the final
liquidation of the related item of [Mortgage Loans] [Contracts],
from amounts otherwise distributable on the Subordinate
Certificates; provided, however, that only the Subordinate
Percentage of such Advances are reimbursable from amounts otherwise
distributable on the Subordinate Certificates in the event that such
Advances were made with respect to delinquencies which ultimately
were determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and the
Senior Percentage of such Advances which may not be so reimbursed
from amounts otherwise distributable on the Subordinate Certificates
may be reimbursed to the [Master] Servicer[s] out of any funds in
the Custodial Account or Certificate Account prior to distributions
on the Senior Certificates. In the latter event, the aggregate
amount otherwise distributable on the Senior Certificates will be
reduced by an amount equal to the Senior Percentage of such
Advances. In addition, if the Certificate Principal Balance of the
Subordinate Certificates has been reduced to zero, any Advances
previously made which are deemed by the [Master] Servicer[s] to be
nonrecoverable from related late collections, Insurance Proceeds and
Liquidation Proceeds may be reimbursed to the [Master] Servicer[s]
out of any funds in the Custodial Account or Certificate Account
prior to distributions on the Senior Certificates.]
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The yields to maturity and the aggregate amount of
distributions on the Offered Certificates will be affected by the
rate and timing of principal payments on the [Mortgage Loans]
[Contracts] and the amount and timing of Mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected
by a higher or lower than anticipated rate of principal payments on
the [Mortgage Loans] [Contracts] in the Trust Fund. The rate of
principal payments on such [Mortgage Loans] [Contracts] will in turn
be affected by the amortization schedules of the [Mortgage Loans]
[Contracts], the rate and timing of principal prepayments thereon by
the Mortgagors, liquidations of defaulted [Mortgage Loans]
[Contracts] and repurchases of [Mortgage Loans] [Contracts] due to
certain breaches of representations. The timing of changes in the
rate of prepayments, liquidations and repurchases of the [Mortgage
Loans] [Contracts] may, and the timing of Realized Losses will,
significantly affect the yield to an investor, even if the average
rate of principal payments experienced over time is consistent with
an investor's expectation. Since the rate and timing of principal
payments on the [Mortgage Loans] [Contracts] will depend on future
events and on a variety of factors (as described more fully herein
and in the Prospectus under "Yield Considerations" and "Maturity and
Prepayment Considerations"), no assurance can be given as to such
rate or the timing of principal payments on the Offered
Certificates.
The [Mortgage Loans] [Contracts] may be prepaid by the
Mortgagors at any time without payment of any prepayment fee or
penalty. The [Mortgage Loans] [Contracts] contain due-on-sale
clauses. As described under "Description of the
Certificates Principal Distributions on the Senior Certificates" and
" Principal Distributions on the Class M Certificates" herein,
during certain periods all or a disproportionately large percentage
of principal prepayments on the [Mortgage Loans] [Contracts] will be
allocated among the Senior Certificates (other than the Principal
Only Certificates) and, during certain periods, no principal
prepayments or a disproportionately small or large portion of
principal prepayments on the [Mortgage Loans] [Contracts] relative
to the Class M Percentage will be distributed on the Class M
Certificates. Prepayments, liquidations and purchases of the
[Mortgage Loans] [Contracts] will result in distributions to holders
of the Offered Certificates of principal amounts that would
otherwise be distributed over the remaining terms of the [Mortgage
Loans] [Contracts]. Factors affecting prepayment (including defaults
and liquidations) of [mortgage loans] [manufactured housing
contracts] include changes in borrowers' housing needs, job
transfers, unemployment, borrowers' net equity in the mortgaged
properties, changes in the value of the mortgaged properties,
mortgage market interest rates, solicitations and servicing
decisions. In addition, if prevailing mortgage interest rates fell
significantly below the Mortgage Rates on the [Mortgage Loans]
[Contracts], the rate of prepayments (including refinancings) would
be expected to increase. Conversely, if prevailing mortgage interest
rates rose significantly above the Mortgage Rates on the [Mortgage
Loans] [Contracts], the rate of prepayments on the [Mortgage Loans]
[Contracts] would be expected to decrease.
The rate of defaults on the [Mortgage Loans] [Contracts] will
also affect the rate and timing of principal payments on the
[Mortgage Loans] [Contracts]. In general, defaults on [mortgage
loans] [manufactured housing contracts] are expected to occur with
greater frequency in their early years. The rate of default on
[Mortgage Loans] [Contracts] which are refinance, limited
documentation or no documentation mortgage loans, and on [Mortgage
Loans] [Contracts] with higher Loan-to-Value Ratios or Loan-to-Value
Ratios in excess of 80% where no primary mortgage insurance is
required, may be higher than on other [Mortgage Loans] [Contracts].
Likewise, the rate of default on [Mortgage Loans] [Contracts] that
are secured by investment properties or are made to International
Borrowers may be higher than on other [Mortgage Loans] [Contracts].
Furthermore, the rate and timing of prepayments, defaults and
liquidations on the [Mortgage Loans] [Contracts] will be affected by
the general economic condition of the region of the country in which
the related Mortgaged Properties are located. The risk of
delinquencies and loss is greater and prepayments are less likely in
regions where a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing unemployment or
falling property values. See "Maturity and Prepayment
Considerations" in the Prospectus.
After the Certificate Principal Balances of the Class B
Certificates have been reduced to zero, the yield to maturity on the
class of Class M Certificates will be extremely sensitive to losses
on the [Mortgage Loans] [Contracts] (and the timing thereof) because
the entire amount of losses that are covered by Subordination will
be allocated to such Class M Certificates. Furthermore, because
principal distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes having a later
priority of payment bear a greater risk of losses than holders of
classes having earlier priorities for distribution of principal.
Because the Mortgage Rates on the [Mortgage Loans] [Contracts]
and the Pass-Through Rates on the Offered Certificates (other than
the Stripped Interests Certificates) are fixed, such rates will not
change in response to changes in market interest rates. The
Pass-Through Rate on the Stripped Interests Certificates is based on
the weighted average of the Pool Strip Rates on the [Mortgage Loans]
[Contracts] and such Pool Strip Rates will not change in response to
changes in market interest rates. Accordingly, if market interest
rates or market yields for securities similar to the Offered
Certificates were to rise, the market value of the Offered
Certificates may decline.
[Although the Mortgage Rates on the [Mortgage Loans]
[Contracts] will adjust [semi-]annually, such increases and
decreases will be limited by the Periodic Rate Cap, the Maximum
Mortgage Rate and the Minimum Mortgage Rate, if applicable, on each
[Mortgage Loan] [Contract], and will be based on the Index (which
may not rise and fall consistently with prevailing mortgage rates)
plus the related Gross Margin (which may be different from the
prevailing margins on other mortgage loans). As a result, the
Mortgage Rates on the [Mortgage Loans] [Contracts] at any time may
not equal the prevailing rates for other adjustable-rate loans and
accordingly, the rate of prepayment may be lower or higher than
would otherwise be anticipated. In addition, because all of the
[Mortgage Loans] [Contracts] have Maximum Mortgage Rates, if
prevailing mortgage rates were to increase above the Maximum
Mortgage Rates, the rate of prepayment on the [Mortgage Loans]
[Contracts] may be expected to decrease, and the yield to investors
may be less than prevailing mortgage rates. In general, if
prevailing mortgage rates fall significantly below the Mortgage
Rates on the [Mortgage Loans] [Contracts], the rate of prepayments
(including refinancings) will be expected to increase. Conversely,
if prevailing mortgage rates rise significantly above the Mortgage
Rates on the [Mortgage Loans] [Contracts], the rate of prepayment on
the [Mortgage Loans] [Contracts] will be expected to decrease. The
rate of defaults on adjustable rate Mortgage Loans may be higher
when Mortgage Rates increase because the Mortgagor may have
difficulty making higher monthly payments on its Mortgage Loans,
particularly in the case of Mortgage Loans with a Periodic Rate Cap
of 3% per annum for the first Adjustment Date.]
As described above under "Description of the Offered
Certificates Allocation of Losses; Subordination" and " Advances,"
amounts otherwise distributable to the Class M Certificates may be
made available to protect the holders of the Senior Certificates
against interruptions in distributions due to certain Mortgagor
delinquencies, to the extent not covered by Advances. Such
delinquencies may affect the yields to investors in the Class M
Certificates, and, even if subsequently cured, may affect the timing
of the receipt of distributions by the holders of the Class M
Certificates. Furthermore, the Principal Only Certificates will
share in the principal portion of Realized Losses on the [Mortgage
Loans] [Contracts] only to the extent that they are incurred with
respect to Discount Mortgage Collateral and only to the extent of
the related Discount Fraction; thus, after the Class B Certificates
and the Class M Certificates are retired or in the case of Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses
and Extraordinary Losses, the Senior Certificates (other than the
Principal Only Certificates) may be affected to a greater extent by
losses on Non-Discount Mortgage Collateral than losses on Discount
Mortgage Collateral. In addition, a higher than expected rate of
delinquencies or losses will also affect the rate of principal
payments on the Class M Certificates if such delinquencies or losses
cause the scheduled reduction of the Senior Accelerated Distribution
Percentage to be delayed.
The amount of interest otherwise payable to holders of the
Offered Certificates will be reduced by any interest shortfalls to
the extent not covered by Subordination or by the [Master]
Servicer[s] as described below, including Prepayment Interest
Shortfalls and, in the case of each class of the Class M
Certificates, the interest portions of Realized Losses allocated
solely to such class of Certificates. See "Yield Considerations" in
the Prospectus and "Description of the Offered Certificates Interest
Distributions" herein for a discussion of the effect of principal
prepayments on the [Mortgage Loans] [Contracts] on the yields to
maturity of the Offered Certificates and certain possible shortfalls
in the collection of interest. [Prior to the Accretion Termination
Date, interest shortfalls allocated to the Accrual Certificates will
reduce the amount added to the Certificate Principal Balance thereof
in respect of Accrued Certificate Interest and will result in a
corresponding reduction of the amount available for distributions in
respect of principal on the Senior Certificates. Furthermore,
because such interest shortfalls will result in the Certificate
Principal Balance of the Accrual Certificates being less than it
would be in the absence of such interest shortfalls, the amount of
interest that will accrue in the future on the Accrual Certificates
and be available for distributions in respect of principal on the
Senior Certificates will be reduced. Accordingly, the weighted
average lives and assumed final Distribution Dates of the Senior
Certificates will be extended.]
With respect to any Distribution Date, Prepayment Interest
Shortfalls resulting from prepayments in full for such Distribution
Date will be offset by the [Master] Servicer[s] to the extent such
Prepayment Interest Shortfalls do not exceed [one-twelfth of _____%
of the Stated Principal Balance of the [Mortgage Loans] [Contracts]
immediately preceding such Distribution Date]. Thus, the yield to
investors in the Offered Certificates generally will not be affected
by Prepayment Interest Shortfalls allocable thereto resulting from
prepayments in full in the month preceding any Distribution Date to
the extent that such shortfalls do not exceed the amount offset by
the [Master] Servicer[s].
The yield to maturity on each class of the Offered
Certificates will depend on the prices paid by the holders of the
Offered Certificates and the related Pass-Through Rate. The extent
to which the yield to maturity of an Offered Certificate is
sensitive to prepayments will depend, in part, upon the degree to
which it is purchased at a discount or premium. In general, if a
class of Offered Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Offered Certificates is purchased at a
discount and principal distributions thereon occur at a rate slower
than that assumed at the time of purchase, the investor's actual
yield to maturity will be lower than that assumed at the time of
purchase. For additional considerations relating to the yield on
the Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
[A number of factors affect the performance of the Index and
may cause the Index to move in a manner different from other
indices. To the extent that the Index may reflect changes in the
general level of interest rates less quickly than other indices, in
a period of rising interest rates, increases in the yield to Offered
Certificateholders due to such rising interest rates may occur later
than that which would be produced by other indices, and in a period
of declining rates, the Index may remain higher than other market
interest rates which may result in a higher level of prepayments of
the [Mortgage Loans] [Contracts], which adjust in accordance with
the Index, than of [mortgage loans] [contracts] which adjust in
accordance with other indices.]
The assumed final Distribution Date with respect to each class
of the Offered Certificates is [_____ __, ____] which is the
Distribution Date [immediately] [___ months] following the latest
scheduled maturity date for any [Mortgage Loan] [Contract]. No
event of default, change in the priorities for distribution among
the various classes or other provisions under the Pooling and
Servicing Agreement will arise or become applicable solely by reason
of the failure to retire the entire Certificate Principal Balance of
any class of Certificates on or before its assumed final
Distribution Date.
"Weighted Average Life" refers to the average amount of time
that will elapse from the date of issuance of a security to the date
of distribution to the investor of each dollar distributed in
reduction of principal of such security (assuming no losses). The
Weighted Average Life of the Offered Certificates will be influenced
by, among other things, the rate at which principal of the [Mortgage
Loans] [Contracts] is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
[Prepayments on [mortgage loans] [manufactured housing
contracts] are commonly measured relative to a prepayment standard
or model. The model used in this Prospectus Supplement, the standard
prepayment assumption ("SPA"), represents an assumed rate of
prepayment each month relative to the then outstanding principal
balance of a pool of new [mortgage loans] [manufactured housing
contracts]. A prepayment assumption of 100% SPA assumes constant
prepayment rates of [___]% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional [___]% per annum in
each month thereafter until the thirtieth month. Beginning in the
thirtieth month and in each month thereafter during the life of the
[mortgage loans] [manufactured housing contracts], 100% SPA assumes
a constant prepayment rate of [___]% per annum each month. As used
in the table below, "0% SPA" assumes prepayment rates equal to 0% of
SPA (no prepayments). Correspondingly, "[___]% SPA" assumes
prepayment rates equal to [___]% of SPA, and so forth. SPA does not
purport to be a historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of
[mortgage loans] [manufactured housing contracts], including the
[Mortgage Loans] [Contracts].]
Modeling Assumptions
The table set forth below has been prepared on the basis of
certain assumptions (the "Modeling Assumptions") as described below
regarding the weighted average characteristics of the [Mortgage
Loans] [Contracts] that are expected to be included in the Trust
Fund as described under "Description of the [Mortgage] [Contract]
Pool" herein and the performance thereof. The table assumes, among
other things, that: (i) as of the date of issuance of the Offered
Certificates, the aggregate principal balance of the Discount
Mortgage Collateral is $[__________] and each item of Discount
Mortgage Collateral has a Mortgage Rate of [___]% per annum, an
original term to maturity of [___] months, a remaining term to
maturity of [___] months and a related Servicing Fee Rate of
approximately [___]% per annum, and the aggregate principal balance
of the Non-Discount Mortgage Collateral is $[___________] and each
item of Non-Discount Mortgage Collateral has a Mortgage Rate of
[___]% per annum, an original term to maturity of [___] months, a
remaining term to maturity of [___] months and a related Servicing
Fee Rate of approximately [___]% per annum; (ii) the scheduled
monthly payment for each [Mortgage Loan] [Contract] has been based
on its outstanding balance, interest rate and remaining term to
maturity, such that the [Mortgage Loan] [Contract] will amortize in
amounts sufficient for repayment thereof over its remaining term to
maturity; (iii) none of the Mortgage Collateral Sellers, the
[Master] Servicer[s] or the Company will repurchase any [Mortgage
Loan] [Contract] and neither the [Master] Servicer[s] nor the
Company exercises any option to purchase the [Mortgage Loans]
[Contracts] and thereby cause a termination of the Trust Fund; (iv)
there are no delinquencies or Realized Losses on the [Mortgage
Loans] [Contracts], and principal payments on the [Mortgage Loans]
[Contracts] will be timely received together with prepayments, if
any, at the respective constant percentages of SPA set forth in the
table; (v) there is no Prepayment Interest Shortfall or any other
interest shortfall in any month; (vi) payments on the Certificates
will be received on the 25th day of each month, commencing [________
25, 199_]; (vii) payments on the [Mortgage Loans] [Contracts] earn
no reinvestment return; (viii) there are no additional ongoing Trust
Fund expenses payable out of the Trust Fund; and (ix) the
Certificates will be purchased on [_____ __, 199_].
SOME OF THE FOREGOING MODELING ASSUMPTIONS REGARDING THE
CHARACTERISTICS OF THE [MORTGAGE LOANS] [CONTRACTS] AND THE
CERTIFICATES DIFFER FROM ACTUAL CHARACTERISTICS THEREOF.
The actual characteristics and performance of the [Mortgage
Loans] [Contracts] will differ from the Modeling Assumptions used in
constructing the table set forth below, which is hypothetical in
nature and is provided only to give a general sense of how the
principal cash flows might behave under varying prepayment
scenarios. For example, it is unlikely that the [Mortgage Loans]
[Contracts] will prepay at a constant level of SPA until maturity or
that all of the [Mortgage Loans] [Contracts] will prepay at the same
level of SPA. Moreover, the diverse remaining terms to maturity of
the [Mortgage Loans] [Contracts] could produce slower or faster
principal distributions than indicated in the table at the various
constant percentages of SPA specified, even if the weighted average
remaining term to maturity of the [Mortgage Loans] [Contracts] is as
assumed. Any difference between such Modeling Assumptions and the
actual characteristics and performance of the [Mortgage Loans]
[Contracts], or actual prepayment or loss experience, will affect
the percentages of initial Certificate Principal Balances
outstanding over time and the weighted average lives of the classes
of Offered Certificates.
Subject to the foregoing discussion and assumptions, the
following table indicates the Weighted Average Life of each class of
Offered Certificates (other than the Stripped Interests Certificates
[and Residual Certificates]) and sets forth the percentages of the
initial Certificate Principal Balance of each such class of Offered
Certificates that would be outstanding after each of the dates shown
at various percentages of SPA.<PAGE>
Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA
Distribution Date Class A-1 Class A-2 Class A-4 Class M
0%[ ][ ][ ][ ] 0%[ ][ ][ ][ ] 0%[ ][ ][ ][ ] 0%[ ][ ][ ][ ]
Initial Percentage
Weighted Average
Life Years**
* Indicates a number that is greater than zero
but less than 0.5%.
** [The Weighted Average Life of a Certificate of
any class is determined by (i) multiplying the
amount of each distribution in reduction of
Certificate Principal Balance by the number
of years from the date of issuance of the
Certificate to the related Distribution Date,
(ii) adding the results, and (iii) dividing
the sum by the initial Certificate Principal
Balance of the Certificate.]
This table has been prepared based on the
Modeling Assumptions (including the
assumptions regarding the characteristics
and performance of the [Mortgage Loans]
[Contracts], which differ from the actual
characteristics and performance thereof)
and should be read in conjunction therewith.
<PAGE>
Principal Only Certificate and Stripped Interests Certificate Yield
Considerations
The amounts payable with respect to the Principal Only
Certificates derive only from principal payments on the Discount
Mortgage Collateral. As a result, the yield on the Principal Only
Certificates will be adversely affected by slower than expected
payments of principal (including prepayments, defaults and
liquidations) on the Discount Mortgage Collateral.
The yield to maturity on the Stripped Interests Certificates
will be extremely sensitive to both the timing of receipt of
principal prepayments and the overall rate of principal prepayments
and defaults on the [Mortgage Loans] [Contracts], which rate may
fluctuate significantly over time. Investors in the Stripped
Interests Certificates should fully consider the risk that a rapid
rate of principal prepayments on the [Mortgage Loans] [Contracts]
could result in the failure of such investors to fully recover their
investments.
The following tables indicate the sensitivity of the pre-tax
yield to maturity on the Principal Only Certificates and Stripped
Interests Certificates to various constant rates of prepayment on
the [Mortgage Loans] [Contracts] by projecting the monthly aggregate
payments on the Principal Only Certificates and Stripped Interests
Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the
assumptions described in clauses (i) through (ix) of the Modeling
Assumptions, including the assumptions regarding the characteristics
and performance of the [Mortgage Loans] [Contracts], which differ
from the actual characteristics and performance thereof and assuming
the aggregate purchase prices set forth below and assuming further
the Pass-Through Rate and Notional Amount of the Stripped Interests
Certificates are as set forth herein. Any differences between the
Modeling Assumptions and the actual characteristics and performance
of the [Mortgage Loans] [Contracts] and of the Certificates may
result in yields being different from those shown in such tables.
Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the tables, which
are provided only to give a general sense of the sensitivity of
yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Principal Only
Certificates at the Following Percentages of SPA
Assumed Purchase Price 0% [ ]% [ ]% [ ]% [ ]% [ ]%
$[____________] [____]% [____]% [____]% [____]% [____]% [____]%
Pre-Tax Yield to Maturity of the Stripped Interests
Certificates at the Following Percentages of SPA
Assumed Purchase Price 0% [ ]% [ ]% [ ]% [ ]% [ ]%
$[____________] [____]% [____]% [____]% [____]% [____]% [____]%
Each pre-tax yield to maturity set forth in the preceding
tables was calculated by determining the monthly discount rate
which, when applied to the assumed stream of cash flows to be paid
on the Principal Only Certificates or Stripped Interests
Certificates, as applicable, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed
purchase price listed in the related table. Accrued interest is
included in the assumed purchase price of the Stripped Interests
Certificates and is used in computing the corporate bond equivalent
yields shown in the table relating to the Stripped Interests
Certificates. These yields do not take into account the different
interest rates at which investors may be able to reinvest funds
received by them as distributions on the Principal Only Certificates
and Stripped Interests Certificates, and thus do not reflect the
return on any investment in such Certificates when any reinvestment
rates other than the discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding tables, it is highly unlikely that the [Mortgage Loans]
[Contracts] will be prepaid according to one particular pattern.
For this reason, and because the timing of cash flows is critical to
determining yields, the pre-tax yields to maturity on the Principal
Only Certificates and Stripped Interests Certificates are likely to
differ from those shown in the tables, even if all of the [Mortgage
Loans] [Contracts] prepay at the indicated constant percentages of
SPA over any given time period or over the entire life of the
Certificates. A lower than anticipated rate of principal
prepayments on the Discount Mortgage Collateral will have a material
adverse effect on the yield to maturity of the Principal Only
Certificates. The rate and timing of principal prepayments on the
Discount Mortgage Collateral may differ from the rate and timing of
principal prepayments on the [Mortgage] [Contract] Pool. In
addition, because the Discount Mortgage Collateral have Net Mortgage
Rates that are lower than the Net Mortgage Rates of the Non-Discount
Mortgage Collateral, and because [Mortgage Loans] [Contracts] with
lower Net Mortgage Rates are likely to have lower Mortgage Rates,
the Discount Mortgage Collateral is generally likely to prepay under
most circumstances at a lower rate than the Non-Discount Mortgage
Collateral. In addition, holders of the Stripped Interests
Certificates generally have rights to relatively larger portions of
interest payments on [Mortgage Loans] [Contracts] with higher
Mortgage Rates; thus, the yield on the Stripped Interests
Certificates will be materially adversely affected to a greater
extent than on the other Offered Certificates if the [Mortgage
Loans] [Contracts] with higher Mortgage Rates prepay faster than the
[Mortgage Loans] [Contracts] with lower Mortgage Rates. Because
[Mortgage Loans] [Contracts] having higher Pool Strip Rates
generally have higher Mortgage Rates, such [Mortgage Loans]
[Contracts] are generally more likely to be prepaid under most
circumstances than are [Mortgage Loans] [Contracts] having lower
Pool Strip Rates.
There can be no assurance that the [Mortgage Loans]
[Contracts] will prepay at any particular rate or that the yields on
the Principal Only Certificates and Stripped Interests Certificates
will conform to the yields described herein. Moreover, the various
remaining terms to maturity of the [Mortgage Loans] [Contracts]
could produce slower or faster principal distributions than
indicated in the preceding tables at the various constant
percentages of SPA specified, even if the weighted average remaining
term to maturity of the [Mortgage Loans] [Contracts] is as assumed.
Investors are urged to make their investment decisions based on
their determinations as to anticipated rates of prepayment under a
variety of scenarios. Investors in the Stripped Interests
Certificates should fully consider the risk that a rapid rate of
prepayments on the [Mortgage Loans] [Contracts] could result in the
failure of such investors to fully recover their investments.
For additional considerations relating to the yields on the
Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
Additional Yield Considerations Applicable Solely to the Residual
Certificates
The Residual Certificateholders' after-tax rate of return on
their Residual Certificates will reflect their pre-tax rate of
return, reduced by the taxes required to be paid with respect to the
Residual Certificates. Holders of Residual Certificates may have tax
liabilities with respect to their Residual Certificates during the
early years of the REMIC's term that substantially exceed any
distributions payable thereon during any such period. In addition,
holders of Residual Certificates may have tax liabilities with
respect to their Residual Certificates the present value of which
substantially exceeds the present value of distributions payable
thereon and of any tax benefits that may arise with respect thereto.
Accordingly, the after-tax rate of return on the Residual
Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income
attributable to the Residual Certificates will depend on, among
other things, the timing and amounts of prepayments and losses
experienced with respect to the [Mortgage] [Contract] Pool.
The Residual Certificateholders should consult their tax
advisors as to the effect of taxes and the receipt of any payments
made to such holders in connection with the purchase of the Residual
Certificates on after-tax rates of return on the Residual
Certificates. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Pooling and
Servicing Agreement. Reference is made to the Prospectus for
important information in addition to that set forth herein regarding
the terms and conditions of the Pooling and Servicing Agreement and
the Senior Certificates. [The Trustee will appoint
______________________ to serve as Custodian in connection with the
Certificates.] The Senior Certificates will be transferable and
exchangeable at the corporate trust office of the Trustee, which
will serve as Certificate Registrar and Paying Agent. The Company
will provide a prospective or actual Certificateholder without
charge, on written request, a copy (without exhibits) of the Pooling
and Servicing Agreement. Requests should be addressed to the
[__________] of Residential Accredit Loans, Inc.,
[____________________]. In addition to the circumstances described
in the Prospectus, the Company may terminate the Trustee for cause
under certain circumstances. See "The Pooling and Servicing
Agreement The Trustee" in the Prospectus.
[The Servicer[s]]
[_________] [Various Servicers approved by the Master
Servicer] will provide customary servicing functions with respect to
the [Mortgage Loans] [Contracts] pursuant to [a] [the Pooling and]
Servicing Agreement[s]. [Among other things, the Servicer[s] are
obligated, under certain circumstances, to advance delinquent
payments of principal and interest with respect to [Mortgage Loans]
[Contracts].]
[Approximately _______% of the [Mortgage Loans] [Contracts]
will be serviced by _________.] [The following information was
obtained from the Servicer[s].
[The following tables set forth certain information concerning
the delinquency experience (including pending foreclosures) on one-
to four-family residential mortgage loans that were being serviced
by [Servicer] on __________ __, 199_, __________ __, 199_ and
__________ __, 199_.<PAGE>
Total Loan Portfolio Delinquency Experience
At , 199 At , 199 At , 199
By No. By Dollar By No. By Dollar By No. By Dollar
of Amount of of Amount of of Amount of
Loans Loans Loans Loans Loans Loans
(Dollar Amounts in Thousands)
$ $ $
Total Loan Portfolio . .
. .
Period of Delinquency
31 to 59 days. .
60 to 89 days. .
90 days or more (1).
Foreclosures Pending . .
REO Property . . . . . .
Total Delinquent Loans . $ $ $
Percent of Loan Portfolio % % % % % %
(1) Does not include foreclosures pending.
The following tables set forth certain
information concerning foreclosed mortgage loans and
loan loss
experience of
[Servicer] as of ________ __, 199_, ________ __, 199_ and ________ __, 199_
with respect to the
mortgage loans referred to above.
Total Loan Portfolio Foreclosure Experience
At or for At or for At or for
the year ended the year ended the year ended
________ __, ________ __, ________ __,
199 199_ 199
(Dollar Amounts in Thousands)
Total Loan Portfolio . . . . $ $ $
Average Portfolio Balance. . $ $ $
Gross Loss(1). . . . . . . . $ $ $
Net Loss(2) . . . . . . . . $ $ $
______________________
(1) Gross Loss is the sum of gross losses on all mortgage loans
liquidated during the period indicated.
(2) Net Loss is Gross Loss minus all proceeds received in
connection with liquidated mortgage loans from mortgage pool
insurance, special hazard insurance or other insurance and proceeds
received from or losses borne by other credit enhancement, including
subordinated certificates, but not including primary mortgage
insurance, hazard insurance or other insurance with respect to
specific mortgaged properties for the period indicated.
There can be no assurance that the delinquency and foreclosure
experience set forth above will be representative of the results
that may be experienced with respect to the Mortgage Loans.]
[The Master Servicer]
[Residential Funding, an indirect wholly-owned subsidiary of
GMAC Mortgage and an affiliate of the Company,] [___________] will
act as master servicer for the Certificates pursuant to the Pooling
and Servicing Agreement. For a general description of the Master
Servicer and its activities, see "The Pooling and Servicing
Agreement" in the Prospectus.]
Servicing and Other Compensation and Payment of Expenses
The Servicing Fees for each [Mortgage Loan] [Contract] are
payable out of the interest payments on such [Mortgage Loan]
[Contract]. The Servicing Fees in respect of each [Mortgage Loan]
[Contract] will be at least [____]% and not more than [____]% per
annum of the outstanding principal balance of each [Mortgage Loan]
[Contract]. The Servicing Fees consist of (a) servicing
compensation payable to the [Master] Servicer[s] in respect of [its
master] servicing activities, and (b) subservicing and other related
compensation payable to the subservicer (including such compensation
paid to the [Master] Servicer[s] as the direct servicer of a
[Mortgage Loan] [Contract] for which there is no subservicer]. The
primary compensation to be paid to the [Master] Servicer[s] in
respect of its servicing activities will be [____]% per annum (the
"Servicing Fee Rate") of the outstanding principal balance of each
item of Mortgage Collateral. As described more fully in the
Prospectus, a Subservicer is entitled to servicing compensation in
a minimum amount equal to [____]% per annum of the outstanding
principal balance of each item of Mortgage Collateral serviced by
it. The [Master] Servicer[s] is obligated to pay certain ongoing
expenses associated with the Trust Fund and incurred by the [Master]
Servicer[s] in connection with its responsibilities under the
Pooling and Servicing Agreement. See "Description of the
Certificates Servicing and Administration of Mortgage Collateral" in
the Prospectus for information regarding other possible compensation
to the [Master] Servicer[s] and subservicers and for information
regarding expenses payable by the [Master] Servicer[s].
Voting Rights
Certain actions specified in the Prospectus that may be taken
by the Certificateholders evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of
Certificates entitled in the aggregate to such percentage of the
Voting Rights. [__]% of all Voting Rights will be allocated among
all holders of the Certificates (other than the Stripped Interests
Certificates and Residual Certificates) in proportion to their then
outstanding Certificate Principal Balances, and [_]% and [_]% of all
Voting Rights will be allocated among holders of the Stripped
Interests Certificates and the Residual Certificates, in proportion
to the percentage interests evidenced by their respective
Certificates.
[Termination]
[The circumstances under which the obligations created by the
Pooling and Servicing Agreement will terminate in respect of the
Offered Certificates are described in "Pooling and Servicing
Agreement Termination; Retirement of Certificates" in the
Prospectus. The [Master] Servicer[s] or the Company will have the
option on any Distribution Date on which the aggregate principal
balance of the [Mortgage Loans] [Contracts] is less than [__]% of
the aggregate principal balance of the [Mortgage Loans] [Contracts]
as of the Cut-off Date either (i) to purchase all remaining
[Mortgage Loans] [Contracts] and other assets in the Trust Fund,
thereby effecting early retirement of the Offered Certificates or
(ii) purchase in whole, but not in part, the Certificates. Any such
purchase of [Mortgage Loans] [Contracts] and other assets of the
Trust Fund shall be made at a price equal to the sum of (a) 100% of
the unpaid principal balance of each item of [Mortgage Loans]
[Contracts] (or, the fair market value of the related underlying
Mortgaged Properties with respect to defaulted [Mortgage Loans]
[Contracts] as to which title to such underlying Mortgaged
Properties has been acquired if such fair market value is less than
such unpaid principal balance) (net of any unreimbursed Advance
attributable to principal) as of the Distribution Date on which the
purchase proceeds are to be distributed plus (b) accrued interest
thereon at the Net Mortgage Rate to, but not including, the first
day of the month of repurchase. Distributions on the Certificates
in respect of any such optional termination will be paid, first, to
the Senior Certificates and the Class M Certificates, pro rata,
based on their respective Certificate Principal Balances, second, to
the Class B Certificates. The proceeds of any such distribution may
not be sufficient to distribute the full amount to each class of
Certificates if the purchase price is based in part on the fair
market appraised value of any underlying Mortgaged Property and such
appraised value is less than 100% of the unpaid principal balance of
the related [Mortgage Loan] [Contract]. Any such purchase of the
Certificates will be made at a price equal to 100% of the
Certificate Principal Balance thereof plus the sum of one month's
interest thereon at the applicable Pass-Through Rate and any
previously unpaid Accrued Certificate Interest. Upon the purchase
of the Certificates or at any time thereafter, at the option of the
[Master] Servicer[s] or the Company, the [Mortgage Loans] [Contract]
may be sold, thereby effecting a retirement of the Certificates and
the termination of the Trust Fund, or the Certificates so purchased
may be held or resold by the [Master] Servicer[s] or the Company.]
Upon presentation and surrender of the Offered Certificates in
connection with the termination of the Trust Fund or a purchase of
Certificates under the circumstances described above, the holders of
the Offered Certificates will be entitled to receive, subject to the
priorities set forth above, an amount equal to the Certificate
Principal Balance of such class plus one month's interest thereon
(or with respect to the Stripped Interests Certificates, one month's
interest on the Notional Amount) at the applicable Pass-Through Rate
plus any previously unpaid Accrued Certificate Interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates,
______________________, counsel to the Company, will deliver its
opinion generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for federal
income tax purposes, the Trust Fund will qualify as a REMIC under
the Code.
For federal income tax purposes, the Residual Certificates
will be the sole class of "residual interests" in the Trust Fund and
the Offered Certificates (other than the Residual Certificates) and
Class B Certificates will represent ownership of "regular interests"
in the Trust Fund and will generally be treated as representing
ownership of debt instruments of the Trust Fund. See "Certain
Federal Income Tax Consequences REMICs" in the Prospectus.
The
Certificates will not be treated as having
been issued with original issue discount for federal income tax
reporting purposes. The
Certificates will, be treated as having been issued with original
issue discount for federal income tax reporting purposes. The
prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if
any, for federal income tax purposes will be based on the assumption
that subsequent to the date of any determination the [Mortgage
Loans] [Contracts] will prepay at a rate equal to ___% SPA. No
representation is made that the [Mortgage Loans] [Contracts] will
prepay at that rate or at any other rate. See "Certain Federal
Income Tax Consequences REMICs Taxation of Owners of REMIC Regular
Certificates Original Issue Discount" in the Prospectus.
The OID Regulations suggest that original issue discount with
respect to securities such as the Stripped Interests Certificates
that represent multiple uncertificated REMIC regular interests, in
which ownership interests will be issued simultaneously to the same
buyer and which are required under the Pooling and Servicing
Agreement to be transferred together, should be computed on an
aggregate method. In the absence of further guidance from the IRS,
original issue discount with respect to the uncertificated regular
interests represented by the Stripped Interests Certificates will be
reported to the IRS and the Certificateholders on an aggregate
method based on a single overall constant yield and the prepayment
assumption stated above, treating all such uncertificated regular
interests as a single debt instrument as set forth in the OID
Regulations.
If the method for computing original issue discount described
in the Prospectus results in a negative amount for any period with
respect to a Certificateholder (in particular, the Stripped
Interests Certificateholders), the amount of original issue discount
allocable to such period would be zero and such Certificateholder
will be permitted to offset such negative amount only against future
original issue discount (if any) attributable to such Certificates.
Although the matter is not free from doubt, a Stripped Interests
Certificateholder may be permitted to deduct a loss to the extent
that his or her respective remaining basis in such Certificate
exceeds the maximum amount of future payments to which such
Certificateholder is entitled, assuming no further prepayments of
the [Mortgage Loans] [Contracts]. Any such loss might be treated as
a capital loss.
Although they are unclear on the issue, in certain
circumstances the OID Regulations appear to permit the holder of a
debt instrument to recognize original issue discount under a method
that differs from that used by the issuer. Accordingly, it is
possible that the holder of a Certificate may be able to select a
method for recognizing original issue discount that differs from
that used by the [Master] Servicer[s] in preparing reports to the
Certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated for
federal income tax purposes as having been issued at a premium.
Whether any holder of such a class of Certificates will be treated
as holding a certificate with amortizable bond premium will depend
on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such classes of
Certificates should consult their own tax advisors regarding the
possibility of making an election to amortize such premium. See
"Certain Federal Income Tax Consequences REMICs Taxation of Owners
of REMIC Regular Certificates" and " Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real
property loans" under Section 593(d) of the Code, assets described
in Section 7701(a)(19)(C) of the Code and "real estate assets" under
Section 856(c)(5)(A) of the Code generally in the same proportion
that the assets of the Trust Fund would be so treated. In addition,
interest on the Offered Certificates will be treated as "interest on
obligations secured by mortgages on real property" under Section
856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section
856(c)(5)(A) of the Code. Moreover, the Offered Certificates (other
than the Residual Certificates) will be "qualified mortgages" within
the meaning of Section 860G(a)(3) of the Code. However, prospective
investors in Offered Certificates that will be generally treated as
assets described in Section 860G(a)(3) of the Code should note that,
notwithstanding such treatment, any repurchase of such a Certificate
pursuant to the right of the [Master] Servicer[s] or the Company to
repurchase such Offered Certificates may adversely affect any REMIC
that holds such Offered Certificates if such repurchase is made
under circumstances giving rise to a Prohibited Transaction Tax.
See "The Pooling and Servicing Agreement Termination" herein and
"Certain Federal Income Tax Consequences REMICs Characterization of
Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see "Certain
Federal Income Tax Consequences REMICs" in the Prospectus.
Special Tax Considerations Applicable to Residual Certificates
The IRS has issued regulations under the provisions of the
Code related to REMICs (the "REMIC Regulations") that significantly
affect holders of Residual Certificates. The REMIC Regulations
impose restrictions on the transfer or acquisition of certain
residual interests, including the Residual Certificates. In
addition, the REMIC Regulations contain restrictions that apply to:
(i) thrift institutions holding residual interests lacking
"significant value" and (ii) the transfer of "noneconomic" residual
interests to United States persons. Pursuant to the Pooling and
Servicing Agreement, the Residual Certificates may not be
transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether
a residual interest has "significant value" for purposes of applying
the rules relating to "excess inclusions" with respect to residual
interests. Based on the REMIC Regulations, the Residual
Certificates do not have significant value and, accordingly, thrift
institutions and their affiliates will be prevented from using their
unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an
amount equal to all or virtually all of the taxable income
includible by holders of the Residual Certificates. See "Certain
Federal Income Tax Consequences REMICs Taxation of Owners of REMIC
Residual Certificates Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United
States person of "noneconomic" residual interests will be
disregarded for all federal income tax purposes, and that the
purported transferor of "noneconomic" residual interests will
continue to remain liable for any taxes due with respect to the
income on such residual interests, unless "no significant purpose of
the transfer was to impede the assessment or collection of tax."
Based on the REMIC Regulations, the Residual Certificates may
constitute noneconomic residual interests during some or all of
their terms for purposes of the REMIC Regulations and, accordingly,
unless no significant purpose of a transfer is to impede the
assessment or collection of tax, transfers of the Residual
Certificates may be disregarded and purported transferors may remain
liable for any taxes due with respect to the income on the Residual
Certificates. All transfers of the Residual Certificates will be
subject to certain restrictions under the terms of the Pooling and
Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Residual
Certificates constitute noneconomic residual interests. See
"Certain Federal Income Tax Consequences REMICs Taxation of Owners
of REMIC Residual Certificates Noneconomic REMIC Residual
Certificates" in the Prospectus.
The Residual Certificateholders may be required to report an
amount of taxable income with respect to the earlier accrual periods
of the Trust Fund's term that significantly exceeds the amount of
cash distributions received by such Residual Certificateholders from
the Trust Fund with respect to such periods. Furthermore, the tax
on such income may exceed the cash distributions with respect to
such periods. Consequently, Residual Certificateholders should have
other sources of funds sufficient to pay any federal income taxes
due in the earlier years of the Trust Funds' term as a result of
their ownership of the Residual Certificates. In addition, the
required inclusion of this amount of taxable income during the Trust
Fund's earlier accrual periods and the deferral of corresponding tax
losses or deductions until later accrual periods or until the
ultimate sale or disposition of a Residual Certificate (or possibly
later under the "wash sale" rules of Section 1091 of the Code) may
cause the Residual Certificateholders' after-tax rate of return to
be zero or negative even if the Residual Certificateholders' pre-tax
rate of return is positive. That is, on a present value basis, the
Residual Certificateholders' resulting tax liabilities could
substantially exceed the sum of any tax benefits and the amount of
any cash distributions on such Residual Certificates over their
life.
[[Residential Funding[] will be designated as the "tax matters
person" with respect to the Trust Fund as defined in the REMIC
Provisions (as defined in the Prospectus), and in connection
therewith will be required to hold not less than 0.01% of the
Residual Certificates.]
Purchasers of the Residual Certificates are strongly advised
to consult their own tax advisors as to the economic and tax
consequences of investment in such Residual Certificates.
For further information regarding the federal income tax
consequences of investing in the Residual Certificates, see "Certain
Yield and Prepayment Considerations Additional Yield Considerations
Applicable Solely to the Residual Certificates" herein and "Certain
Federal Income Tax Consequences REMICs Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
[FOR TRUSTS TREATED AS GRANTOR TRUSTS]
[Upon the issuance of the Offered Certificates [Orrick,
Herrington & Sutcliffe] [Thacher Proffitt & Wood], counsel to the
Company will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes the Trust Fund will be
classified as a grantor trust under subpart E, part I of subchapter
J of the Code and not as a partnership or as an association taxable
as a corporation. Accordingly, each holder of a Certificate
generally will be treated as the owner of an interest in the
Mortgage Collateral included in the Trust Fund.
For purposes of the following discussion, the [Class ____ and
Class ____] Certificates, a Grantor Trust, which represent an
undivided equitable ownership interest in the principal of the
Mortgage Collateral, together with interest thereon at the
Applicable Pass-Through Rate, will be referred to as a "Grantor
Trust Fractional Interest Certificate." The [Class ___ and Class
___] Certificates, which represent ownership of all or a portion of
the difference between interest paid on the Mortgage Collateral (net
of Servicing Fees and any Spread) and interest paid to the holders
of Grantor Trust Fractional Interest Certificates will be referred
to as a "Grantor Trust Strip Certificate." A Grantor Trust Strip
Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Collateral.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates. In the case
of Grantor Trust Fractional Interest Certificates[, subject to the
discussion below with respect to Buy-Down Loans], counsel to the
Company will deliver an opinion upon issuance of the offered
certificates that, in general, Grantor Trust Fractional Interest
Certificates will represent interests in (i) "qualifying real
property loans" within the meaning of Section 593(d) of the Code
[(except to the extent representing a Contract secured by a
Manufactured Home that is not permanently fixed to real property)];
(ii) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code [(except to the
extent representing a Contract secured by a Manufactured Home used
on a transient basis)]; (iii) "obligation[s] (including any
participation or certificate of beneficial ownership therein) which
. . . [are] principally secured by an interest in real property"
within the meaning of Section 860G(a)(3)(A) of the Code; and (iv)
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, counsel to the Company will deliver an
opinion that interest on Grantor Trust Fractional Interest
Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
[The Mortgage Collateral includes Buy-Down Loans. The
characterization of an investment in Buy-Down Loans will depend upon
the precise terms of the related Buy-Down Agreement, but to the
extent that such Buy-Down Loans are secured by a bank account or
other personal property, they may not be treated in their entirety
as assets described in the foregoing sections of the Code. No
directly applicable precedents exist with respect to the federal
income tax treatment or the
characterization of investments in Buy-Down Loans. Accordingly,
holders of Grantor Trust Fractional
Interest Certificates should consult their tax advisors with respect
to the characterization of investments in Grantor Trust Fractional
Interest Certificates.].
Grantor Trust Strip Certificates. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting
of [Mortgage Loans] [Contracts] that are "loans . . . secured by an
interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code, "qualifying real property loans"
within the meaning of Section 593(d) of the Code, and "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and
the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, it is unclear whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so
characterized. The policies underlying such sections (namely, to
encourage or require investments in mortgage loans by thrift
institutions and real estate investment trusts), however, may
suggest that such characterization is appropriate. Counsel to the
Company will not deliver any opinion on these questions.
Prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should
consult their tax advisors regarding whether the Grantor Trust Strip
Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s]
(including any participation or certificate of beneficial ownership
therein) which . . . [are] principally secured by an interest in
real property" within the meaning of Section 860G(a)(3)(A) of the
Code.
Taxation of Owners of Grantor Trust Fractional Interest
Certificates
Holders of a Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax
returns their shares of the entire income from the Mortgage
Collateral (including amounts used to pay reasonable servicing fees
and other expenses) and will be entitled to deduct their shares of
any such reasonable servicing fees and other expenses. Because of
stripped interests, market or original issue discount, or premium,
the amount includible in income on account of a Grantor Trust
Fractional Interest Certificate may differ significantly from the
amount distributable thereon representing interest on the Mortgage
Collateral. Under Section 67 of the Code, an individual, estate or
trust holding a Grantor Trust Fractional Interest Certificate
directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to
the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted
gross income. In addition, Section 68 of the Code provides that the
amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor
Trust Fractional Interest Certificates who are subject to the
limitations of either Section 67 or Section 68 of the Code may be
substantial. In addition, Certificateholders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's
alternative minimum taxable income. [If multiple classes of Grantor
Trust Certificates] [Although it is not entirely clear, it appears
that such fees and expenses should be allocated among the classes of
Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of
statutory or administrative clarification as to the method to be
used, it currently is intended to base information returns or
reports to the Internal Revenue Service (the "IRS") and
Certificateholders on a method that allocates such expenses among
classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that
period.]
[The IRS has ruled that an unreasonably high servicing fee
retained by a seller or servicer will be treated as a retained
ownership interest in mortgages that constitutes a stripped coupon.
For purposes of determining what constitutes reasonable servicing
fees for various types of mortgages the IRS has established certain
"safe harbors." The servicing fees paid with respect to the
Mortgage Collateral are higher than the "safe harbors" and,
accordingly, may not constitute reasonable servicing compensation.
[Information regarding servicing fees paid to the Master Servicer,
the Certificate Administrator, any Servicer, any Sub-Servicer or
their respective affiliates necessary to determine whether the
preceding "safe harbor" rules apply].
[If Certificates subject to the "stripped bond" rules of
Section 1286 of the Code.] [Each Grantor Trust Fractional Interest
Certificate will be treated as having been issued with "original
issue discount" within the meaning of Section 1273(a) of the Code,
subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion
regarding de minimis market discount. See "Market Discount" below.
Under the stripped bond rules, the holder of a Grantor Trust
Fractional Interest Certificate (whether a cash or accrual method
taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an
amount equal to the income that accrues on such Certificate in that
month calculated under a constant yield method, in accordance with
the rules of the Code relating to original issue discount.
Application of Strip Bond Rules. The original issue discount
on a Grantor Trust Fractional Interest Certificate will be the
excess of such Certificate's stated redemption price over its issue
price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by
such purchaser for the Grantor Trust Fractional Interest
Certificate. The stated redemption price of a Grantor Trust
Fractional Interest Certificate will be the sum of all payments to
be made on such Certificate, as well as such Certificate's share of
reasonable servicing fees and other expenses[, other than payments
of fixed interest payable periodically (not less than annually)].
In general, the amount of such income that accrues in any month
would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of
such month (see "Sales of Grantor Trust Certificates") and the yield
of such Grantor Trust Fractional Interest Certificate to such
holder. Such yield would be computed at the rate (assuming
compounding based on the regular interval between payment dates)
that, if used to discount the holder's share of future payments on
the Mortgage Collateral, would cause the present value of those
future payments to equal the price at which the holder purchased
such Certificate. In computing yield under the stripped bond rules,
a Certificateholder's share of future payments on the Mortgage
Collateral will not include any payments made in respect of any
ownership interest in the Mortgage Collateral retained by the
Company, the Master Servicer, the Certificate Administrator, any
Servicer, any Sub-Servicer or their respective affiliates, but will
include such Certificateholder's share of any reasonable servicing
fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a
reasonable prepayment assumption in accruing original issue discount
and (ii) adjustments in the accrual of original issue discount when
prepayments do not conform to the prepayment assumption with respect
to certain categories of debt instruments, and regulations could be
adopted applying those provisions to the Grantor Trust Fractional
Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates
or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain,
if a prepayment assumption is used, whether the assumed prepayment
rate would be determined based on conditions at the time of the
first sale of the Grantor Trust Fractional Interest Certificate or,
with respect to any subsequent holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors
concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate
acquired at a price equal to the principal amount of the Mortgage
Collateral allocable to such Certificate, the use of a prepayment
assumption would not ordinarily have any significant effect on the
yield used in calculating accruals of interest income. In the case,
however, of a Grantor Trust Fractional Interest Certificate acquired
at a discount or premium (that is, at a price less than or greater
than such principal amount, respectively), the use of a prepayment
assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when an item of
Mortgage Collateral prepays in full, the holder of a Grantor Trust
Fractional Interest Certificate acquired at a discount or a premium
generally will recognize ordinary income or loss equal to the
difference between the portion of the prepaid principal amount of
the item of Mortgage Collateral that is allocable to such
Certificate and the portion of the adjusted basis of such
Certificate that is allocable to such Certificateholder's interest
in the Mortgage Collateral. If a prepayment assumption is used, it
appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method
similar to that described for taking account of original issue
discount on REMIC Regular Certificates. See "Certain Federal Income
Tax Consequences -- Taxation of Owners of REMIC Regular
Certificates Original Issue Discount" in the Prospectus. It is
unclear what other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate
of prepayments.
In the absence of statutory or administrative clarification,
it is currently intended to base information reports or returns to
the IRS and Certificateholders in transactions subject to the
stripped bond rules on a prepayment assumption (the "Prepayment
Assumption") that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative
initial offering price for each class of Certificates. However,
neither the Company, the Master Servicer nor the Certificate
Administrator will make any representation that the Mortgage
Collateral will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event
be accurate only as to the initial Certificateholders of each series
who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped
bonds are to be treated as market discount bonds and, accordingly,
any purchaser of such a bond is to account for any discount on the
bond as market discount rather than original issue discount. This
treatment only applies, however, if immediately after the most
recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there
is no original issue discount (or only a de minimis amount of
original issue discount) or (ii) the annual stated rate of interest
payable on the original bond is no more than one percentage point
lower than the gross interest rate payable on the original mortgage
loan (before subtracting any servicing fee or any stripped coupon).
[Specify if interest payable on a Grantor Trust Fractional Interest
Certificate is more than one percentage point lower than the gross
interest rate payable on the Mortgage Collateral disclose that
fact.] If the original issue discount or market discount on a
Grantor Trust Fractional Interest Certificate determined under the
stripped bond rules is less than 0.25% of the stated redemption
price multiplied by the weighted average maturity of the Mortgage
Collateral, then such original issue discount or market discount
will be considered to be de minimis. Original issue discount or
market discount of only a de minimis amount will be included in
income in the same manner as de minimis original issue and market
discount described in "If Stripped Bond Rules Do Not Apply" and
"Market Discount."]
[If Stripped Bond Rules Do Not Apply. Subject to the
discussion below on original issue discount, [if the stripped bond
rules do not apply to a Grantor Trust Fractional Interest
Certificate,] the Certificateholder will be required to report its
share of the interest income on the Mortgage Collateral in
accordance with such Certificateholder's normal method of
accounting. The original issue discount rules will apply to a
Grantor Trust Fractional Interest Certificate to the extent it
evidences an interest in Mortgage Collateral issued with original
issue discount.
The original issue discount, if any, on the Mortgage
Collateral will equal the difference between the stated redemption
price of such Mortgage Collateral and its issue price. Under the
OID Regulations, the stated redemption price is equal to the total
of all payments to be made on such Mortgage Collateral other than
"qualified stated interest." "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a
single fixed rate, or at a "qualified floating rate," an "objective
rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that generally does
not operate in a manner that accelerates or defers interest payments
on such Mortgage Collateral. In general, the issue price of a
Mortgage Loan or Contract will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan or
Contract, less any "points" paid by the borrower, and the stated
redemption price of a Mortgage Loan will equal its principal amount,
unless the Mortgage Loan or
Contract provides for an initial below-market rate of interest or the
acceleration or the deferral of
interest payments.
[Describe the manner in which such rules will be applied with
respect to those Mortgage Collateral by the Trustee in preparing
information returns to the Certificateholders and the IRS.]
Notwithstanding the general definition of original issue
discount, original issue discount will be considered to be de
minimis if such original issue discount is less than 0.25% of the
stated redemption price multiplied by the weighted average maturity
of the Mortgage Collateral. For this purpose, the weighted average
maturity of the Mortgage Collateral will be computed as the sum of
the amounts determined, as to each payment included in the stated
redemption price of such Mortgage Collateral, by multiplying (i) the
number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made by (ii) a
fraction, the numerator of which is the amount of the payment and
the denominator of which is the stated redemption price of the
Mortgage Collateral. Under the OID Regulations, original issue
discount of only a de minimis amount (other than de minimis original
issue discount attributable to a so-called "teaser" rate or initial
interest holiday) will be included in income as each payment of
stated principal is made, based on the product of the total amount
of such de minimis original issue discount and a fraction, the
numerator of which is the amount of each such payment and the
denominator of which is the outstanding stated principal amount of
the Mortgage Collateral. The OID Regulations also permit a
Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method.
See "Market Discount" below.
If original issue discount is in excess of a de minimis
amount, all original issue discount with respect to the Mortgage
Collateral will be required to be accrued and reported in income
each month, based on a constant yield. The OID Regulations suggest
that no prepayment assumption is appropriate in computing the yield
on prepayable obligations issued with original issue discount. In
the absence of statutory or administrative clarification, it
currently is not intended to base information reports or returns to
the IRS and Certificateholders on the use of a prepayment assumption
in transactions not subject to the stripped bond rules. Section
1272(a)(6) of the Code, however, may require that a prepayment
assumption be used in computing yield with respect to all
mortgage-backed securities. Certificateholders are advised to
consult their tax advisors concerning whether a prepayment
assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
[Describe manner by which the original issue discount rules will
apply to Mortgage Collateral in such series.]
A purchaser of a Grantor Trust Fractional Interest Certificate
that purchases such Grantor Trust Fractional Interest Certificate at
a cost less than such Certificate's allocable portion of the
aggregate remaining stated redemption price of the Mortgage
Collateral will also be required to include in gross income such
Certificate's daily portions of any original issue discount with
respect to such Mortgage Collateral. However, each such daily
portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted
issue prices" of the Mortgage Collateral, approximately in
proportion to the ratio such excess bears to such Certificate's
allocable portion of the aggregate original issue discount remaining
to be accrued on the Mortgage Collateral. The adjusted issue price
of an item of Mortgage Collateral on any given day equals the sum of
(i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such item of Mortgage Collateral at the
beginning of the accrual period that includes such day and (ii) the
daily portions of original issue discount for all days during such
accrual period prior to such day. The adjusted issue price of an
item of Mortgage Collateral at the beginning of any accrual period
will equal the issue price of such Mortgage Collateral, increased by
the aggregate amount of original issue discount with respect to such
Mortgage Collateral that accrued in prior accrual periods, and
reduced by the amount of any payments made on such Mortgage
Collateral in prior accrual periods of amounts included in its
stated redemption price.
The Master Servicer will provide to any holder of a Grantor
Trust Fractional Interest Certificate such information as such
holder may reasonably request from time to time with respect to
original issue discount accruing on Grantor Trust Fractional
Interest Certificates. Such requests may be directed to
[Residential Funding] [principal executive office]. [See
"Residential Funding Corporation" in the Prospectus.] See "Grantor
Trust Reporting" below.]
Market Discount. If the stripped bond rules do not apply to
the Grantor Trust Fractional Interest Certificate, a
Certificateholder may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an interest in
Mortgage Collateral is considered to have been purchased at a
"market discount," that is, in the case of Mortgage Collateral
issued without original issue discount, at a purchase price less
than its remaining stated redemption price (as defined above), or in
the case of Mortgage Collateral issued with original issue discount,
at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as
described below), the holder generally will be required to include
in income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such month
that has not previously been included in income, but limited, in the
case of the portion of such discount that is allocable to any
Mortgage Collateral, to the payment of stated redemption price on
such Mortgage Collateral that is received by (or, in the case of
accrual basis Certificateholders, due to) the Trust Fund in that
month. A Certificateholder may elect to include market discount in
income currently as it accrues (under a constant yield method based
on the yield of the Certificate to such holder) rather than
including it on a deferred basis in accordance with the foregoing.
If made, such election will apply to all market discount bonds
acquired by such Certificateholder during or after the first taxable
year to which such election applies. In addition, the OID
Regulations would permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to
Mortgage Collateral with market discount, the Certificateholder
would be deemed to have made an election to include market discount
in income currently with respect to all other debt instruments
having market discount that such Certificateholder acquires during
the taxable year of the election and thereafter, and possibly
previously acquired instruments. Similarly, a Certificateholder
that made this election for a Certificate acquired at a premium
would be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "Certain Federal
Income Tax Consequences Taxation of Owners of REMIC Regular
Certificates Premium" in the Prospectus. Each of these elections to
accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal of
which is payable in more than one installment. Until such time as
regulations are issued by the Treasury Department, certain rules
described in the Conference Committee Report (the "Committee
Report") accompanying the Tax Reform Act of 1986 will apply. Under
those rules, in each accrual period market discount on the Mortgage
Collateral should accrue, at the Certificateholder's option: (i) on
the basis of a constant yield method, (ii) in the case of Mortgage
Collateral issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total stated
interest remaining to be paid on the Mortgage Collateral as of the
beginning of the accrual period, or (iii) in the case of Mortgage
Collateral issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the
total original issue discount remaining at the beginning of the
accrual period. The prepayment assumption, if any, used in
calculating the accrual of original issue discount is to be used in
calculating the accrual of market discount. The effect of using a
prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what
effect such regulations might have on the tax treatment of a
Mortgage Collateral purchased at a discount in the secondary market.
Since the Mortgage Collateral will provide for periodic
payments of stated redemption price, such discount may be required
to be included in income at a rate that is not significantly slower
than the rate at which such discount would be included in income if
it were original issue discount.
Market discount with respect to Mortgage Collateral generally
will be considered to be de minimis if it is not greater than or
equal to 0.25% of the stated redemption price of the Mortgage
Collateral multiplied by the number of complete years to maturity
remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable
in installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into
account the prepayment assumption used, if any. The effect of using
a prepayment assumption could be to accelerate the reporting of such
discount income. If market discount is treated as de minimis under
the foregoing rule, it appears that actual discount would be treated
[in a manner similar to original issue discount of a de minimis
amount. See "If Stripped Bond Rules Do Not Apply."]
Further, under the rules described in "Certain Federal Income
Tax Consequences -- Taxation of Owners of REMIC Regular
Certificates Market Discount" in the Prospectus, any discount that
is not original issue discount and exceeds a de minimis amount may
require the deferral of interest expense deductions attributable to
accrued market discount not yet includible in income, unless an
election has been made to report market discount currently as it
accrues.
Premium. If a Certificateholder is treated as acquiring the
underlying Mortgage Collateral at a premium, that is, at a price in
excess of their remaining stated redemption price, such
Certificateholder may elect under Section 171 of the Code to
amortize such premium using a constant yield method. Amortizable
premium is treated as an offset to interest income on the related
Mortgage Collateral rather than as a separate interest deduction.
Premium allocable to Mortgage Collateral for which an amortization
election is not made should be allocated among the payments on the
Mortgage Collateral representing stated redemption price and be
allowed as an ordinary deduction as such payments are made (or, for
a Certificateholder using the accrual method of accounting, when
such payments are due).
It is unclear whether a prepayment assumption should be used
in computing amortization of premium allowable under Section 171 of
the Code. If premium is not subject to amortization using a
prepayment assumption and an item of Mortgage Collateral prepays in
full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of
the Mortgage Collateral that is allocable to the Certificate and the
portion of the adjusted basis of the Certificate that is allocable
to the Mortgage Collateral. If a prepayment assumption is used to
amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC
Regular Certificates. See "Certain Federal Income Tax Consequences
Taxation of Owners of REMIC Regular Certificates Original Issue
Discount" in the Prospectus. It is unclear what other adjustments
would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates
The "stripped coupon" rules of Section 1286 of the Code will
apply to the Grantor Trust Strip Certificates. Except as described
above in "Taxation of Owners of Grantor Trust Fractional Interest
Certificates If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates.
Accordingly, holders of Grantor Trust Strip Certificates should
consult their tax advisors concerning the method to be used in
reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons,"
although they provide general guidance as to how the original issue
discount sections of the Code will be applied. In addition, the
discussion below is subject to the discussion under "Possible
Application of Proposed Contingent Payment Rules" below, and assumes
that the holder of a Grantor Trust Strip Certificate will not own
any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original
issue discount will be required to be accrued in each month on the
Grantor Trust Strip Certificates based on a constant yield method.
In effect, each holder of Grantor Trust Strip Certificates would
include as interest income in each month an amount equal to the
product of such holder's adjusted basis in such Grantor Trust Strip
Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be
calculated based on the price paid for that Grantor Trust Strip
Certificate by its holder and the payments remaining to be made
thereon at the time of the purchase, plus an allocable portion of
the servicing fees and expenses to be paid with respect to the
Mortgage Collateral. See "Taxation of Owners of Grantor Trust
Fractional Interest Certificates If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that
a prepayment assumption be used in computing the accrual of original
issue discount with respect to certain categories of debt
instruments, and that adjustments be made in the amount and rate of
accrual of such discount when prepayments do not conform to such
prepayment assumption. Regulations could be adopted applying those
provisions to the Grantor Trust Strip Certificates. It is unclear
whether those provisions would be applicable to the Grantor Trust
Strip Certificates or whether use of a prepayment assumption may be
required or permitted in the absence of such regulations. It is
also uncertain, if a prepayment assumption is used, whether the
assumed prepayment rate would be determined based on conditions at
the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates
will be significantly slower if a prepayment assumption is permitted
to be made than if yield is computed assuming no prepayments. In
the absence of statutory or administrative clarification, it
currently is intended to base information returns or reports to the
IRS and Certificateholders on the Prepayment Assumption disclosed in
the related Prospectus Supplement and on a constant yield computed
using a representative initial offering price for each class of
Certificates. However, neither the Company, the Master Servicer nor
the Certificate Administrator will make any representation that the
Mortgage Collateral will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event
be accurate only as to the initial Certificateholders of each series
who bought at that price. Prospective purchasers of the Grantor
Trust Strip Certificates should consult their tax advisors regarding
the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment
of an item of Mortgage Collateral will give rise to a loss to the
holder of a Grantor Trust Strip Certificate. If a Grantor Trust
Strip Certificate is treated as a single instrument (rather than an
interest in discrete mortgage loans or contracts) and the effect of
prepayments is taken into account in computing yield with respect to
such Grantor Trust Strip Certificate, it appears that no loss may be
available as a result of any particular prepayment unless
prepayments occur at a rate faster than the Prepayment Assumption.
However, if a Grantor Trust Strip Certificate is treated as an
interest in discrete Mortgage Collateral, or if the Prepayment
Assumption is not used, then when an item of Mortgage Collateral is
prepaid, the holder of a Grantor Trust Strip Certificate should be
able to recognize a loss equal to the portion of the adjusted issue
price of the Grantor Trust Strip Certificate that is allocable to
such Mortgage Collateral.
Possible Application of Proposed Contingent Payment Rules
The coupon stripping rules' general treatment of stripped
coupons is to regard them as newly issued debt instruments in the
hands of each purchaser. To the extent that payments on the Grantor
Trust Strip Certificates would cease if the Mortgage Collateral were
prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments.
Under the OID Regulations, debt instruments providing for contingent
payments are not subject to the same rules as debt instruments
providing for noncontingent payments, but no final regulations have
been promulgated with respect to contingent payment debt
instruments. Proposed regulations were promulgated in 1986 regarding
contingent payment debt instruments, but have not been made final
and are likely to be substantially revised before being made final.
Moreover, like the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section
1286 of the Code.
If the contingent payment rules under the regulations proposed
in 1986 were to apply, the holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each
month a portion of the periodic payment (the "Accrued Periodic
Payment") due on the Grantor Trust Strip Certificate. That portion
(the "Periodic Income Amount") would equal the product of (i) the
adjusted issue price of the Grantor Trust Strip Certificate at the
beginning of the period and (ii) a specified yield (as further
described below). The excess of the Accrued Periodic Payment over
the Periodic Income Amount first would reduce the adjusted issue
price of the Grantor Trust Strip Certificate and, to that extent,
would be treated as a return of capital and not as interest income;
after the adjusted issue price had been reduced to zero, the entire
Accrued Periodic Payment would be treated as interest income.
The specified yield referred to in clause (ii) above would
equal the "applicable federal rate" (expressed as a monthly rate) in
effect at the time of purchase of the Grantor Trust Strip
Certificate by that holder, which rate is computed monthly by the
IRS. It is unclear whether a prepayment assumption should be made in
determining which Treasury securities (short-term, mid-term or
long-term) should be used to determine the "applicable federal rate"
for this purpose.
Income accrual with respect to a Grantor Trust Strip
Certificate will generally be slower if the foregoing contingent
payment rules apply than if they do not. However, as noted above,
there is substantial doubt that the contingent payment rules of the
proposed regulations in their current form will be permitted to be
applied to instruments such as the Grantor Trust Strip Certificates
and revised contingent payment regulations are expected to be
proposed. Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules
to the Grantor Trust Strip Certificates.]
Sales of Grantor Trust Certificates
Except as described below, any gain or loss recognized on the
sale of a Grantor Trust Certificate generally will be capital gain
or loss, and will be equal to the difference between the amount
realized on the sale of a Grantor Trust Certificate and its adjusted
basis. The adjusted basis of a Grantor Trust Certificate generally
will equal its cost, increased by any income (including original
issue discount and market discount income) recognized by the seller
and reduced (but not below zero) by any previously reported losses,
amortized premium and distributions with respect to such Grantor
Trust Certificate. The Code currently provides for a top marginal
tax rate applicable to ordinary income of individuals of 39.6% while
maintaining a maximum marginal rate for the long-term capital gains
of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain
or loss and ordinary income or loss remains relevant for other
purposes.
Gain or loss from the sale of a Grantor Trust Certificate may
be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized market
discount will be treated as ordinary income, as will gain or loss
recognized by banks and other financial institutions subject to
Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to
the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the
Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all
of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest
that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable federal rate" (which rate is computed
and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction
for prior inclusion of interest and other ordinary income items from
the transaction. Finally, a taxpayer may elect to have net capital
gain taxed at ordinary income rates rather than capital gains rates
in order to include such net capital gain in total net investment
income for that taxable year, for purposes of the limitation on the
deduction of interest on indebtedness incurred to purchase or carry
property held for investment to a taxpayer's net investment income.
Grantor Trust Reporting
The Trustee will furnish to each holder of a Grantor Trust
Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the underlying
[Mortgage Loans] [Contracts] and to interest thereon at the related
Pass-Through Rate. In addition, within a reasonable time after the
end of each calendar year, based on information provided by the
Master Servicer or the Certificate Administrator, as applicable, the
Trustee will furnish to each Certificateholder during such year such
customary factual information as the Trustee deems necessary or
desirable to enable holders of Grantor Trust Certificates to prepare
their tax returns and will furnish comparable information to the IRS
as and when required by law to do so. Because the rules for
accruing discount and amortizing premium with respect to the Grantor
Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the Trustee's information reports
of such items of income and expense. Moreover, such information
reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders who
bought their Certificates at the representative initial offering
price used in preparing such reports.
Backup Withholding
In general, the rules described in "Certain Federal Income Tax
Consequences Backup Withholding with Respect to REMIC
Certificates" in the Prospectus will also apply to Grantor Trust
Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular
Certificates in "Certain Federal Income Tax Consequences Foreign
Investors in REMIC Certificates" in the Prospectus applies to
Grantor Trust Certificates.
To the extent that interest on a Grantor Trust Certificate
would be exempt under Sections 871(h)(1) and 881(c) of the Code from
United States withholding tax, and the Grantor Trust Certificate is
not held in connection with a Certificateholder's trade or business
in the United States, such Grantor Trust Certificate will not be
subject to United States
estate taxes in the estate of a non-resident alien individual.]
[ERISA CONSIDERATIONS]
[A description of whether there will be any exemption from
"plan asset" treatment will be available with respect to the Series
to be included as appropriate.]
[A statement of whether the Series will be an Exempt or a
Nonexempt Series to be included if appropriate]
[To qualify for exemption under PTCE 83-1 (see "ERISA
Considerations Prohibited Transaction Class Exemptions" in the
Prospectus), a Certificate of an Exempt Series must entitle its
holder to pass-through payments of both principal and interest on
the Mortgage Loans. Because the Subordinate Certificates are
subordinated to the Senior Certificates, PTCE 83-1 will not provide
an exemption from the prohibited transaction rules of ERISA for
Plans that acquire Subordinate Certificates. Any Plan fiduciary who
proposes to cause a Plan to purchase Certificates should consult
with its counsel with respect to the potential consequences under
ERISA and Section 4975 of the Code of the Plan's acquisition and
ownership of Certificates. However, the other PTCEs or the
Underwriter's PTE may be applicable. See "ERISA Considerations" in
the Prospectus.]
[A Description of PTE 90-23 to be included if appropriate.]
LEGAL INVESTMENT MATTERS
The [Senior] Certificates will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are rated in
one of the two highest rating categories by at least one nationally
recognized statistical rating organization, and, as such, will be
legal investments for certain entities to the extent provided in the
SMMEA. [The Class M Certificates will not constitute "mortgage
related securities" for purposes of SMMEA.] Institutions whose
investment activities are subject to legal investment laws and
regulations or to review by regulatory authorities should consult
with their own legal advisors in determining whether and to what
extent the Offered Certificates constitute legal investments under
SMMEA or are subject to restrictions on investment, capital
requirements or otherwise. See "Legal Investment Matters" in the
Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the
underwriting agreement dated [_______ __, 199_], (the "Underwriting
Agreement") the Underwriter has agreed to purchase, and the Company
has agreed to sell to the Underwriter, each class of the Offered
Certificates [except that a de minimis portion of the Residual
Certificates will be retained by Residential Funding and such
portion is not offered hereby].
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered
Certificates is subject to, among other things, the receipt of
certain legal opinions and to the conditions, among others, that no
stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings
for such purpose shall be pending before or threatened by the
Securities and Exchange Commission.
The distribution of the Offered Certificates by the
Underwriter may be effected, from time to time, in one or more
negotiated transactions, or otherwise, at varying prices to be
determined at the time of sale. Proceeds to the Company from the
sale of the Offered Certificates, before deducting expenses payable
by the Company, will be [______]% of the aggregate Certificate
Principal Balance of the Offered Certificates plus accrued interest
thereon from the Cut-off Date. The Underwriter may effect such
transactions by selling the Offered Certificates to or through
dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale
of the Offered Certificates, the Underwriter may be deemed to have
received compensation from the Company in the form of underwriting
compensation. The Underwriter and any dealers that participate with
the Underwriter in the distribution of the Offered Certificates may
be deemed to be underwriters and any profit on the resale of the
Offered Certificates positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of
1933.
The Underwriting Agreement provides that the Company will
indemnify the Underwriter, and under limited circumstances the
Underwriter will indemnify the Company, against certain civil
liabilities under the Securities Act of 1933 or contribute to
payments required to be made in respect thereof.
There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it
will continue. The primary source of information available to
investors concerning the Offered Certificates will be the monthly
statements discussed in the Prospectus under "Description of the
Certificates Reports to Certificateholders," which will include
information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit
enhancement. There can be no assurance that any additional
information regarding the Offered Certificates will be available
through any other source. In addition, the Company is not aware of
any source through which price information about the Offered
Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Offered
Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered
Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates
will be passed upon for the Company by [Orrick, Herrington &
Sutcliffe] [Thacher Proffitt & Wood], New York, New York and for the
Underwriter by [______________________________].
RATINGS
It is a condition to the issuance of the Senior Certificates
(other than the Accrual Certificates) and the Class M Certificates
that they be rated not lower than "[___]" and "[___]", respectively
by [____________________________ ("_______")] and "[___]" and
"[___]", respectively, by [________________________ ("_______")].
[[________________] ratings on pass-through certificates
address the likelihood of the receipt by Certificateholders of
payments required under the Pooling and Servicing Agreement.
[_______________] ratings take into consideration the credit quality
of the [Mortgage] [Contract] Pool, structural and legal aspects
associated with the Certificates, and the extent to which the
payment stream in the [Mortgage] [Contract] Pool is adequate to make
payments required under the Certificates. [_______________] rating
on the Certificates does not, however, constitute a statement
regarding frequency of prepayments on the [Mortgage Loans]
[Contracts]. See "Certain Yield and Prepayment Considerations"
herein.] [The "r" of the "AAAr" rating of the Class [__]
Certificates by [________________] is attached to highlight
derivative, hybrid, and certain other obligations that
[________________] believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples
of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain
swaps and options; and interest only and principal only mortgage
securities. The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or
variability in total return.]
[The ratings of [____] on pass-through certificates [also]
address the likelihood of the receipt by Certificateholders of all
distributions on the underlying [mortgage loans] [manufactured
housing contracts] to which they are entitled. The rating process
addresses the structural and legal aspects associated with the
Certificates, including the nature of the underlying [mortgage
loans] [contracts]. The ratings assigned to pass-through
certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The rating does not address the
possibility that Certificateholders might suffer a lower than
anticipated yield.]
[The ratings of [_____] assigned to pass-through certificates
[also] address the likelihood of the receipt by Certificateholders
of all distributions to which such Certificateholders are entitled.
[_____] ratings on pass-through certificates do not represent any
assessment of the likelihood that principal prepayments will be made
by the mortgagors or the degree to which such prepayments differ
from that originally anticipated. The ratings assigned to pass-through
certificates do not
represent any assessment of the
likelihood or rate of principal prepayments. The rating does not
address the possibility that Certificateholders might suffer a lower
than anticipated yield or that rapid rates of principal prepayments
could result in a failure of the holders of the Stripped Interests
Certificates to fully recover their initial investment.]
The Company has not requested a rating on the Offered
Certificates by any rating agency other than [__________] and
[__________]. However, there can be no assurance as to whether any
other rating agency will rate the Offered Certificates, or, if it
does, what rating would be assigned by any such other rating agency.
A rating on the Certificates by another rating agency, if assigned
at all, may be lower than the ratings assigned to the Offered
Certificates by [_________] and [__________].
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time
by the assigning rating organization. Each security rating should
be evaluated independently of any other security rating. The rating
of the Principal Only Certificates, Stripped Interests Certificates
or the Class M Certificates does not address the possibility that
the holders of such Certificates may fail to fully recover their
initial investment. In the event that the rating initially assigned
to the Offered Certificates is subsequently lowered for any reason,
no person or entity is obligated to provide any additional support
or credit enhancement with respect to the Offered Certificates.<PAGE>
No dealer, salesman or other person
has been authorized to give any information
or to make any representations not
contained in this Prospectus Supplement and
the Prospectus and, if given or made, such
information or representations must not be
relied upon as having been authorized by
the Company or by the Underwriter. This
Prospectus Supplement and the Prospectus do
not constitute an offer to sell, or a
solicitation of an offer to buy, the
securities offered hereby to anyone in any
jurisdiction in which the person making
such offer or solicitation is not qualified
to do so or to anyone to whom it is
unlawful to make any such offer or
solicitation. Neither the delivery of this
Prospectus Supplement and the Prospectus
nor any sale made hereunder shall, under
any circumstances, create an implication
that information herein or therein is
correct as of any time since the date of
this Prospectus Supplement or the
Prospectus.
TABLE OF CONTENTS
Prospectus Supplement Page
Summary . . S-
Description of the [Mortgage] [Contract]
Pool. . . S-
Description of the Offered Certificates S-
Certain Yield and Prepayment Considerations S-
Pooling and Servicing Agreement. . . S-
Certain Federal Income Tax Consequences S-
Method of Distribution. . . S-
Legal Opinions. . . S-
Ratings . . S-
Legal Investment. . . S-
ERISA Considerations. . . S-
Prospectus
Summary of Prospectus . .
Risk Factors. . .
The Trust Funds . .
Description of the Certificates. . .
Subordination . .
Description of Credit Enhancement. . .
Insurance Policies on Mortgage
Loans or Contracts . .
The Company . .
Residential Funding Corporation. . .
The Pooling and Servicing Agreement. . .
Yield Considerations. . .
Maturity and Prepayment Considerations
Certain Legal Aspects of Mortgage
Loans and Contracts. . .
Certain Federal Income Tax Consequences
State and Other Tax Consequences . .
ERISA Considerations. . .
Legal Investment Matters. . .
Use of Proceeds . .
Methods of Distribution . .
Legal Matters . .
Financial Information . .
Additional Information. . .
Index of Principal Definitions . .
<PAGE>
Residential Accredit Loans, Inc.
[Mortgage] [Manufactured Housing Contract]
Pass-Through Certificates, Series [199_-___]
Class A-1 Certificates
____% $
Class A-2 Certificates
____% $
Class A-4 Certificates
0% $
Class A-5 Certificates Variable Rate $ 0
Class R Certificates
____% $
Class M Certificates
____% $
[Name of [Master] Servicer[s]]
PROSPECTUS SUPPLEMENT
________________, 199_
SUBJECT TO COMPLETION, DATED JULY 24, 1996
Version I-B
Prospectus Supplement
(To Prospectus dated [_______ __, 199_])
$[------------]
Residential Accredit Loans, Inc.
Depositor
[Name of Certificate Administrator]
Certificate Administrator
Mortgage Pass-Through Certificates, Series [199_-_]
$[________] [___]% Class A-1 Certificates $ 0 [____]%(1) Class S Certificates
$[________] [___]% Class A-2 Certificates $[_______][___]% Class R Certificates
$[________] [___]% Class A-3 Certificates
- ----------------------
(1) Based upon the related Notional Amount, (as described herein under
"Description of the Offered Certificates-Interest Distributions"). The Class
S Certificates will be Fixed Strip Certificates and will not be entitled to
receive distributions of principal.
The Series [199_-_] Mortgage Pass-Through Certificates offered hereby will
include the following five classes (the "Offered Certificates"): (i) Class A-1
Certificates, Class A-2 Certificates and Class A-3 Certificates, (ii) Class S
Certificates (the "Fixed Strip Certificates") and (iii) Class R Certificates
(the "Residual Certificates"). The Offered Certificates in the aggregate will
represent the entire beneficial ownership interest in a trust fund (the "Trust
Fund") consisting primarily of Ginnie Mae Securities (the "Underlying Agency
Securities"). Each Underlying Agency Security is a ["fully modified
pass-through" mortgage-backed certificate] [issued and serviced by a mortgage
banking company or other financial concern approved by Ginnie Mae (a "Ginnie Mae
Issuer")] based on and backed by a pool of mortgage loans (each, a "Mortgage
Pool") which may consist of FHA-insured or VA-guaranteed mortgage loans secured
by one- to four-family residential properties and eligible for inclusion in
mortgage pools underlying Ginnie Mae Securities, which may be level payment or
graduated payment first lien mortgage loans with terms to maturity of not more
than 30 years (collectively, the "Mortgage Loans"). Certain characteristics of
the Underlying Agency Securities are described herein under "Description of the
Underlying Agency Securities." See "Index of Principal Definitions" in the
Prospectus for meanings of capitalized terms and acronyms not otherwise defined
herein.
(Continued on following page)
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN
INTEREST IN
OR OBLIGATION OF THE COMPANY, THE CERTIFICATE ADMINISTRATOR,
GMAC MORTGAGE
CORPORATION ("GMAC MORTGAGE") OR ANY OF THEIR AFFILIATES.
ALTHOUGH PAYMENT OF
PRINCIPAL AND INTEREST ON THE UNDERLYING AGENCY SECURITIES IS
GUARANTEED BY
GINNIE MAE, THE OFFERED CERTIFICATES ARE NOT INSURED OR
GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE
CERTIFICATE
ADMINISTRATOR, GMAC MORTGAGE OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY
GENERAL OF
THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF
THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
For a discussion of significant matters affecting investments in the
Certificates, see "Risk Factors" [commencing on page S-11 herein and] in the
Prospectus commencing on page 15.
[Name of Underwriter] (the "Underwriter") intends to make a secondary market in
the Offered Certificates, but has no obligation to do so. There can be no
assurance that a secondary market for the Offered Certificates will develop or,
if it does develop, that it will continue. The Offered Certificates will not be
listed on any securities exchange.
The Offered Certificates will be purchased from the Company by the Underwriter,
and will be offered by the Underwriter from time to time to the public, directly
or through dealers, in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The proceeds to the Company from the sale of
the Offered Certificates, before deducting expenses payable by the Company, will
be equal to approximately [____]% of the initial aggregate principal balance of
the Offered Certificates, plus accrued interest thereon from [__________ -
__, 199_] (the "Reference Date"). The Offered Certificates are offered by the
Underwriter subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify such offer and to reject any
order in whole or in part. It is expected that delivery of the Offered
Certificates will be made on or about [__________ __, 199_], [at the offices of
[ ]], [through the facilities of The Depository Trust Company], against payment
therefor in immediately available funds.
[Name of Underwriter]
[__________ __, 199_]
<PAGE>
(Continued from previous page)
It is a condition to the issuance of the Offered Certificates that the Class
A-1, Class A-2, Class A-3, Fixed Strip and Residual Certificates be rated "[__]"
by [_______] and "[__]" by [________].
As described herein, a "real estate mortgage investment conduit" (a "REMIC")
election will be made in connection with the Trust Fund for federal income tax
purposes. Each class of the Offered Certificates (other than the Residual
Certificates) will represent ownership of "regular interests" in the REMIC and
the Residual Certificates will be the sole class of "residual interests" in the
REMIC. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus. [Transfers of the Residual Certificates may be made only to
"qualified institutional buyers" as defined in Rule 144A under the Securities
Act of 1933, as amended, and will be prohibited to any non-United States person,
and will be subject to certain additional transfer restrictions described under
"Certain Federal Income Tax Consequences--Special Tax Considerations Applicable
to Residual Certificates" herein and in the Prospectus under "Certain Federal
Income Tax Consequences--REMICs--Tax and Restrictions on Transfers of REMIC
Residual Certificates to Certain Organizations" and "--Taxation of Owners of
REMIC Residual Certificates--Noneconomic REMIC Residual Certificates."]
Distributions on the Offered Certificates will be made on the third business
day following each distribution date for the Underlying Agency Securities (each,
a "Distribution Date"), commencing on [__________ __, 199_] for the Offered
Certificates other than the Class A-3 Certificates, and commencing on the
Accretion Termination Date (as defined herein) for the Class A-3 Certificates.
With respect to any of the Underlying Agency Securities, the distribu-
tion date is the [15th day of each calendar month in the case of a GNMA I
Certificate] [the 20th day of each calendar month in the case of a GNMA II
Certificate] (or, if such day is not a business day, the next business day)
(each, an "Underlying Security Distribution Date"). As described herein under
"Description of the Offered Certificates-Interest Distributions," interest
distributions on the Offered Certificates will be based on the Certificate
Principal Balance thereof (or the Notional Amount (as defined herein) in the
case of the Fixed Strip Certificates) and the applicable Pass-Through Rate
thereof, which will be fixed for all classes of Offered Certificates.
Distributions in respect of principal of the Offered Certificates will be
allocated among the various classes of the Offered Certificates (other than the
Fixed Strip Certificates), as described herein under "Description of the Offered
Certificates--Principal Distributions."
The yield to maturity on the Offered Certificates will depend on the rate
and timing of principal payments on the Underlying Agency Securities, which in
turn will be affected by the rate and timing of principal payments on the
Mortgage Loans. The yield to investors on the Fixed Strip Certificates will be
extremely sensitive to the rate and timing of principal payments on the related
Underlying Agency Securities, which in turn will be affected by the rate and
timing of principal payments on the Mortgage Loans which may fluctuate
significantly over time. An extremely rapid rate of principal payments on the
Mortgage Loans could result in the failure of investors in the Fixed Strip
Certificates to recover their initial investments. See "Summary--Special
Prepayment Considerations," "--Special Yield Considerations" and "Certain Yield
and Prepayment Considerations" herein and "Yield Considerations" in the
Prospectus.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY
PURSUANT TO ITS
PROSPECTUS DATED [__________ __, 199_], OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING NOT CONTAINED
HEREIN AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE
PROSPECTUS.
UNTIL [__________ __, 199_] (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES.
THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO
THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT
OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
OFFERED
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN
MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.]
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<PAGE>
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus. See "Index of Principal Definitions" in the
Prospectus.
Title of Securities.............................. Mortgage
Pass-Through Certificates, Series [199_-_] (the "Certificates").
Company.......................................... Residential
Accredit Loans, Inc. (the "Company"), a corporation organized under
the laws of the State of Delaware which is an affiliate of Residential
Funding Corporation ("Residential Funding"), and an indirect
wholly-owned subsidiary of GMAC Mortgage. See "The Company" in the
Prospectus.
Certificate Administrator........................ [Residential
Funding] [ ] in its capacity as certificate -------- administrator
(the "Certificate Administrator"). See "Trust Agreement--The
Certificate Administrator" herein [and "Residential Funding
Corporation" in the Prospectus.]
Trustee.......................................... [Name of
Trustee], a [national bank] [[state bank] [trust company] organized
under the laws of __________] (the "Trustee"). See "The Pooling and
Servicing Agreement--The Trustee" in the Prospectus.
Reference Date................................... [__________ 1,
199_] (the "Reference Date").
Delivery Date.................................... On or about
[__________ __, 199_] (the "Delivery Date").
Distribution Date................................ The third
business day following each distribution date for the Underlying
Agency Securities commencing on [__________ __, 199_] (each, a
"Distribution Date"). With respect to any of the Underlying Agency
Securities, the distribution date is the [15th day of each calendar
month in the case of a GNMA I Certificate] [the 20th day of each
calendar month in the case of a GNMA II Certificate] (or, if such day
is not a business day, the next business day) (each, an "Underlying
Security Distribution Date").
The Trust Fund................................... The Trust Fund,
in which the Offered Certificates in the aggregate represent the
entire beneficial ownership interest, consists primarily of the
Underlying Agency Securities. The Offered Certificates will be issued
pursuant to a Trust Agreement (the "Trust Agreement"), dated as of the
Reference Date, among the Company, the Certificate Administrator and
the Trustee. See "Description of the Offered Certificates--General"
herein.
The Underlying Agency Securities. . . . .........The Underlying
Agency Securities are [GNMA] [I] [II] Certificates. Each Underlying
Agency Security is a ["fully modified pass-through" mortgage-backed
certificate] [issued and serviced by a mortgage banking company or
other financial concern approved by Ginnie Mae (a "Ginnie Mae
Issuer")] based on and backed by a pool of FHA- insured or
VA-guaranteed mortgage loans secured by one- to four- family
residential properties and eligible for inclusion in mortgage pools
underlying Ginnie Mae Securities, which may be level payment
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<PAGE>
or graduated payment first lien mortgage loans with terms to
maturity of not more than 30 years (the "Mortgage Loans"). Information
relating to the Underlying Agency Securities is provided as of the
Reference Date.
................................................. The Underlying
Agency Securities will have an aggregate outstanding principal balance
of approximately $[ ], pass-through rates of [ ------- ]% and a
weighted average remaining term to stated maturity of approximately [
] months as of the Reference Date. ---
................................................. The Underlying
Agency Securities are guaranteed as to full and timely payment of
principal and interest by Ginnie Mae. The guaranty of Ginnie Mae is
backed by the full faith and credit of the United States. For a
further description of the underlying Agency Securities, see
"Description of the Underlying Agency Securities" herein.
The Offered Certificates......................... The Offered
Certificates in the aggregate will represent the entire beneficial
ownership interest in the Trust Fund. The Offered Certificates will
have the following Pass-Through Rates, Certificate Principal Balances
and other features as of the Reference Date:
Class A-1 Certificates [____]% $[_________] Fixed
Class A-2 Certificates [____]% $[_________] Fixed
Class A-3 Certificates [____]% $[_________] Fixed/Accrual
Class S Certificates [____]% $ 0 Fixed Strip
[Class R Certificates [____]% $[_________] Residual]
Residual Certificates............................ The Class R
Certificates are designated as the "Residual Certificates." [The
Residual Certificates have no Certificate Principal Balance and no
Pass-Through Rate. The Residual Certificates represent the right to
receive certain distributions, if any, of amounts which are in excess
of the amounts required to be distributed to all other classes of
Offered Certificates following the retirement of all of the Offered
Certificates.] [The Residual Certificates are not being offered
hereby.]
................................................. [Residential
Funding initially will retain [a de minimis portion of] the Residual
Certificates; however, the Residual Certificates held by Residential
Funding may be sold at any time in accordance with the terms of the
Trust Agreement.]
Denominations.................................... The Class A-1,
Class A-2 and Class A-3 Certificates will be offered in registered
form, in minimum denominations of $[ ] and --------
integral multiples of $[ ] in excess thereof [, with one Class
-----------
[____] Certificate evidencing the sum of an authorized
denomination thereof plus the remainder of the aggregate initial
Certificate Principal Balance of such class]. The Fixed Strip
Certificates and Residual Certificates will be offered in registered
form in minimum denominations of a [____]% Percentage Interest [,
except, in the case of the Residual Certificates, as otherwise set
forth herein under "Certain Federal Income Tax Consequences."]
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<PAGE>
[Certificate Registration........................ The Offered
Certificates (other than the [Fixed Strip and Residual] Certificates)
will be represented by one or more certificates registered in the name
of Cede & Co., as nominee of The Depository Trust Company ("DTC"). No
person acquiring an interest in the Offered Certificates (other than
the [Fixed Strip and Residual] Certificates) will be entitled to
receive a Certificate of such class in fully registered, certificated
form, except under the limited circumstances described in the
Prospectus under "Description of the Certificates--Form of
Certificates." The [Fixed Strip and Residual] Certificates will be
offered in fully registered, certificated form. See "Description of
the Certificates--Form of Certificates" in the Prospectus.]
Pass-Through Rates on the
Offered Certificates........................... The Pass-Through
Rates on all classes of the Offered Certificates are the fixed rates
set forth above. The Fixed Strip Certificates have no Certificate
Principal Balance and will accrue interest at the applicable
Pass-Through Rate on the related Notional Amount (as defined herein).
Interest Distributions on the Offered
Certificates.......................... Holders of each class of
Offered Certificates (the "Certificateholders") will be entitled to
receive interest distributions in an amount equal to the Accrued
Certificate Interest on such class on each Distribution Date, (i) in
the case of the Class A-1 Certificates, Class A-2 Certificates, Fixed
Strip Certificates and Residual Certificates, to the extent of the
amount available for interest distributions (as described herein under
"Description of the Offered Certificates-Interest Distributions") for
such Distribution Date and (ii) in the case of the Class A-3
Certificates, to the extent of the Available Distribution Amount for
such Distribution Date after distributions of interest and principal
to the Class A-1 Certificates, Class A-2 Certificates, Fixed Strip
Certificates and Residual Certificates, commencing on the first
Distribution Date in the case of all classes of Offered Certificates
(other than the Class A-3 Certificates) and commencing on the
Accretion Termination Date (as defined below) in the case of the Class
A-3 Certificates.
................................................. With respect to
any Distribution Date, "Accrued Certificate Interest" will be equal to
(a) in the case of each class of Offered Certificates (other than the
Fixed Strip Certificates), one month's interest accrued on the related
Certificate Principal Balance of such class, at the Pass-Through Rate
on such class and (b) in the case of the Fixed Strip Certificates, one
month's interest accrued on the related Notional Amount thereof at the
Pass-Through Rate set forth below; [in each case less the class's pro
rata portion of any Prepayment Interest Shortfall (as defined herein)
allocated to any of the Underlying Agency Securities].
................................................. The "Notional
Amount" of the Fixed Strip Certificates with respect to any
Distribution Date is equal to the aggregate Certificate Principal
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<PAGE>
Balance of the Underlying Agency Securities immediately prior to
the most recent Underlying Security Distribution Date.
................................................. The Accretion
Termination Date is the first Distribution Date to occur on which the
Certificate Principal Balance of the Residual, Class A-1 and Class A-2
Certificates have been reduced to zero. On each Distribution Date
preceding the Accretion Termination Date, an amount equal to the
Accrued Certificate Interest on the Class A-3 Certificates will be
added to the Certificate Principal Balance thereof (the "Accretion
Amount") and will thereafter accrue interest at the applicable
Pass-Through Rate. On each Distribution Date on or after the Accretion
Termination Date, Accrued Certificate Interest will generally be
payable to the holders of the Class A-3 Certificates, as described
herein. See "Description of the Offered Certificates--Interest
Distributions" herein.
Principal Distributions on the Offered
Certificates......................... Holders of the Offered
Certificates (other than the Fixed Strip Certificates) will be
entitled to receive, in the aggregate, on each Distribution Date, to
the extent of the portion of the Available Distribution Amount (as
defined herein) remaining after the aggregate amount of Accrued
Certificate Interest to be distributed to the holders of the Offered
Certificates is distributed, a distribution allocable to principal
which will be equal to the sum of (i) the aggregate amount distributed
in respect of principal on all of the Underlying Agency Securities on
the immediately preceding Underlying Security Distribution Date and
(ii) the Accretion Amount. Distributions of principal on the Offered
Certificates will be made first to the Residual Certificates, second
to Class A-1 Certificates, third to the Class A-2 Certificates and
fourth to the Class A-3 Certificates, in each case until the
Certificate Principal Balance thereof is reduced to zero. The Fixed
Strip Certificates have no Certificate Principal Balance and,
accordingly, will not be entitled to any principal distributions. See
"Description of the Offered Certificates-Principal Distributions
herein.
................................................. As to each of
the Underlying Agency Securities, principal distributions will be made
thereon on each Underlying Security Distribution Date in the
respective amounts described herein under "Description of the
Underlying Agency Securities."
Optional Termination............................. At its option,
the Certificate Administrator or the Company may repurchase from the
Trust Fund all of the Underlying Agency Securities remaining in the
Trust Fund, and thereby effect early retirement of the Offered
Certificates, at such time as the aggregate Certificate Principal
Balance of the Underlying Agency Securities is less than [____]% of
the aggregate Certificate Principal Balance thereof as of the Delivery
Date, as described herein. See "Trust Agreement--Termination" herein
and "The Pooling and Servicing Agreement-Termination; Retirement of
Certificates" in the Prospectus.
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<PAGE>
Special Prepayment Considerations................................
The rate and timing of principal payments on the Offered Certificates
will depend, among other things, on the rate and timing of principal
payments on the Underlying Agency Securities, which in turn will be
affected by the rate and timing of principal payments on the Mortgage
Loans. As is the case with mortgage-backed securities generally, the
Underlying Agency Securities and, as a result, the Offered
Certificates are subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans may be prepaid at any time.
Generally, when prevailing interest rates increase, prepayment rates
on mortgage loans tend to decrease, resulting in a slower return of
principal to investors at a time when reinvestment at such higher
prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on mortgage loans tend to
increase, resulting in a faster return of principal to investors at a
time when reinvestment at comparable yields may not be possible.
................................................. The allocation
of prepayments among certain classes of the Offered Certificates will
be affected by certain other factors, as follows:
................................................. Distributions
of principal to the Offered Certificates will be made first to the
Residual Certificates, second, to the Class A-1 Certificates, third,
to the Class A-2 Certificates and fourth, to the Class A-3
Certificates, in each case until the Certificate Principal Balance
thereof is reduced to zero. The timing of commencement of principal
distributions and the weighted average lives of the Class A-2
Certificates and Class A-3 Certificates will be affected by the rates
of prepayment experienced both before and after the commencement of
principal distributions on such classes.
................................................. See
"Description of the Offered Certificates--Principal Distributions,"
"Description of the Underlying Agency Securities" and "Certain Yield
and Prepayment Considerations" herein and "Maturity and Prepayment
Considerations" in the Prospectus. For further information regarding
the effect of principal prepayments on the weighted average lives of
the Offered Certificates (other than the Fixed Strip Certificates and
Residual Certificates), see the table entitled "Percent of Initial
Certificate Principal Balance Outstanding at the Following Percentages
of SPA" herein.
Special Yield Considerations..................... The yield to
maturity on each class of the Offered Certificates will depend, among
other things, on the rate and timing of principal payments on the
Underlying Agency Securities, which in turn will be affected by the
rate and timing of principal payments on the Mortgage Loans and the
allocation thereof to reduce the Certificate Principal Balance or
Notional Amount of such class. The yield to maturity on each class of
Offered Certificates will also depend on the Pass- Through Rate and
the purchase price for such class. [The yield to investors on any
class of Offered Certificates will be adversely affected by any
allocation thereto of Prepayment Interest Shortfalls on the Mortgage
Loans, which are expected to result from the distribution of interest
only to the date of prepayment (rather than a full month's interest)
in connection with prepayments in full, and the
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lack of any distribution of interest on the amount of any partial
prepayments.]
................................................. In general, if
a class of Offered Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Offered Certificates is purchased at a
discount and principal distributions thereon occur at a rate slower
than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the time of purchase.
................................................. The Offered
Certificates were structured assuming, among other things, a
prepayment assumption of [____]% SPA (as defined herein) and
corresponding weighted average lives as described herein under
"Description of the Underlying Agency Securities." The prepayment,
yield and other assumptions to be used for pricing purposes for the
respective classes that are to be offered hereunder may vary as
determined at the time of sale.
................................................. The yield of
certain classes of the Offered Certificates will be particularly
sensitive to changes in the rates of prepayment of the Mortgage Loans
and other factors, as follows:
................................................. The yield to
investors on the Fixed Strip Certificates will be extremely sensitive
to the rate and timing of principal payments on the Underlying Agency
Securities, which in turn will be affected by the rate and timing of
principal payments on the Mortgage Loans included in the related
Mortgage Pools, which rate may fluctuate significantly over time. [In
addition, Prepayment Interest Shortfalls allocated to the Underlying
Agency Securities, will be allocated to the Fixed Strip Certificates
and each other class of Offered Certificates on a pro rata basis based
on the aggregate Accrued Certificate Interest thereon, regardless, in
the case of the Fixed Strip Certificates, of whether such Prepayment
Interest Shortfalls are attributable to those Underlying Agency
Securities used for purposes of determining the related Notional
Amount.] An extremely rapid rate of principal payments on the
Underlying Agency Securities could result in the failure of investors
in the Fixed Strip Certificates to recover their initial investments.
................................................. Because the
Class A-3 Certificates do not receive any distribution of interest
until the Accretion Termination Date, the Class A-3 Certificates will
likely experience greater price and yield volatility than would
mortgage pass-through certificates which are otherwise similar but
that are entitled to current distributions of interest. Investors
should consider whether such volatility is in accordance with their
investment needs.
.................................................
Holders of the Residual Certificates are entitled to receive
distributions of principal and interest as described herein under
"Description of the Offered Certificates-Interest Distributions" and
"-Principal Distributions"; however, holders of such Certificates
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may have tax liabilities with respect to their Certificates
during the early years of the term of the Trust Fund that
substantially exceed the principal and interest payable thereon during
such periods.
................................................. See "Certain
Yield and Prepayment Considerations," especially "--Fixed Strip
Certificate Yield Considerations" and "--Additional Yield
Considerations Applicable Solely to the Residual Certificates" herein,
"Certain Federal Income Tax Consequences" herein and in the Prospectus
and "Yield Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences.................................. A "real estate mortgage
investment conduit" (a "REMIC") election will be made with respect to
the Trust Fund for federal income tax purposes. Upon the issuance of
the Offered Certificates, [Orrick, Herrington & Sutcliffe] [Thacher
Proffitt & Wood], New York, New York, tax counsel to the Company, will
deliver its opinion generally to the effect that, assuming compliance
with all provisions of the Trust Agreement, the Trust Fund will
qualify as a REMIC under Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "Code").
................................................. [ADDITIONAL TAX
CONSEQUENCES TO BE INCLUDED AS APPROPRIATE.]
................................................. For further
information regarding the federal income tax consequences of investing
in the Offered Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations............................. [ERISA
CONSIDERATIONS TO BE INCLUDED AS NECESSARY.] See "ERISA
Considerations" [herein and] in the Prospectus.
Ratings.......................................... It is a
condition to the issuance of the Offered Certificates that the Class
A-1, Class A-2, Class A-3, Fixed Strip and Class R Certificates be
rated "[__]" by [__________] and "[__]" by [________]. A security
rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the assigning
rating organization. A security rating does not address the frequency
of prepayments of Mortgage Loans, or the corresponding effect on yield
to investors. The rating of the Fixed Strip Certificates does not
address the possibility that the holders of such Certificates may fail
to fully recover their initial investments. See "Certain Yield and
Prepayment Considerations" and "Ratings" herein and "Yield
Considerations" in the Prospectus.
Legal Investment Matters......................... The Offered
Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"), for so long as they are rated in one of the two
highest rating categories by at least one nationally recognized
statistical rating organization, and, as such, will be legal
investments for certain entities to the extent provided in SMMEA.
Institutions whose investment activities are subject to legal
investment
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laws and regulations or review by regulatory authorities should
consult with their legal advisors in determining whether and to what
extent the Offered Certificates constitute legal investments under
SMMEA or are subject to restriction on investment, capital
requirements or otherwise. See "Legal Investment Matters" herein and
in the Prospectus.
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[RISK FACTORS]
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[APPROPRIATE RISK FACTORS REGARDING MORTGAGE COLLATERAL TO BE
INSERTED AS
NECESSARY]
DESCRIPTION OF THE OFFERED CERTIFICATES
General
The Series [199_-_] Mortgage Pass-Through Certificates will include the
following five classes (the "Offered Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates, (ii) the Class S Certificates
(the "Fixed Strip Certificates") and (iii) the Class R Certificates (the
"Residual Certificates").
The Offered Certificates in the aggregate will represent the entire
beneficial ownership interest in the Trust Fund. The Trust Fund will consist of:
(i) the Underlying Agency Securities, including all distributions thereon
payable after the Delivery Date; and (ii) such assets as from time to time are
identified as deposited in respect of the Underlying Agency Securities in the
Certificate Account and belonging to the Trust Fund.
Available Distribution Amount
The "Available Distribution Amount" with respect to the Offered
Certificates for any Distribution Date will be equal to the aggregate amount of
distributions on the Underlying Agency Securities on the immediately preceding
Underlying Security Distribution Date, after deduction of the related Servicing
Fee (as described herein under "Trust Agreement--Compensation of Certificate
Administrator").
Interest Distributions
Holders of each class of Offered Certificates will be entitled to
receive interest distributions in an amount equal to the Accrued Certificate
Interest on such class on each Distribution Date, (i) in the case of the Class
A-1 Certificates, Class A-2 Certificates, Fixed Strip Certificates and Residual
Certificates, to the extent of the Available Distribution Amount for such
Distribution Date and (ii) in the case of the Class A-3 Certificates to the
extent of the Available Distribution Amount for such Distribution Date after
distributions of interest and principal on the Class A-1 Certificates, Class A-2
Certificates, Fixed Strip Certificates and Residual Certificates, commencing on
the first Distribution Date in the case of all classes of Offered Certificates
(other than the Class A-3 Certificates) and commencing on the Accretion
Termination Date in the case of the Class A-3 Certificates. Notwithstanding the
foregoing sentence, the amount available for interest distributions on the
Offered Certificates on any Distribution Date shall not exceed the aggregate
amounts distributed on the Underlying Agency Securities on the preceding
Underlying Security Distribution Date in respect of interest, reduced by the
Servicing Fee (as defined herein), which is calculated at a rate of [____]% per
annum.
With respect to any Distribution Date, "Accrued Certificate Interest"
will be equal to (a) in the case of each class of Offered Certificates (other
than the Fixed Strip Certificates) one month's interest accrued on the
Certificate Principal Balance of such class at the Pass-Through Rate set forth
on the cover hereof and (b) in the case of the Fixed Strip Certificates, one
month's interest accrued on the Notional Amount at the applicable Pass-Through
Rate[; in each case minus the aggregate amount of Prepayment Interest Shortfalls
for such Distribution Date as described in the following sentence, which shall
be allocated among the Offered Certificates (including the Fixed Strip
Certificates and, in the case of such Certificates, without regard to the source
of such Prepayment Interest Shortfalls in proportion to the total amount of
Accrued Certificate Interest that would have been paid thereon absent such
reductions]. [For purposes of the foregoing, the aggregate amount of Prepayment
Interest Shortfalls for any Distribution Date will be equal to the aggregate
amount of Prepayment Interest Shortfalls, if any, allocated to each of the
Underlying Agency Securities for the immediately preceding Underlying Security
Distribution Date.] [Any Prepayment Interest Shortfalls
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will not be offset by a reduction of the servicing compensation of the
Certificate Administrator or otherwise.] Accrued Certificate Interest is
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The "Accretion Termination Date" for the Class A-3 Certificates is the
first Distribution Date on or after the Certificate Principal Balances of the
Residual Certificates, Class A-1 Certificates and Class A-2 Certificates have
been reduced to zero. On each Distribution Date preceding the Accretion
Termination Date, an amount equal to the amount of Accrued Certificate Interest
on the Class A-3 Certificates for such date will be added to the Certificate
Principal Balance thereof (the "Accretion Amount"), and such amount will be
distributed to the holders of the Offered Certificates, other than the Class A-3
Certificates, as described herein, in reduction of the Certificate Principal
Balances thereof, as described herein. On each Distribution Date on or after the
Accretion Termination Date, the entire amount of Accrued Certificate Interest on
the Class A-3 Certificates for such Distribution Date will be payable to the
holders of the Class A-3 Certificates, to the extent not required to fully
retire the remaining Offered Certificates (other than the Class A-3
Certificates) on the Accretion Termination Date.
The Pass-Through Rates on all classes of Offered Certificates are the
fixed rates set forth on the cover hereof. The Fixed Strip Certificates have no
Certificate Principal Balance and will accrue interest at the applicable
Pass-Through Rate on the Notional Amount.
As described herein, the Accrued Certificate Interest allocable to each
class of Offered Certificates is based on the Certificate Principal Balance
thereof or, in the case of the Fixed Strip Certificates, on the Notional Amount.
The "Certificate Principal Balance" of any Offered Certificate as of any date of
determination is equal to the initial Certificate Principal Balance thereof,
reduced by the aggregate of all amounts allocable to principal previously
distributed with respect to such Offered Certificate and, in the case of the
Class A-3 Certificates, increased by the amount of any Accrued Certificate
Interest added to the Certificate Principal Balance of such class. The "Notional
Amount" of the Fixed Strip Certificates is initially $[__________] and with
respect to any Distribution Date is equal to the aggregate Certificate Principal
Balance of the Underlying Agency Securities immediately prior to the most recent
Underlying Security Distribution Date.
Principal Distributions
Holders of the Offered Certificates (other than the Fixed Strip
Certificates, which are not entitled to receive any principal distributions)
will be entitled to receive, in the aggregate on each Distribution Date, to the
extent of the portion of the Available Distribution Amount remaining after
Accrued Certificate Interest has been distributed to the holders of the Class
A-1 Certificates, Class A-2 Certificates, Fixed Strip Certificates and Residual
Certificates for such Distribution Date (and, in the case of any payments of
principal to the Class A-3 Certificates, after Accrued Certificate Interest has
been distributed to the holders thereof for such Distribution Date), a
distribution allocable to principal which will be equal to the sum of (i) the
aggregate amount distributed in respect of principal on all of the Underlying
Agency Securities on the immediately preceding Underlying Security Distribution
Date and (ii) the Accretion Amount (together, the "Principal Distribution
Amount").
On each Distribution Date, the Principal Distribution Amount shall be
distributed as follows:
(i) first, to the holders of the Residual Certificates, until the
Certificate Principal Balance thereof is reduced to zero;
(ii) second, to the holders of the Class A-1 Certificates,
until the Certificate Principal Balance thereof is reduced to
zero;
(iii) third, to the holders of the Class A-2 Certificates, until
the Certificate Principal Balance thereof is reduced to zero; and
(iv) fourth, to the holders of the Class A-3 Certificates,
until the Certificate Principal Balance thereof is reduced to zero.
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DESCRIPTION OF THE UNDERLYING AGENCY SECURITIES
[Each Underlying Agency Security (which may be a GNMA I Certificate or
a GNMA II Certificate as referred to by Ginnie Mae) underlying the Series
[199_-_] Certificates will be a "fully-modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern (a "Ginnie Mae Issuer") approved by Ginnie Mae as a seller-servicer of
FHA Loans and VA Loans.
The mortgage loans underlying Ginnie Mae Securities may consist of FHA
Loans or VA Loans secured by one- to four-family residential properties and
eligible for inclusion in mortgage pools underlying Ginnie Mae Securities, which
may be level payment first lien mortgage loans (including "buy-down" mortgage
loans) or graduated payment first lien mortgage loans.
Ginnie Mae has approved the issuance of each Underlying Agency Security
in accordance with a guarantee agreement (a "Guarantee Agreement") between
Ginnie Mae and the Ginnie Mae Issuer. Pursuant to its Guarantee Agreement, a
Ginnie Mae Issuer will be required to advance its own funds in order to make
timely payments of all amounts due on each Underlying Agency Security, even if
the payments received by the Ginnie Mae Issuer on the Mortgage Loans relating to
each Underlying Agency Security are less than the amounts due on each such
Underlying Agency Security.
The full and timely payment of principal and interest on each
Underlying Agency Security will be guaranteed by Ginnie Mae, which obligation is
backed by the full faith and credit of the United States. See "The Agency
Securities--Government National Mortgage Association" and "--Ginnie Mae
Securities" in the Prospectus. Each Underlying Agency Security will have an
original maturity of not more than 30 years. Each Underlying Agency Security
will be based on and backed by a Mortgage Pool and will provide for the payment
by or on behalf of the Ginnie Mae Issuer to the registered holder of such
Underlying Agency Security of fixed monthly payments of principal and interest
equal to the aggregate amount of the scheduled monthly principal and interest
payments on the Mortgage Loans relating to such Underlying Agency Security, less
a servicing and guarantee fee of 0.5% and up to 1.5% per annum of the
outstanding principal balance for such GNMA I Certificates and GNMA II
Certificates, respectively. In addition, each payment will include any
prepayments of principal of the Mortgage Loans relating to such Underlying
Agency Security and liquidation proceeds in the event of a foreclosure or other
disposition of any such Mortgage Loans.
Mortgage loans underlying a particular GNMA I Certificate must have the
same annual interest rate (except for pools of mortgage loans secured by mobile
homes). The annual pass-through rate on each GNMA I Certificate is the annual
interest rate on the mortgage loans included in the pool of mortgages backing
such GNMA I Certificate less 0.5% per annum of the unpaid principal balance of
such loans. This amount consists of 0.44% to be paid to the Ginnie Mae Issuer of
the GNMA I Certificate (or its agent) as a fee for servicing the loans and the
GNMA I Certificates and a guaranty fee of 0.06%, which must be paid out to
Ginnie Mae by the Ginnie Mae Issuer. Mortgage loans underlying a particular GNMA
II Certificate may have annual interest rates that vary from each other by up to
1%. The annual pass-through rate on each GNMA II Certificate will be between
0.5% and 1.5% per annum less than the highest annual interest rate on the
mortgage loans included in the pool of mortgages backing such GNMA II
Certificate. The difference between the GNMA II Certificate rate and rates on
the underlying mortgages consists of a guaranty fee of 0.06% which must be paid
to Ginnie Mae by the Ginnie Mae Issuer and a servicing fee of between 0.44% and
1.44% to be paid to the Ginnie Mae Issuer (or its agent).
All Ginnie Mae Securities underlying the Series [199_-_] Certificates
will have original maturities of not more than 30 years (but may have original
maturities of substantially less than 30 years). In general, Ginnie Mae requires
that at least 90% of the original principal amount of the mortgage pool
underlying a Ginnie Mae Security must be mortgages with maturities of 20 years
or more. However, in certain circumstances, Ginnie Mae Securities may be backed
by pools of mortgage loans at least 90% of the original principal amount of
which have original maturities of at least 15 years. Each mortgage loan
underlying a Ginnie Mae Security, at the time Ginnie Mae issues its guarantee
commitment, must be originated no more than 12 months prior to such commitment
date.
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No Ginnie Mae Issuer will insure or guarantee the Offered Certificates
or the Underlying Agency Securities. Each Ginnie Mae Issuer will be obligated
under its Guarantee Agreement with Ginnie Mae to service the pooled Mortgage
Loans in accordance with FHA and VA requirements and with generally accepted
practices in the mortgage lending industry. Each Ginnie Mae Issuer's
responsibilities with respect to the pooled Mortgage Loans will include
collection of all principal and interest payments and payments made by borrowers
toward escrows established for taxes and insurance premiums; maintenance of
necessary hazard insurance policies; institution of all actions necessary to
foreclose on, or take other appropriate action with respect to, loans in
default; and collection of FHA insurance and VA guarantee benefits.
If a Ginnie Mae Issuer is unable to make the payments on an Underlying
Agency Security as it becomes due, it must promptly notify Ginnie Mae and
request Ginnie Mae to make such payment. Upon notification and request, Ginnie
Mae will make such payments directly to the registered holder of such Underlying
Agency Security. In the event no payment is made by a Ginnie Mae Issuer and the
Ginnie Mae Issuer fails to notify and request Ginnie Mae to make such payment,
the holder of such Underlying Agency Security will have recourse only against
Ginnie Mae to obtain such payment. The Trustee or its nominee, as registered
holder of the Underlying Agency Security, will have the right to proceed
directly against Ginnie Mae under the terms of the Guaranty Agreement relating
to such Underlying Agency Security for any amounts that are not paid when due.
Regular monthly installment payments on each Underlying Agency Security
will be comprised of interest due as specified on such Underlying Agency
Security plus the scheduled principal payments on the related Mortgage Loans due
on the first day of the month in which the scheduled monthly installment on such
Underlying Agency Security is due. Such regular monthly installments on each
such Underlying Agency Security will be paid to the Trustee as registered holder
by the 15th day of each month in the case of a GNMA I Certificate and will be
mailed to the Trustee by the 20th day of each month in the case of a GNMA II
Certificate (each, an "Underlying Security Distribution Date"). Any principal
prepayments on any Mortgage Loans underlying an Underlying Agency Security or
any other early recovery of principal of such loans will be passed through to
the Trustee as the registered holder of the Underlying Agency Security.
Pools of non-graduated payment mortgages evidenced by certain of the
Ginnie Mae Securities may consist of level payment mortgages for which funds
have been provided (and deposited in escrow accounts) by one or more Ginnie Mae
Issuers, their affiliates or other persons to reduce the borrowers' monthly
payments during the early years of such mortgage loans. Payments due the
registered holders of such "buy down" Ginnie Mae Securities, however, will be
computed in the same manner as payments derived from level payment non-buy down
Ginnie Mae Securities and will include amounts to be collected from both the
borrowers and the escrow accounts under the control of the Ginnie Mae Issuer.
The obligations of Ginnie Mae and the Ginnie Mae Issuer with respect to such buy
down Ginnie Mae Security will be the same as with respect to non-buy down Ginnie
Mae Securities.]
The Underlying Agency Securities had an aggregate outstanding principal
balance of approximately $[___________], pass-through rates of [___]% and a
weighted average remaining term to stated maturity of approximately [_____]
months as of the Reference Date.
[INSERT ADDITIONAL DESCRIPTION OF UNDERLYING AGENCY SECURITIES AS
APPROPRIATE]
A Current Report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed, together with the Trust Agreement, with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The yield to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Underlying Agency Securities, which in turn will be affected by
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the rate and timing of principal payments on the Mortgage Loans. Such yield may
be adversely affected by a higher or lower than anticipated rate of principal
payments on the Mortgage Loans in the Trust Fund. The rate of principal payments
on such Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans, the rate and timing of principal prepayments thereon by the
Mortgagors and liquidations of defaulted Mortgage Loans. The timing of changes
in the rate of prepayments and liquidations of the Mortgage Loans may affect the
yield to an investor, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. Since the rate and
timing of principal payments on the Mortgage Loans will depend on future events
and on a variety of factors (as described more fully herein under "Yield
Considerations" and "Maturity and Prepayment Considerations" in the Prospectus),
no assurance can be given as to such rate or the timing of principal payments on
the Offered Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any
time without payment of any prepayment fee or penalty. The Mortgage Loans
generally contain due-on-sale clauses. Prepayments (to the extent of
distributions thereof on the related Underlying Agency Securities) and
liquidations of the Mortgage Loans will result in distributions to holders of
the Offered Certificates of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Factors affecting
prepayment of mortgage loans include changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fall significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease.
[The aggregate amount of interest otherwise payable to holders of the
Offered Certificates will be reduced by any Prepayment Interest Shortfalls with
respect to the Underlying Agency Securities.] [In addition, Prepayment Interest
Shortfalls allocated to the Underlying Agency Securities, will be allocated to
the Fixed Strip Certificates and each other class of Offered Certificates on a
pro rata basis based on the aggregate Accrued Certificate Interest thereon,
regardless, in the case of the Fixed Strip Certificates, of whether such
Prepayment Interest Shortfalls are attributable to those Underlying Agency
Securities used for purposes of determining the notional amount.] Such
Prepayment Interest Shortfalls will not be offset by a reduction in the
Servicing Fee payable to the Certificate Administrator or otherwise. See "Yield
Considerations" in the Prospectus and "Description of the Offered
Certificates--Interest Distributions" and "Description of the Underlying Agency
Securities" herein for a discussion of the effect of principal prepayments on
the Mortgage Loans on the yield to maturity of the Offered Certificates.
The yield to maturity of the Offered Certificates will depend on the
price paid by the holders of the Offered Certificates and the related
Pass-Through Rate. The extent to which the yield to maturity of an Offered
Certificate is sensitive to prepayments will depend, in part, upon the degree to
which it is purchased at a discount or premium. In general, if a class of
Offered Certificates is purchased at a premium and principal distributions
thereon occur at a rate faster than anticipated at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed at the time
of purchase. Conversely, if a class of Offered Certificates is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will be
lower than that assumed at the time of purchase. For additional considerations
relating to the yield on the Offered Certificates, see "Yield Considerations"
and "Maturity and Prepayment Considerations" in the Prospectus.
The yield to maturity on the Offered Certificates will be less that the
yield that would otherwise be produced by the applicable Pass-Through Rate and
the applicable purchase price because, while interest on the Mortgage Loans will
accrue monthly and will be payable of the first day of each month, distributions
on the Underlying Agency Certificates will be made on the [15th][20th] day of
each month (or, if such day is not a business day, the next business day) and
distributions on the Offered Certificates will not be made until the third
business day following such distribution date.
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security to the date of distribution to
the investor of each dollar distributed in reduction of principal of such
security
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(assuming no losses). The weighted average life of the Offered Certificates will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
The assumed final Distribution Date with respect to each class of the
Offered Certificates is [__________ __, 20__] which is the Distribution Date
[immediately] [____ months] following the latest scheduled maturity date for any
Mortgage Loan. No event of default, change in the priorities for distribution
among the various classes or other provisions under the Trust Agreement will
arise or become applicable solely by reason of the failure to retire the entire
Certificate Principal Balance of any class of Offered Certificates on or before
its assumed final Distribution Date.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (i.e., no prepayments). Correspondingly, "[___]% SPA" assumes
prepayment rates equal to [___]% of SPA, and so forth. SPA does not purport to
be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
As described herein under "Certain Federal Income Tax Consequences,"
the prepayment assumption with respect to the Underlying Agency Securities that
will be used in determining the rate of accrued original issue discount, market
discount and premium, if any, on the Offered Certificates for federal income tax
purposes will be [____]% SPA. The original prepayment assumption for each series
of the Underlying Security is indicated in the corresponding Term Sheet.
Modeling Assumptions
The table set forth below entitled "Percent of Initial Certificate
Principal Balance Outstanding at the Following Percentage of SPA" has been
prepared on the basis of certain assumptions as described below (the "Modeling
Assumptions") regarding the weighted average characteristics of the Mortgage
Loans that are included in the Mortgage Pools and the performance thereof.
Modeling Assumptions include among other things, that as of the Reference Date,
the characteristics of the Mortgage Loans in each respective Mortgage Pool and
the Pass-Through Rate for the related Underlying Agency Securities are as set
forth in the following table:
Aggregate Weighted Weighted Pass-Through
Outstanding Weighted Weighted Average Average Rate on the
Principal Average Average Original Term to Underlying
Balance of Mortgage Servicing Term To Scheduled Agency
Series the Loans Rate Fee Maturity(1) Maturity(1) Securities
$ % %
Aggregate......................................................................
$
- ------------------
(1) In months.
In addition, the Modeling Assumptions, among other things, assume that: (i) the
Underlying Agency Security Principal Balance is $[_______________]; (ii) the
scheduled monthly payment for a Mortgage Loan in each respective Mortgage Pool
has been based on its outstanding balance, interest rate and term to scheduled
maturity, such that the Mortgage Loan will amortize in amounts sufficient for
repayment thereof over its remaining term to maturity; (iii)
the [Ginnie Mae Issuer] will not repurchase any Mortgage Loan or exercise any
option to purchase the remaining Mortgage Loans in any Mortgage Pool, and
neither the Certificate Administrator nor the Company will exercise any option
to purchase the Underlying Agency Securities and thereby cause a termination of
the Trust Fund; (iv) there are no delinquencies on the Mortgage Loans, and
principal payments on the Mortgage Loans will be timely received together with
prepayments, if any, at the respective constant percentages of SPA set forth in
the table; (v) there is no Prepayment Interest Shortfall or any other interest
shortfall in any month; (vi) as of the date of issuance of the Offered
Certificates, the Underlying Agency Securities are as described herein under
"Description of the Underlying Agency Securities" and in the corresponding Term
Sheet; (vii) payments on the Offered Certificates will be received on the 28th
day of each month, commencing [__________ __, 199_]; (viii) payments on the
Mortgage Loans earn no reinvestment return; (ix) there are no additional ongoing
Trust Fund expenses payable out of the Trust Fund; and (x) the Offered
Certificates will be purchased on [__________ __, 19__].
The actual characteristics and performance of the Mortgage Loans differ
from the Modeling Assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed. Any difference between the Modeling Assumptions
and the actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the classes of Offered Certificates.
Subject to the foregoing discussion and the Modeling Assumptions, the
following table indicates the weighted average lives of the Class A-1, Class A-2
and Class A-3 Certificates, and sets forth the percentages of the initial
Certificate Principal Balance of each such Class A-1, Class A-2 and Class A-3
Certificate that would be outstanding after each of the dates shown at various
percentages of SPA.
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Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA
Class Class Class Distribution
A-1 A-2 A-3 Date 0% % % % % 0% % % %
% 0% % % % % Initial Percentage..................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
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...............................................................................
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...............................................................................
Weighted Average Life
in Years**
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in clause (i) above.
This table has been prepared based on the Modeling Assumptions (including the
assumptions regarding the characteristics and performance of the Mortgage Loans,
which differ from the actual characteristics and performance thereof) and should
be read in conjunction therewith.
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Fixed Strip Certificate Yield Considerations
The yield to maturity on each class of the Fixed Strip Certificates
will be extremely sensitive to the rate and timing of receipt of principal
payments on the Underlying Agency Securities, which in turn will be affected by
the rate and timing of principal payments (including prepayments, defaults and
liquidations) on the Mortgage Loans included in the corresponding Mortgage
Pools, which rate may fluctuate significantly over time.
The following table indicates the sensitivity of the yield to maturity
on each class of the Fixed Strip Certificates to various constant rates of
prepayment by projecting the monthly aggregate payments of interest on the Fixed
Strip Certificates and computing the corresponding pre-tax yields to maturity on
a corporate bond equivalent basis, based on the Modeling Assumptions including
the assumptions regarding the characteristics and performance of the Mortgage
Loans included in the corresponding Mortgage Pools which differ from the actual
characteristics and performance thereof, and assuming further that the
Pass-Through Rate and Notional Amount on the Fixed Strip Certificates are as set
forth herein. Any differences between the Modeling Assumptions and the actual
characteristics and performance of the corresponding Mortgage Loans may result
in yields being different from those shown in such table. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the table, which is provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Fixed Strip
Certificates at the Following
Percentages of SPA
Assumed
Purchase
Price 0% [___]% [___]% [___]% [___]%
- --------- ----- ------ ------ ------ ------
$[----------] [----]% [----]% [----]% [----]% [----]%
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Fixed Strip Certificates, would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase price listed in the table for such class of Fixed Strip
Certificates. Accrued interest is included in the purchase prices shown and is
used in computing the corporate bond equivalent yields shown. These yields do
not take into account the different interest rates at which investors may be
able to reinvest funds received by them as distributions on the Fixed Strip
Certificates, and thus do not reflect the return on any investment in the Fixed
Strip Certificates when any reinvestment rates other than the discount rates are
considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Mortgage Loans included in the
corresponding Mortgage Pools will be prepaid according to one particular
pattern. For this reason, and because the timing of cash flows is critical to
determining yields, the pre-tax yields to maturity on the Fixed Strip
Certificates are likely to differ from those shown in the table, even if all of
the corresponding Mortgage Loans prepay at the indicated constant percentages of
SPA over any given time period or over the entire life of the Offered
Certificates.
There can be no assurance that the corresponding Mortgage Loans will
prepay at any particular rate or that the yield on the Fixed Strip Certificates
will conform to the yields described herein. Moreover, the various remaining
terms to maturity of the corresponding Mortgage Loans could produce slower or
faster principal distributions than indicated in the preceding table at the
various constant percentages of SPA specified, even if the weighted average
remaining term to maturity of the corresponding Mortgage Loans is as assumed.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of prepayment under a variety of
scenarios. Investors in the Fixed Strip Certificates should fully consider the
risk that a rapid rate of prepayments on the Mortgage Loans could result in the
failure of such investors to fully recover their investments.
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For additional considerations relating to the yield on the Offered
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
Additional Yield Considerations Applicable Solely to the Residual Certificates
The Residual Certificateholders' after-tax rate of return on their
Residual Certificates will reflect their pre-tax rate of return, reduced by the
taxes required to be paid with respect to the Residual Certificates. Holders of
Residual Certificates may have tax liabilities with respect to their Residual
Certificates during the early years of the Trust Fund's term that substantially
exceed any distributions payable thereon during any such period. In addition,
holders of Residual Certificates may have tax liabilities with respect to their
Residual Certificates the present value of which substantially exceeds the
present value of distributions payable thereon and of any tax benefits that may
arise with respect thereto. Accordingly, the after-tax rate of return on the
Residual Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income attributable to the
Residual Certificates will depend on, among other things, the timing and amounts
of prepayments and losses experienced with respect to the Mortgage Loans
underlying the Underlying Agency Securities.
The Residual Certificateholders should consult their tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
TRUST AGREEMENT
General
The Certificates will be issued pursuant to a Trust Agreement (the
"Trust Agreement"), dated as of [__________ __, 199_], among the Company, the
Certificate Administrator, and [ ], as Trustee. Reference is made to the
Prospectus for important information in addition to that set forth herein
regarding the terms and conditions of the Trust Agreement and the Offered
Certificates. The Offered Certificates will be transferable and exchangeable at
the corporate trust office of the Trustee, which will serve as Certificate
Registrar and Paying Agent. The Company will provide a prospective or actual
Certificateholder without charge, on written request, a copy of the Trust
Agreement (without exhibits) . Requests should be addressed to the [__________],
Residential Accredit Loans, Inc.,
[_________________________________________________].
The Certificate Administrator
[Residential Funding, an indirect wholly-owned subsidiary of GMAC
Mortgage and an affiliate of the Company], [__________] will act as certificate
administrator with respect to the Offered Certificates pursuant to the Trust
Agreement. [For a general description of Residential Funding and its activities,
see "Residential Funding Corporation" in the Prospectus.]
Assignment of the Underlying Agency Securities
On the Delivery Date, the Company will deliver to the Trustee, with
respect to each class of Underlying Agency Securities, the Certificate for such
class registered in the name of the Trustee, evidencing the entire interest in
such class. The Trustee will be entitled to receive distributions in respect of
each Underlying Agency Security beginning with the distributions thereon in
[__________, 199_]. A Certificate Account will be established as part of the
Trust Fund, which shall be an Eligible Account as described in the Prospectus
under "Description of the Certificates--Payments on Mortgage Collateral," into
which the Trustee shall deposit all amounts received as distributions on the
Underlying Agency Securities (net of the Servicing Fee described below), pending
distributions on the Offered Certificates on each Distribution Date.
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Compensation of Certificate Administrator
The primary compensation to be paid to the Certificate Administrator in
respect of its certificate administration activities in respect of the Offered
Certificates pursuant to the Trust Agreement will be [____]% per annum of the
aggregate outstanding Certificate Principal Balance of the Underlying Agency
Securities (the "Servicing Fee"), payable monthly out of the interest
distributions on such Underlying Agency Securities. The Certificate
Administrator is obligated to pay certain ongoing expenses associated with the
Trust Fund and incurred by the Certificate Administrator in connection with its
responsibilities under the Trust Agreement. See "Description of the
Certificates--Servicing and Administration of Mortgage Collateral" in the
Prospectus for information regarding other possible compensation to the
Certificate Administrator and for information regarding expenses payable by the
Certificate Administrator.
Actions in Respect of the Underlying Agency Securities
If at any time the Trustee, in its capacity as the registered holder of
the Underlying Agency Securities, is requested to take any action or to give any
consent, approval or waiver, the Trust Agreement provides that the Trustee, in
its capacity as holder of the Underlying Agency Securities, may take action in
connection with the enforcement of any rights and remedies available to it in
such capacity with respect thereto, will promptly notify all of the holders of
the Offered Certificates and will act only in accordance with the written
directions of holders of the Offered Certificates evidencing at least 51% of the
voting rights.
Voting Rights
Certain actions specified in the Prospectus that may be taken by
holders of Offered Certificates evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of Offered
Certificates entitled in the aggregate to such percentage of the voting rights.
[____]% of all voting rights will be allocated among all holders of the Class
A-1, Class A-2 and Class A-3 Certificates in proportion to their
then-outstanding Certificate Principal Balances and [____]% and [____]% of all
voting rights will be allocated among holders of the Class S Certificates and
Residual Certificates, respectively, in proportion to the Percentage Interests
(as defined in the Prospectus) evidenced by their respective Certificates. The
Trust Agreement will be subject to amendment without the consent of the holders
of the Residual Certificates in certain circumstances.
Termination
Either the Certificate Administrator or the Company may, at its option,
repurchase from the Trust Fund all of the Underlying Agency Securities remaining
in such Trust Fund and other assets thereof, and thereby effect early retirement
of the Offered Certificates at such time as the aggregate of the Certificate
Principal Balances of such Underlying Agency Securities is less than [____]% of
the aggregate of the Certificate Principal Balances of the Underlying Agency
Securities as of the Closing Date. In the event such option is exercised, the
purchase price distributed with respect to each of the Offered Certificates will
be 100% of its then outstanding Certificate Principal Balance plus interest
thereon at the Pass-Through Rate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, [Orrick, Herrington &
Sutcliffe] [Thacher Proffitt & Wood], counsel to the Company, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the Trust Agreement, the Trust Fund will qualify as a REMIC under Sections 860A
through 860G of the Code.
For federal income tax purposes, the Residual Certificates will be the
sole class of "residual interests" in the Trust Fund and the Offered
Certificates (other than the Residual Certificates) will represent ownership of
"regular interests" in the Trust Fund and will be generally treated as debt
instruments of the Trust Fund. See "Certain Federal Income Tax Consequences" in
the Prospectus.
[ADDITIONAL TAX CONSIDERATIONS TO BE INCLUDED AS APPROPRIATE]
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For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
[A description of whether there will be any exemption from "plan asset"
treatment will be available with respect to the Series to be included as
appropriate.]
[A statement of whether the Series will be an Exempt or a
Nonexempt Series to be included if appropriate]
[To qualify for exemption under PTCE 83-1 (see "ERISA
Considerations--Prohibited Transaction Exemption" in the Prospectus), a
Certificate of an Exempt Series must entitle its holder to pass-through payments
of both principal and interest on the Mortgage Loans. Any Plan fiduciary who
proposes to cause a Plan to purchase Offered Certificates should consult with
its counsel with respect to the potential consequences under ERISA and Section
4975 of the Code of the Plan's acquisition and ownership of Offered
Certificates. See "ERISA Considerations" in the Prospectus.]
[A Description of PTE 90-23 to be included if appropriate.]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated [__________ __, 199_] (the "Underwriting Agreement"), the
Underwriter has agreed to purchase and the Company has agreed to sell to the
Underwriter the Offered Certificates. It is expected that delivery of the
Offered Certificates will be [made at the offices of [___________________]]
[through the book-entry facilities of The Depository Trust Company] on or about
[____________ __, 199_], against payment therefor in immediately available
funds.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered Certificates is
subject to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
Company's Registration Statement shall be in effect, and that no proceedings for
such purpose shall be pending before or threatened by the Securities and
Exchange Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected, from time to time, in one or more negotiated transactions, or
otherwise, at varying prices to be determined at the time of sale. Proceeds to
the Company from the sale of the Offered Certificates, before deducting expenses
payable by the Company, will be approximately [ ]% of the aggregate Certificate
Principal Balance of the Offered Certificates plus accrued interest thereon from
the Reference Date. The Underwriter may effect such transactions by selling its
Certificates to or through dealers, and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale of the
Offered Certificates, the Underwriter may be deemed to have received
compensation from the Company in the form of underwriting compensation. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and under limited circumstances the Underwriter will indemnify the
Company, against certain civil liabilities under the Securities Act of 1933, as
amended, or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Offered
Certificates will be the monthly statements provided to the Certificateholders
as of each Distribution Date, which will include information as to the
Certificate Principal Balance or Notional Amount, as applicable, of the Offered
Certificates. There can be no assurance that any additional information
regarding the Offered Certificates will be
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<PAGE>
available through any other source. In addition, the Company is not aware of any
source through which price information about the Offered Certificates will be
generally available on an ongoing basis. The limited nature of such information
regarding the Offered Certificates may adversely affect the liquidity of the
Offered Certificates, even if a secondary market for the Offered Certificates
becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates will be
passed upon for the Company by Orrick, Herrington & Sutcliffe] [Thacher Proffitt
& Wood], New York, New York and for the Underwriter by
[--------------------], [--------------------].
RATING
It is a condition to the issuance of the Offered Certificates that the
Class A-1, Class A-2, Class A-3, Fixed Strip and Class R Certificates be rated
"[__]" by [____________] and "[__]" by [________].
[[_________________] ratings on mortgage pass-through certificates
address the likelihood of the receipt by Certificateholders of payments required
under the Trust Agreement. [________________] ratings take into consideration
the credit quality of the Mortgage Pool, structural and legal aspects associated
with the Certificates, and the extent to which the payment stream in the
Mortgage Pool is adequate to make payments required under the Certificates.
[________________] rating on the Certificates does not, however, constitute a
statement regarding frequency of prepayments on the Mortgage Loans. See "Certain
Yield and Prepayment Considerations" herein.] [The "r" of the "AAAr" rating of
the Class [__] Certificates by [_________________] is attached to highlight
derivative, hybrid, and certain other obligations that [_________________]
believes may experience high volatility or high variability in expected returns
due to non-credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities, or currencies;
certain swaps and options; and interest only and principal only mortgage
securities. The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in total return.]
[The ratings of [______] on mortgage pass-through certificates [also]
address the likelihood of the receipt by Certificateholders of all distributions
on the Mortgage Loans to which they are entitled. The rating process addresses
the structural and legal aspects associated with the Certificates, including the
nature of the Mortgage Loans. The ratings assigned to mortgage pass-through
certificates do not represent any assessment of the likelihood or rate of
principal prepayments. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.]
[The ratings of [________] assigned to mortgage pass-through
certificates [also] address the likelihood of the receipt by Certificateholders
of all distributions to which such Certificateholders are entitled. [________]
ratings on mortgage pass-through certificates do not represent any assessment of
the likelihood that principal prepayments will be made by the mortgagors or the
degree to which such prepayments differ from that originally anticipated. The
ratings assigned to mortgage pass-through certificates do not represent any
assessment of the likelihood or rate of principal prepayments. The rating does
not address the possibility that Certificateholders might suffer a lower than
anticipated yield or that rapid rates of principal prepayments could result in a
failure of the holders of the Fixed Strip Certificates to fully recover their
initial investment.]
The Company has not requested a rating on the Offered Certificates by
any rating agency other than [__________] and [__________]. However, there can
be no assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Offered
Certificates by [_________] and [__________].
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. The rating of the Fixed Strip
Certificates does not address the
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possibility that the holders of such Certificates may fail to fully recover
their initial investment. In the event that the rating initially assigned to the
Offered Certificates is subsequently lowered for any reason, no person or entity
is obligated to provide any additional support or credit enhancement with
respect to the Offered Certificates.
LEGAL INVESTMENT MATTERS
The Offered Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"), for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, and, as such, will be legal investments for certain entities to
the extent provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Company makes no representations as to the proper characterization
of any class of the Offered Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any class of the
Offered Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent any class of the
Offered Certificates constitutes a legal investment or is subject to investment,
capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
TABLE OF CONTENTS
Prospectus Supplement Page
Summary S-
Description of the Offered Certificates S-
Description of the Underlying Agency Securities S-
Certain Yield and Prepayment Considerations S-
Trust Agreement S-
Certain Federal Income Tax Consequences S-
ERISA Considerations S-
Method of Distribution S-
Legal Opinions S-
Rating S-
Legal Investment Matters S-
Prospectus
Summary of Prospectus
Risk Factors
The Trust Funds
Description of the Certificates
Subordination
Description of Credit Enhancement
Insurance Policies on Mortgage Loans or Contracts
The Company
Residential Funding Corporation
The Pooling and Servicing Agreement
Yield Considerations
Maturity and Prepayment Considerations
Certain Legal Aspects of Mortgage
Loans and Contracts.............................
Certain Federal Income Tax Consequences
State Tax Consequences
ERISA Considerations
Legal Investment Matters
Use of Proceeds
Methods of Distribution
Legal Matters
Financial Information
Additional Information
Index of Principal Definitions
Residential
Accredit Loans, Inc.
$[_____________]
Mortgage Pass-Through
Certificates
Series [199_-_]
Class A-1 Certificates [___]% $[_______]
Class A-2 Certificates [___]% $[_______]
Class A-3 Certificates [___]% $[_______]
Class S Certificates [___]% $[_______]
Class R Certificates [___]% $[_______]
______________________________________________________________________
Prospectus Supplement
[____________ ___,199_]
_______________________________________________________________________
[Name of Underwriter]
<PAGE>
Mortgage and Manufactured Housing Contract Pass-Through
Certificates
Residential Accredit Loans, Inc.
Depositor
The Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby may be sold from
time to time in series, as described in the related Prospectus
Supplement. Each series of Certificates will represent in the
aggregate the entire beneficial ownership interest, excluding any
interest retained by Residential Accredit Loans, Inc. (the
"Company") or any other entity specified in the related Prospectus
Supplement, in a trust fund consisting primarily of a segregated
pool of one- to four-family, residential first mortgage loans (the
"Mortgage Loans"), manufactured housing conditional sales
contracts and installment loan agreements (the "Contracts") or
interests therein (which may include Agency Securities, as defined
herein) (collectively with the Mortgage Loans and Contracts, the
"Mortgage Collateral"), acquired by the Company from one or more
affiliated or unaffiliated institutions. See "The Trust Funds."
See "Index of Principal Definitions" for the meanings of
capitalized terms and acronyms.
The Mortgage Collateral and certain other assets described herein
under "The Trust Funds" and in the related Prospectus Supplement
will be held in trust (collectively, a "Trust Fund") for the
benefit of the holders of the related series of Certificates and
the Excess Spread, if any, pursuant to a pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") or a trust
agreement (each, a "Trust Agreement") as described herein under
"The Trust Funds" and in the related Prospectus Supplement. Each
Trust Fund will consist of one or more types of the various types
of Mortgage Collateral described under "The Trust Funds."
Information regarding each class of Certificates of a series, and
the general characteristics of the Mortgage Collateral to be
evidenced by such Certificates, will be set forth in the related
Prospectus Supplement.
Each series of Certificates will include one or more classes. Each
class of Certificates of any series will represent the right,
which right may be senior or subordinate to the rights of one or
more of the other classes of the Certificates, to receive a
specified portion of payments of principal or interest (or both)
on the Mortgage Collateral in the related Trust Fund in the manner
described herein and in the related Prospectus Supplement. See
"Description of the Certificates Distributions." A series may
include one or more classes of Certificates entitled to principal
distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with
disproportionate, nominal or no principal distributions. A series
may include two or more classes of Certificates which differ as to
the timing, sequential order, priority of payment, pass-through
rate or amount of distributions of principal or interest or both.
The Company's only obligations with respect to a series of
Certificates will be pursuant to certain limited representations
and warranties made by the Company or as otherwise described in
the related Prospectus Supplement. The related Prospectus
Supplement may identify one or more entities as servicers (each, a
"Servicer") for a series of Certificates secured by Mortgage Loans
and/or Contracts or, if specified in the related Prospectus
Supplement, an entity may act as master servicer with respect to
the Certificates (the "Master Servicer"). If specified in the
related Prospectus Supplement, a series of Certificates may have a
certificate administrator (the "Certificate Administrator") in
addition to, or in lieu of, a Servicer or a Master Servicer. The
principal obligations of a Servicer or the Master Servicer, if
any, will be its contractual servicing obligations (which may
include its limited obligation to make certain advances in the
event of delinquencies in payments on the Mortgage Loans or
Contracts). The principal obligations of the Certificate
Administrator, if any, will be to perform certain obligations with
respect to the Certificates under the terms of the Pooling and
Servicing Agreement or Trust Agreement, as applicable. See
"Description of the Certificates."
If so specified in the related Prospectus Supplement, the Trust
Fund for a series of Certificates may include any one or any
combination of a mortgage pool insurance policy, letter of credit,
bankruptcy bond, special hazard insurance policy, reserve fund,
certificate insurance policy, surety bond or other form of credit
support. In addition to or in lieu of the foregoing, credit
enhancement may be provided by means of subordination. See
"Description of Credit Enhancement."
The rate of payment of principal of each class of Certificates
entitled to a portion of principal payments on the Mortgage
Collateral will depend on the priority of payment of such class
and the rate and timing of principal payments (including
prepayments, defaults, liquidations and repurchases) on the
Mortgage Collateral. A rate of principal payment lower or higher
than that anticipated may affect the yield on each class of
Certificates in the manner described herein and in the related
Prospectus Supplement. See "Yield Considerations."
For a discussion of significant matters affecting investments in
the Certificates, see "Risk Factors" commencing herein on page 11.
One or more separate elections may be made to treat a Trust Fund
as a "real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. The Prospectus Supplement for a
series of Certificates will specify which class or classes of the
related series of Certificates will be considered to be regular
interests in the related REMIC and which class of Certificates or
other interests will be designated as the residual interest in the
related REMIC, if applicable. See "Certain Federal Income Tax
Consequences."
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER, THE
CERTIFICATE ADMINISTRATOR, GMAC MORTGAGE CORPORATION ("GMAC
MORTGAGE") OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES
NOR THE MORTGAGE COLLATERAL WILL BE GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY (EXCEPT IN THE CASE OF FHA
LOANS, FHA CONTRACTS, VA LOANS, VA CONTRACTS AND GINNIE MAE
SECURITIES) OR BY THE COMPANY, THE MASTER SERVICER, THE
CERTIFICATE ADMINISTRATOR, GMAC MORTGAGE OR ANY OF THEIR
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more
different methods, including offerings through underwriters, as
described under "Methods of Distribution" and in the related
Prospectus Supplement. There will be no secondary market for any
series of Certificates prior to the offering thereof. There can be
no assurance that a secondary market for any of the Certificates
will develop or, if it does develop, that it will continue. The
Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may
not be used to consummate sales of securities offered hereby
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is July __, 1996.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration
Statement under the Securities Act of 1933, as amended, with respect
to the Certificates (the "Registration Statement"). The Company is
also subject to certain of the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, accordingly, will file reports thereunder with the Commission.
The Registration Statement and the exhibits thereto, and reports and
other information filed by the Company pursuant to the Exchange Act
can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at certain of its Regional Offices located as
follows: Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
Copies of Ginnie Mae's information statement and annual report
can be obtained by writing or calling the United States Department
of Housing and Urban Development, 451-7th Street S.W., Room 6210,
Washington, D.C. 20410-9000 (202-708-3649). Copies of Freddie Mac's
most recent offering circular for Freddie Mac Certificates, Freddie
Mac's information statement and most recent supplement to such
information statement and any quarterly report made available by
Freddie Mac can be obtained by writing or calling the Investor
Relations Department of Freddie Mac at Post Office Box 4112, Reston,
Virginia 22090 (outside the Washington, D.C. metropolitan area,
telephone 800-424-5401, ext. 8160; within the Washington, D.C.
metropolitan area, telephone 703-759-8160). Copies of Fannie Mae's
most recent prospectus for Fannie Mae Certificates and Fannie Mae's
annual report and quarterly financial statements, as well as other
financial information, are available from the Director of Investor
Relations of Fannie Mae, 3900 Wisconsin Avenue, N.W., Washington,
D.C. 20016 (202-537-7115). The Company does not, and will not,
participate in the preparation of Ginnie Mae's information
statements or annual reports, Freddie Mac's offering circulars,
information statements or any supplements thereto or any of its
quarterly reports or Fannie Mae's prospectuses or any of its
reports, financial statements or other information and, accordingly,
makes no representations as to the accuracy or completeness of the
information set forth therein.
REPORTS TO CERTIFICATEHOLDERS
Monthly reports which contain information concerning the Trust
Fund for a series of Certificates will be sent by the Master
Servicer or Certificate Administrator, as applicable, to each holder
of record of the Certificates of the related series. See
"Description of the Certificates Reports to Certificateholders." The
Company will file with the Commission such periodic reports with
respect to the Trust Fund for a series of Certificates as are
required under the Exchange Act, and the rules and regulations of
the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of Certificates offered hereby, there
are incorporated herein and in the related Prospectus Supplement by
reference all documents and reports filed or caused to be filed by
the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, prior to the termination of the offering of the
related series of Certificates, that relate specifically to such
related series of Certificates. The Company will provide or cause to
be provided without charge to each person to whom this Prospectus
and related Prospectus Supplement is delivered in connection with
the offering of one or more classes of such series of Certificates,
upon written or oral request of such person, a copy of any or all
such reports incorporated herein by reference, in each case to the
extent such reports relate to one or more of such classes of such
series of Certificates, other than the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in
such documents. Requests should be directed in writing to
Residential Accredit Loans, Inc., 8400 Normandale Lake Boulevard,
Suite 700, Minnesota 55437, or by telephone at (612) 832-7000.
<PAGE>
No dealer, salesman, or any other person has been authorized to
give any information, or to make any representations, other than
those contained in this Prospectus or the related Prospectus
Supplement and, if given or made, such information or
representations must not be relied upon as having been authorized by
the Company or any dealer, salesman, or any other person. Neither
the delivery of this Prospectus or the related Prospectus Supplement
nor any sale made hereunder or thereunder shall under any
circumstances create an implication that there has been no change in
the information herein or therein since the date hereof. This
Prospectus and the related Prospectus Supplement are not an offer to
sell or a solicitation of an offer to buy any security in any
jurisdiction in which it is unlawful to make such offer or
solicitation.
TABLE OF CONTENTS
Caption
Page
ADDITIONAL INFORMATION . . . . . . . 2
REPORTS TO CERTIFICATEHOLDERS. . . . . . . . . . . 2
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE . . . . . . . . . . . . 2
SUMMARY OF PROSPECTUS. . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . 11
Special Features of the Mortgage Collateral 11
Yield and Prepayment Considerations. . . . . . . . 12
Limited Representations and Warranties . . . . . . 12
Limited Liquidity. . . . . . . . . . 12
Limited Obligations. . . . . . . . . 13
Limitations, Reduction and Substitution of
Credit
Enhancement. . . . . . . . . . . . . 13
THE TRUST FUNDS. . . . . . . . . . . 14
General. . . . . . . . . . . . . . . 14
The Mortgage Loans . . . . . . . . . 15
The Contracts. . . . . . . . . . . . 20
The Agency Securities. . . . . . . . 21
Mortgage Collateral Sellers. . . . . . . 22
Representations with Respect to Mortgage
Collateral . . . . . . . . . . . . . 23
Repurchases of Mortgage Collateral . . . . . . . . 24
Limited Right of Substitution. . . . . . . . . . . 25
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . 26
General. . . . . . . . . . . . . . . 26
Form of Certificates . . . . . . . . 27
Assignment of Mortgage Loans . . . . . . 29
Assignment of Contracts. . . . . . . 30
Review of Mortgage Loan or Contract Documents . . . . . . 30
Assignment of Agency Securities. . . . . . . . . . 31
Spread . . . . . . . . . . . . . . . 31
Payments on Mortgage Collateral. . . . . . . . . . 31
Withdrawals from the Custodial Account . . . . . . 33
Distributions. . . . . . . . . . . . 34
Advances . . . . . . . . . . . . . . 37
Prepayment Interest Shortfalls . . . . . . . . . . 38
Reports to Certificateholders. . . . . . . . . . . 38
Servicing and Administration of Mortgage
Collateral . . . . . . . . . . . . .
Realization Upon Defaulted Property. . . . . . . . 43
SUBORDINATION. . . . . . . . . . . . 45
DESCRIPTION OF CREDIT ENHANCEMENT. . . . . . . . . 46
General. . . . . . . . . . . . . . . 46
Letters of Credit. . . . . . . . . . 47
Mortgage Pool Insurance Policies . . . . . . . . . 47
Special Hazard Insurance Policies. . . . . . . . . 49
Bankruptcy Bonds . . . . . . . . . . 50
Reserve Funds. . . . . . . . . . . . 50
Certificate Insurance Policies . . . . . . . . . . 51
<PAGE>
Caption
Page
Surety Bonds . . . . . . . . . . . . . . . . . 51
Maintenance of Credit Enhancement. . . . . . . 51
Reduction or Substitution of Credit
Enhancement. . . . . . . . . . . . . . . . . . 52
INSURANCE POLICIES ON MORTGAGE LOANS
OR CONTRACTS.. . . . . . . . . . . . . . . . . 53
Primary Mortgage Insurance Policies. . . . . . 53
Standard Hazard Insurance on Mortgaged
Properties . . . . . . . . . . . . . . . . . . 54
Standard Hazard Insurance on Manufactured
Homes. . . . . . . . . . . . . . . . . . . . . 55
FHA Mortgage Insurance . . . . . . . . . . . . 55
VA Mortgage Guaranty . . . . . . . . . . . . . 55
THE COMPANY. . . . . . . . . . . . . . . . . . 56
RESIDENTIAL FUNDING CORPORATION. . . . . . . . 56
THE POOLING AND SERVICING AGREEMENT. . . . . . 56
Servicing and Administration . . . . . . . . . 57
Events of Default. . . . . . . . . . . . . . . 57
Rights Upon Event of Default . . . . . . . . . 57
Amendment. . . . . . . . . . . . . . . . . . . 58
Termination; Retirement of Certificates 59
The Trustee. . . . . . . . . . . . . . . . . . 60
YIELD CONSIDERATIONS . . . . . . . . . . . . . 60
MATURITY AND PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . . . . . . 63
CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS AND CONTRACTS. . . . . . . . . . . . . . 65
The Mortgage Loans . . . . . . . . . . . . . . 66
The Contracts. . . . . . . . . . . . . . . . . 73
Environmental Legislation. . . . . . . . . . . 75
Soldiers' and Sailors' Civil Relief Act of
1940 . . . . . . . . . . . . . . . . . . . . . 76
Default Interest and Limitations on
Prepayments. . . . . . . . . . . . . . . . . . 76
Forfeitures in Drug and RICO Proceedings 76
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES . . . . . . . . . . . . . . . . . 77
General. . . . . . . . . . . . . . . . . . . . 77
REMICs . . . . . . . . . . . . . . . . . . . . 78
STATE AND OTHER TAX CONSEQUENCES . . . . . . . 93
ERISA CONSIDERATIONS . . . . . . . . . . . . . 94
Plan Asset Regulations . . . . . . . . . . . . 94
Prohibited Transaction Exemption . . . . . . . 95
Tax-Exempt Investors . . . . . . . . . . . . . 97
Consultation with Counsel. . . . . . . . . . . 97
LEGAL INVESTMENT MATTERS . . . . . . . . . . . 97
USE OF PROCEEDS. . . . . . . . . . . . . . . . 98
METHODS OF DISTRIBUTION. . . . . . . . . . . . 99
LEGAL MATTERS. . . . . . . . . . . . . . . . . 100
FINANCIAL INFORMATION. . . . . . . . . . . . . 100
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . 101
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere in this Prospectus
and by reference to the information with respect to each series of
Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such series.
Capitalized terms used in this summary that are not otherwise
defined shall have the meanings ascribed thereto in this Prospectus.
An index indicating where certain terms used herein are defined
appears at the end of this Prospectus.
Securities Offered . . . . . . . . . Mortgage and Manufactured
Housing Contract Pass-Through
Certificates.
Company. . . . . . . . . . . . . . . Residential Accredit Loans, Inc.
See "The Company."
Servicer or Master Servicer. . . . . .. The related Prospectus
Supplement may identify one or
more entities as Servicers for
a series of Certificates
evidencing interests in
Mortgage Loans or Contracts
and/or an entity may act as
Master Servicer. The Master
Servicer may be Residential
Funding Corporation, an
affiliate of the Company
("Residential Funding"). See
"Residential Funding
Corporation" and "Description
of the Certificates Servicing
and Administration of Mortgage
Collateral."
Certificate Administrator. . . . . . An entity may be named as the
Certificate Administrator in
the related Prospectus
Supplement, if required in
addition to or in lieu of the
Master Servicer or Servicer for
a series of Certificates. The
Certificate Administrator may
be Residential Funding. See
"Residential Funding
Corporation" and "Description
of the Certificates Servicing
and Administration of Mortgage
Collateral."
Trustee. . . . . . . . . . . . . . . The Trustee for each series of
Certificates will be specified
in the related Prospectus
Supplement.
Certificates . . . . . . . . . . . . Each series of Certificates
will represent in the aggregate
the entire beneficial ownership
interest, excluding any
interest retained by the
Company or any other entity
specified in the related
Prospectus Supplement, in a
Trust Fund consisting primarily
of the Mortgage Collateral
acquired by the Company from
one or more affiliated or
unaffiliated institutions. Each
series of Certificates will be
issued pursuant to a Pooling
and Servicing Agreement or a
Trust Agreement among the
Company, the Trustee and one or
more of any Servicer, the
Master Servicer and the
Certificate Administrator.
As specified in the related
Prospectus Supplement, each
series of Certificates, or
class of Certificates in the
case of a series consisting of
two or more classes, may have a
stated principal balance, no
stated principal balance or a
notional amount and may be
entitled to distributions of
interest based on a specified
interest rate or rates (each, a
"Pass-Through Rate"). Each
series or class of Certificates
may have a different Pass-Through Rate, which may
be a
fixed, variable or adjustable
Pass-Through Rate, or any
combination of two or more of
such Pass-Through Rates. The
related Prospectus Supplement
will specify the Pass-Through
Rate or Rates for each series
or class of Certificates, or
the initial Pass-Through Rate
or Rates and the method for
determining subsequent changes
to the Pass-Through Rate or
Rates.
A series may include one or
more classes of Certificates
(each, a "Strip Certificate")
entitled to (i) principal
distributions, with
disproportionate, nominal or no
interest distributions, or (ii)
interest distributions, with
disproportionate, nominal or no
principal distributions. In
addition, a series may include
classes of Certificates which
differ as to timing, sequential
order, priority of payment,
Pass-Through Rate or amount of
distributions of principal or
interest or both, or as to
which distributions of
principal or interest or both
on any class may be made upon
the occurrence of specified
events, in accordance with a
schedule or formula, or on the
basis of collections from
designated portions of the
Trust Fund. In addition, a
series may include one or more
classes of Certificates
("Accrual Certificates"), as to
which certain accrued interest
will not be distributed but
rather will be added to the
principal balance thereof in
the manner described in the
related Prospectus Supplement.
One or more classes of
Certificates in a series may be
entitled to receive principal
payments pursuant to an
amortization schedule under the
circumstances described in the
related Prospectus Supplement.
If so specified in the related
Prospectus Supplement, a series
of Certificates may include one
or more classes of Certificates
(collectively, the "Senior
Certificates") which are senior
to one or more classes of
Certificates (collectively, the
"Subordinate Certificates") in
respect of certain
distributions of principal and
interest and allocations of
losses on the Mortgage
Collateral. See
"Subordination." If so
specified in the related
Prospectus Supplement, a series
of Certificates may include one
or more classes of Certificates
(collectively, the "Mezzanine
Certificates") which are
Subordinate Certificates but
which are senior to other
classes of Subordinate
Certificates in respect of such
distributions or losses. In
addition, certain classes of
Senior Certificates may be
senior to other classes of
Senior Certificates in respect
of such distributions or
losses. The Certificates will
be issued in fully-registered
certificated or book-entry form
in the authorized denominations
specified in the related
Prospectus Supplement. See
"Description of the
Certificates."
Neither the Certificates nor
the underlying Mortgage
Collateral will be guaranteed
or insured by any governmental
agency or instrumentality
(except in the case of FHA
Loans, FHA Contracts, VA Loans,
VA Contracts and Ginnie Mae
Securities) or by the Company,
the Master Servicer, any
Servicer, the Mortgage
Collateral Seller, the
Certificate Administrator, GMAC
Mortgage or any of their
affiliates. See "Risk
Factors Limited Obligations."
Interest Distributions . . . . . . . Except as otherwise specified
herein or in the related
Prospectus Supplement, interest
on each class of Certificates
of each series, other than
Strip Certificates or Accrual
Certificates (prior to the time
when accrued interest becomes
payable thereon), will be
remitted at the applicable
Pass-Through Rate on the
outstanding principal balance
of such class, on the 25th day
(or, if such day is not a
business day, the next business
day) of each month, commencing
with the month following the
month in which the Cut-off Date
(as defined in the applicable
Prospectus Supplement) occurs
(each, a "Distribution Date").
If the Prospectus Supplement so
specifies, interest
distributions on any class of
Certificates may be reduced on
account of negative
amortization on the Mortgage
Collateral, with the Deferred
Interest (as defined herein)
allocable to such class added
to the principal balance
thereof, which Deferred
Interest will thereafter bear
interest at the applicable
Pass-Through Rate.
Distributions, if any, with
respect to interest on Strip
Certificates will be made on
each Distribution Date as
described herein and in the
related Prospectus Supplement.
See "Description of the
Certificates Distributions."
Strip Certificates that are
entitled to distributions of
principal only will not receive
distributions in respect of
interest. Interest that has
accrued but is not yet payable
on any Accrual Certificates
will be added to the principal
balance of such class on the
related Distribution Date, and
will thereafter bear interest
at the applicable Pass-Through
Rate. Unless otherwise
specified in the related
Prospectus Supplement,
distributions of interest with
respect to any series of
Certificates (or accruals
thereof in the case of Accrual
Certificates), or with respect
to one or more classes included
therein, may be reduced to the
extent of interest shortfalls
not covered by advances or the
applicable form of credit
support, including any
Prepayment Interest Shortfalls.
See "Description of the
Certificates" and "Maturity and
Prepayment Considerations."
Principal Distributions. . . . . . . Except as otherwise specified
in the related Prospectus
Supplement, principal
distributions on the
Certificates of each series
will be payable on each
Distribution Date, commencing
with the Distribution Date in
the month following the month
in which the Cut-off Date
occurs, to the holders of the
Certificates of such series, or
of the class or classes of
Certificates then entitled
thereto, on a pro rata basis
among all such Certificates or
among the Certificates of any
such class, in proportion to
their respective outstanding
principal balances or the
percentage interests
represented by such class, in
the priority and manner
specified in the related
Prospectus Supplement. Strip
Certificates with no principal
balance will not receive
distributions in respect of
principal. Distributions of
principal with respect to any
class of Certificates may be
reduced to the extent of
certain delinquencies not
covered by advances or losses
not covered by the applicable
form of credit enhancement. See
"The Trust Funds," "Maturity
and Prepayment Considerations"
and "Description of the
Certificates."
Trust Fund . . . . . . . . . . . . . The Trust Fund for a series of
Certificates will consist
primarily of Mortgage Loans,
Contracts, whole or partial
participations in Mortgage
Loans or Contracts and/or
Agency Securities, together
with certain accounts, reserve
funds, insurance policies and
related agreements specified in
the related Prospectus
Supplement. The Trust Fund for
a series of Certificates will
also include the Certificate
Account and a Collection
Account, if applicable, and may
include various forms of credit
enhancement, all as specified
in the related Prospectus
Supplement. See "The Trust
Funds" and "Description of
Credit Enhancement."
The Mortgage Collateral will be
purchased by the Company
directly or indirectly (through
Residential Funding or other
affiliates) from affiliates,
including GMAC Mortgage
Corporation of PA and
Homecomings Financial Network,
Inc., or directly or indirectly
from sellers unaffiliated with
the Company (each, a "Mortgage
Collateral Seller"). See "The
Trust Funds Mortgage Collateral
Sellers."
Mortgage Loans . . . . . . . . . . . The Trust Fund for a series of
Certificates may include a pool
of Mortgage Loans, or whole or
partial participations in
Mortgage Loans (a "Mortgage
Pool"), secured by first liens
on one- to four-family
residential properties (each, a
"Mortgaged Property"). Such
Mortgage Loans may, as
specified in the related
Prospectus Supplement, include
conventional loans, FHA Loans,
VA Loans, Balloon Loans, GPM
Loans, Buy-Down Loans, Bi-Weekly
Loans or Mortgage Loans
having other special payment
features, as described herein
and in the related Prospectus
Supplement. See "The Trust
Funds The Mortgage Loans." The
Mortgage Loans may have fixed
or adjustable interest rates. A
Mortgage Pool may include
Mortgage Loans that have been
modified prior to their
inclusion in a Trust Fund. The
Mortgage Loans may include
either (i) Mortgage Loans
secured by mortgages, deeds of
trust or other security
instruments creating a first
lien on the Mortgaged
Properties or (ii) loans
secured by an assignment by the
borrower of a security interest
in shares issued by a private
cooperative housing corporation
and the related proprietary
lease or occupancy agreement on
a cooperative dwelling
("Cooperative Loans"). The
Mortgaged Properties may be
owner occupied or non-owner
occupied and may include
vacation and second homes and
investment properties. The
borrowers of the Mortgage Loans
(the "Mortgagors") may include
United States citizens employed
abroad, non-permanent resident
aliens employed in the United
States and persons who are
citizens and residents of a
country other than the United
States, including foreign
corporations formed for the
purpose of owning real estate
(collectively, "International
Borrowers"). See "The Trust
Funds The Mortgage Loans."
Contracts. . . . . . . . . . . . . . The Trust Fund for a series of
Certificates may include a pool
of Contracts, or whole or
partial participations in
Contracts (a "Contract Pool")
originated by one or more
manufactured housing dealers,
or such other entity or
entities described in the
related Prospectus Supplement.
The Contracts may be
conventional manufactured
housing contracts or contracts
insured by the FHA or partially
guaranteed by the VA. Each
Contract will be secured by a
manufactured home (each, a
"Manufactured Home," which
shall also be included in the
term "Mortgaged Property").
Generally, the Contracts will
be fully-amortizing and will
bear interest at a fixed rate
unless otherwise specified in
the related Prospectus
Supplement. See "The Trust
Funds The Contracts."
Agency Securities. . . . . . . . . . The Trust Fund for a series of
Certificates may include a pool
of Freddie Mac Securities,
Fannie Mae Securities or Ginnie
Mae Securities (collectively,
the "Agency Securities"), or a
combination of Agency
Securities. Such Agency
Securities may represent whole
or partial interests in pools
of (i) Mortgage Loans or
Contracts or (ii) Agency
Securities. Unless otherwise
set forth in the related
Prospectus Supplement, all
Ginnie Mae Securities will be
backed by the full faith and
credit of the United States.
None of the Freddie Mac
Securities or Fannie Mae
Securities will be backed,
directly or indirectly, by the
full faith and credit of the
United States. Agency
Securities may be backed by
fixed or adjustable rate
Mortgage Loans or other types
of Mortgage Loans or Contracts
specified in the related
Prospectus Supplement. See "The
Trust Funds The Agency
Securities."
Yield and Prepayment Considerations The Mortgage
Collateral
supporting a
series of
Certificates
will have
unique
characteristics that
will affect
the yield to
maturity and
the rate of
payment of
principal on
such
Certificates. See "Yield
Considerations" and
"Maturity
and
Prepayment
Considerations" herein
and in the
related
Prospectus
Supplement.
Credit Enhancement . . . . . . . . . If so specified in the related
Prospectus Supplement, the
Trust Fund with respect to any
series of Certificates may
include any one or any
combination of a letter of
credit, mortgage pool insurance
policy, special hazard
insurance policy, bankruptcy
bond, reserve fund, certificate
insurance policy, surety bond
or other type of credit support
to provide partial coverage for
certain defaults and losses
relating to the Mortgage Loans.
Credit support also may be
provided in the form of
subordination of one or more
classes of Certificates in a
series under which losses are
first allocated to any
Subordinate Certificates up to
a specified limit or in the
form of Overcollateralization.
Any form of credit enhancement
typically will have certain
limitations and exclusions from
coverage thereunder, which will
be described in the related
Prospectus Supplement. Losses
not covered by any form of
credit enhancement will be
borne by the holders of the
related Certificates (or
certain classes thereof). To
the extent not set forth
herein, the amount and types of
coverage, the identification of
any entity providing the
coverage, the terms of any
subordination and related
information will be set forth
in the Prospectus Supplement
relating to a series of
Certificates. See "Description
of Credit Enhancement" and
"Subordination."
Advances . . . . . . . . . . . . . . Unless otherwise specified in
the related Prospectus
Supplement, the Master Servicer
(or, if there is no Master
Servicer for such series, the
related Servicer) will be
obligated to make certain
advances with respect to
delinquent scheduled payments
on the Mortgage Loans or
Contracts, but only to the
extent that the Master Servicer
or Servicer believes that such
amounts will be recoverable by
it. Any advance made by the
Master Servicer or a Servicer
with respect to a Mortgage Loan
or a Contract is recoverable by
it as provided herein under
"Description of the
Certificates Advances" either
from recoveries on the specific
Mortgage Loan or Contract or,
with respect to any advance
subsequently determined to be
nonrecoverable, out of funds
otherwise distributable to the
holders of the related series
of Certificates.
Optional Termination . . . . . . . . The Master Servicer, the
Certificate Administrator, the
Company, a Servicer or, if
specified in the related
Prospectus Supplement, the
holder of the residual interest
in a REMIC may at its option
either (i) effect early
retirement of a series of
Certificates through the
purchase of the assets in the
related Trust Fund or (ii)
purchase, in whole but not in
part, the Certificates
specified in the related
Prospectus Supplement; in each
case under the circumstances
and in the manner set forth
herein under "The Pooling and
Servicing
Agreement Termination;
Retirement of Certificates" and
in the related Prospectus
Supplement.
Rating . . . . . . . . . . . . . . . At the date of issuance, as to
each series, each class of
Certificates offered hereby
will be rated, at the request
of the Company, in one of the
four highest rating categories
by one or more nationally
recognized statistical rating
agencies (each, a "Rating
Agency"). See "Ratings" in the
related Prospectus Supplement.
Legal Investment . . . . . . . . . . Unless otherwise specified in
the related Prospectus
Supplement, each class of
Certificates offered hereby and
by the related Prospectus
Supplement that is rated in one
of the two highest rating
categories by at least one
Rating Agency will constitute
"mortgage related securities"
for purposes of the Secondary
Mortgage Market Enhancement Act
of 1984, as amended ("SMMEA"),
for so long as it sustains such
a rating. See "Legal Investment
Matters."
ERISA Considerations . . . . . . . . A fiduciary of an employee
benefit plan and certain other
plans and arrangements,
including individual retirement
accounts and annuities, Keogh
plans, and collective
investment funds, insurance
company general or separate
accounts and certain other
entities in which such plans,
accounts, annuities or
arrangements are invested,
which is subject to the
Employee Retirement Income
Security Act of 1974, as
amended ("ERISA"), or Section
4975 of the Internal Revenue
Code of 1986 (the "Code"), and
any other person contemplating
purchasing a Certificate with
Plan Assets (as defined
herein), should carefully
review with its legal counsel
whether the purchase or holding
of Certificates could give rise
to a transaction that is
prohibited or is not otherwise
permissible either under ERISA
or Section 4975 of the Code.
See "ERISA Considerations"
herein and in the related
Prospectus Supplement.
Certain Federal Income Tax Consequences Certificates
of
each
series
offered
hereby
will
constitute
"regular
interests"
or
"residual
interests"
in a
Trust
Fund,
or a
portion
thereof,
treated as a
REMIC
under
Sections
860A
through 860G
of the
Code,
unless
otherwise
specified in
the
related
Prospectus
Supplement.
See
"Certain
Federal
Income
Tax
Consequences"
herein
and in
the
related
Prospectus
Supplement.
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following
factors in connection with the purchase of the Certificates:
Special Features of the Mortgage Collateral
The primary assets underlying a series of Certificates will be
the Mortgage Loans or Contracts (or interests therein) in the
related Trust Fund or the Mortgage Loans or Contracts that underlie
the Agency Securities in a Trust Fund. Defaults on mortgage loans
and contracts may occur because of changes in the economic status of
the related borrower or because of increases in the monthly payment
for such mortgage loan or contract or decreases in the related
borrower's equity in the related Mortgaged Property. Losses upon the
foreclosure of a mortgage loan or contract may occur because the
value of the related Mortgaged Property is insufficient to recover
the outstanding principal balance of the mortgage loan or contract.
Factors which may affect the value of the related Mortgaged Property
include declines in real estate values and adverse economic
conditions either generally or in the particular geographic area in
which the related Mortgaged Property is located. See "Yield
Considerations." Losses may also result from fraud in the
origination of a mortgage loan or contract.
Mortgage Loans or Contracts may have been originated using
underwriting standards that are less stringent than the underwriting
standards applied by other first mortgage loan purchase programs
such as those run by Fannie Mae or Freddie Mac or by the Company's
affiliate, Residential Funding, for the purpose of collateralizing
securities issued by Residential Funding Mortgage Securities I, Inc.
For example, Mortgage Loans or Contracts in a Trust Fund may present
a greater risk of loss than such other lending programs due to the
inclusion of Mortgage Loans with higher Loan-to-Value Ratios and
Mortgage Loans with Loan-to-Value Ratios over 80% that do not
require primary mortgage insurance. Mortgage Loans secured by
investment properties may present a greater risk of loss because a
borrower experiencing financial difficulties may be more likely to
default on an investment property than a primary residence. Mortgage
Loans made to Mortgagors who reside outside of the United States or
are non-United States citizens may present a greater risk of loss
because of the difficulty of verifying income, assets and employment
and, in the case of a foreclosure, locating and serving the
borrowers. Mortgage Loans that are secured by mortgaged properties,
a higher percentage of the value of which is represented by land,
may present a greater risk of loss because of delays in liquidation
due to the narrower market for such properties, difficulties in
disposing of such properties and wider fluctuations in the market
value for such properties. See "The Trust Funds The Mortgage
Loans Underwriting Policies" and "Certain Legal Aspects of the
Mortgage Loans and Contracts."
Mortgage Loans or Contracts may have been originated one or more
years prior to the Closing Date for the related Certificates. Such
seasoned Mortgage Collateral may have higher current loan-to-value
ratios than at origination if the value of the related Mortgaged
Property has declined. No assurance can be given that values of the
Mortgaged Properties have remained or will remain at the levels
existing on the dates of origination of the related Mortgage Loans
or Contracts. If a residential real estate market should experience
an overall decline in property values, or if the Mortgagors on such
seasoned Mortgage Collateral have lower incomes or poorer credit
histories than at the time of origination of the related Mortgage
Loan or Contract, the actual rates of delinquencies, foreclosures
and losses could be higher than the rates otherwise expected by an
investor in the Certificates.
In addition, in the case of Mortgage Loans or Contracts that are
subject to negative amortization due to the addition to the related
principal balance of Deferred Interest, the principal balances of
such Mortgage Loans or Contracts could be increased to an amount
equal to or in excess of the value of the underlying Mortgaged
Properties, thereby increasing the likelihood of default by the
Mortgagors which may result in losses on such Mortgage Loans or
Contracts. Certain other Mortgage Loans or Contracts may provide for
escalating or variable payments by the Mortgagor, as to which the
Mortgagor is generally qualified on the basis of the initial payment
amount. Some of the Mortgage Loans or Contracts may be Balloon Loans
and the ability of a Mortgagor to pay the related Balloon Amount may
depend on the Mortgagor's ability to refinance the Mortgage Loan or
Contract. In some instances, the Mortgagors may not be able to make
their loan payments as such payments increase and thus the
likelihood of default will increase.
In addition to the foregoing, from time to time certain
geographic regions will experience weaker regional economic
conditions and housing markets and, consequently, may experience
higher rates of loss and delinquency than will be experienced on
mortgage loans or contracts generally. For example, a region's
economic condition and housing market may be directly, or
indirectly, adversely affected by natural disasters or civil
disturbances such as earthquakes, hurricanes, floods, eruptions or
riots. The economic impact of any of these types of events may also
be felt in areas beyond the region immediately affected by the
disaster or disturbance. The Mortgage Loans or Contracts in the
Trust Fund for a series of Certificates may be concentrated in these
regions, and such concentration may present risks in addition to
those generally present for similar mortgage-backed securities
without such concentration.
To the extent that losses on any item of Mortgage Collateral are
not covered by any credit enhancement, the related
Certificateholders (or specific classes thereof) will bear all risk
of loss resulting from default by the Mortgagors, and will have to
look primarily to the value of the Mortgaged Properties for recovery
of the outstanding principal and unpaid interest on the defaulted
Mortgage Loans or Contracts. Specific risks, if any, associated with
the Mortgage Collateral underlying a particular series of
Certificates will be discussed in the related Prospectus Supplement.
See "Risk Factors," if any, in the related Prospectus Supplement.
Yield and Prepayment Considerations
The yield to maturity of the Certificates of each series will
depend on the rate and timing of principal payments (including
prepayments, liquidations due to defaults, and repurchases due to
conversion of ARM Loans to fixed interest rate loans or breaches of
representations and warranties) on the Mortgage Loans or Contracts
and the price paid by Certificateholders. Such yield may be
adversely affected by a higher or lower than anticipated rate of
prepayments on the related Mortgage Collateral. The yield to
maturity on Strip Certificates will be extremely sensitive to the
rate of prepayments on the related Mortgage Collateral. In addition,
the yield to maturity on certain other types of classes of
Certificates, including Accrual Certificates, Certificates with a
Pass-Through Rate that fluctuates inversely with an index or certain
other classes, may be relatively more sensitive to the rate of
prepayment on the related Mortgage Collateral than other classes of
Certificates. Prepayments are influenced by a number of factors,
including prevailing mortgage market interest rates, local and
regional economic conditions and homeowner mobility. See "Yield
Considerations" and "Maturity and Prepayment Considerations."
Limited Representations and Warranties
Certain Mortgage Collateral Sellers may make more limited
representations and warranties with respect to the Mortgage Loans or
Contracts that have been acquired by the Company than would be
required by Fannie Mae or Freddie Mac in connection with their first
mortgage loan purchase programs. In addition, any item of Mortgage
Collateral for which a breach of a representation or warranty exists
will remain in the related Trust Fund in the event that a Mortgage
Collateral Seller is unable, or disputes its obligation, to
repurchase such Mortgage Collateral and such a breach does not also
constitute a breach of a representation made by Residential Funding,
the Company or the Master Servicer. In either event, any resulting
losses will be borne by the related form of credit enhancement, to
the extent available, and otherwise by the holders of one or more
classes of Certificates. See "The Trust Funds Representations with
Respect to Mortgage Collateral."
Limited Liquidity
There can be no assurance that a secondary market for the
Certificates of any series will develop or, if it does develop, that
it will provide Certificateholders with liquidity of investment or
that it will continue for the life of the Certificates of any
series. The Prospectus Supplement for any series of Certificates may
indicate that an underwriter specified therein intends to establish
a secondary market in such Certificates, however no underwriter will
be obligated to do so. The Certificates will not be listed on any
securities exchange.
Limited Obligations
The Certificates will not represent an interest in or obligation
of the Company, the Master Servicer, any Servicer, the Mortgage
Collateral Seller, the Certificate Administrator, GMAC Mortgage or
any of their affiliates. The only obligations of the foregoing
entities with respect to the Certificates or any Mortgage Collateral
will be the obligations (if any) of the Company, the related
Servicer, if applicable, the Mortgage Collateral Seller, and the
Master Servicer pursuant to certain limited representations and
warranties made with respect to the Mortgage Collateral, the Master
Servicer's or the applicable Servicer's servicing obligations under
the related Pooling and Servicing Agreement (including such entity's
limited obligation to make certain Advances) and pursuant to the
terms of any Agency Securities, the Certificate Administrator's (if
any) administrative obligations under the Pooling and Servicing
Agreement or the Trust Agreement, and, if and to the extent
expressly described in the related Prospectus Supplement, certain
limited obligations of the Master Servicer or the related Servicer
in connection with an agreement to purchase a Convertible Mortgage
Loan upon conversion to a fixed rate. Neither the Certificates nor
the underlying Mortgage Collateral will be guaranteed or insured by
any governmental agency or instrumentality (except in the case of
FHA Loans, FHA Contracts, VA Loans, VA Contracts or Ginnie Mae
Securities), or by the Company, the Master Servicer, any Servicer,
the Mortgage Collateral Seller, the Certificate Administrator, GMAC
Mortgage or any of their affiliates. Proceeds of the assets included
in the related Trust Fund (including the Mortgage Collateral and any
form of credit enhancement) will be the sole source of payments on
the Certificates, and there will be no recourse to the Company, the
Master Servicer, any Servicer, the Mortgage Collateral Seller, the
Certificate Administrator, GMAC Mortgage or any other entity in the
event that such proceeds are insufficient or otherwise unavailable
to make all payments provided for under the Certificates.
Limitations, Reduction and Substitution of Credit Enhancement
With respect to each series of Certificates, credit enhancement
may be provided in limited amounts to cover certain types of losses
on the underlying Mortgage Collateral. Credit enhancement will be
provided in one or more of the forms referred to herein, including,
but not limited to: subordination of other classes of Certificates
of the same series; a Letter of Credit; a Mortgage Pool Insurance
Policy; a Special Hazard Insurance Policy; a Bankruptcy Bond; a
Reserve Fund; a Certificate Insurance Policy; a Surety Bond;
Overcollateralization; or any combination thereof. See
"Subordination" and "Description of Credit Enhancement" herein.
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject
to periodic reduction in accordance with a schedule or formula.
Furthermore, such credit enhancement may provide only very limited
coverage as to certain types of losses or risks, and may provide no
coverage as to certain other types of losses or risks. In the event
losses exceed the amount of coverage provided by any credit
enhancement or losses of a type not covered by any credit
enhancement occur, such losses will be borne by the holders of the
related Certificates (or certain classes thereof). The Master
Servicer or the Certificate Administrator, as applicable, will
generally be permitted to reduce, terminate or substitute all or a
portion of the credit enhancement for any series of Certificates, if
each Rating Agency maintaining a rating on such Certificates
indicates that the then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by any Rating
Agency may be lowered following the initial issuance thereof as a
result of the downgrading of the obligations of any applicable
credit support provider, or as a result of losses on the related
Mortgage Collateral in excess of the levels contemplated by such
Rating Agency at the time of its initial rating analysis. None of
the Company, the Master Servicer, any Servicer, the Mortgage
Collateral Seller, the Certificate Administrator, GMAC Mortgage or
any of their affiliates will have any obligation to replace or
supplement any credit enhancement, or to take any other action to
maintain any rating of any series of Certificates. See "Description
of Credit Enhancement Reduction or Substitution of Credit
Enhancement."
THE TRUST FUNDS
General
A Trust Fund for a series of Certificates may include Mortgage
Collateral that consists of one or more of the following: (1)
Mortgage Loans, or whole or partial participations in Mortgage
Loans, which are one- to four-family residential mortgage loans,
including loans secured by shares of cooperative housing
corporations and proprietary leases for cooperative apartment units,
(2) Contracts, or whole or partial participations in Contracts; (3)
Agency Securities which are mortgage pass-through certificates
(including those representing whole or partial interests in pools of
Mortgage Loans, Contracts or Agency Securities (a) guaranteed and/or
issued by the Government National Mortgage Association ("Ginnie Mae"
and such securities, "Ginnie Mae Securities"), (b) issued by the
Federal Home Loan Mortgage Corporation ("Freddie Mac" and such
securities, "Freddie Mac Securities") or (c) issued by the Federal
National Mortgage Association ("Fannie Mae" and such securities,
"Fannie Mae Securities"); and (4) certain other related property
conveyed by the Company. Each Trust Fund may also include (i) the
amounts required to be held from time to time in a trust account
(the "Certificate Account"), into which payments in respect of the
Mortgage Collateral may be deposited, maintained by the Master
Servicer, a Servicer, the Trustee or the Certificate Administrator,
as the case may be, pursuant to the Pooling and Servicing Agreement
or Trust Agreement, (ii) if so specified in the related Prospectus
Supplement, a trust account (the "Custodial Account") into which
amounts to be deposited in the Certificate Account may be deposited
on a periodic basis prior to deposit in the Certificate Account,
(iii) any Mortgaged Property which initially secured a Mortgage Loan
or Contract and that is acquired by foreclosure or deed in lieu of
foreclosure and (iv) if so specified in the related Prospectus
Supplement, one or more other cash accounts, insurance policies or
other forms of credit enhancement with respect to the Certificates,
the Mortgage Collateral or all or any part of the Trust Fund,
required to be maintained pursuant to the related Pooling and
Servicing Agreement or Trust Agreement. See "Description of Credit
Enhancement."
Each Certificate will evidence the interest specified in the
related Prospectus Supplement in a Trust Fund, containing a Mortgage
Pool, a Contract Pool or a pool of Agency Securities (an "Agency
Securities Pool") having the aggregate principal balance as of the
date (the "Cut-off Date") specified in the related Prospectus
Supplement. Certificateholders of a series will have interests only
in such Mortgage Pool, Contract Pool or Agency Securities Pool and
will have no interest in the Mortgage Pool, Contract Pool or Agency
Securities Pool created with respect to any other series of
Certificates.
The related Prospectus Supplement may identify one or more
entities as Servicers for a series of Certificates evidencing
interests in Mortgage Loans or Contracts or, if so provided in the
related Prospectus Supplement, an entity may act as Master Servicer
with respect to a series of Certificates. The Master Servicer or any
Servicer, as applicable, may service the Mortgage Loans or Contracts
through one or more Sub-Servicers. See "Description of the
Certificates-Servicing and Administration of Mortgage Collateral."
In addition to or in lieu of the Master Servicer or Servicer for a
series of Certificates, the related Prospectus Supplement may
identify a Certificate Administrator for the Trust Fund. The related
Prospectus Supplement will identify an entity that will serve as
trustee (the "Trustee") for a series of Certificates. The Trustee
will be authorized to appoint a custodian (a "Custodian") pursuant
to a custodial agreement to maintain possession of and review
documents relating to the Mortgage Collateral as the agent of the
Trustee. The identity of such Custodian, if any, will be set forth
in the related Prospectus Supplement.
The following is a brief description of the Mortgage Collateral
expected to be included in the Trust Funds. If specific information
respecting the Mortgage Collateral is not known to the Company at
the time Certificates are initially offered, more general
information of the nature described below will be provided in the
Prospectus Supplement, and specific information will be set forth in
a Current Report on Form 8-K (a "Form 8-K") to be filed with the
Securities and Exchange Commission (the "Commission") within fifteen
days after the initial issuance of such Certificates. A copy of the
Pooling and Servicing Agreement or Trust Agreement, as applicable,
with respect to each series will be an exhibit to the Form 8-K. A
schedule of Mortgage Collateral will be an exhibit to the related
Pooling and Servicing Agreement or Trust Agreement.
The Mortgage Loans
Unless otherwise stated in the related Prospectus Supplement, the
Mortgage Loans included in a Trust Fund for a series will have been
originated by or on behalf of either (i) savings and loan
associations, savings banks, commercial banks, credit unions,
insurance companies or similar institutions which are supervised
and/or examined by a federal or state authority, or (ii) HUD-approved
mortgagees. Each
Mortgage Loan will be selected by the
Company for inclusion in a Mortgage Pool from those purchased by the
Company from Affiliated Sellers or, either directly or through its
affiliates, including Homecomings Financial Network, Inc., GMAC
Mortgage and Residential Funding, from Unaffiliated Sellers, all as
described in the related Prospectus Supplement. If a Mortgage Pool
is composed of Mortgage Loans acquired by the Company directly from
Unaffiliated Sellers, the related Prospectus Supplement will specify
the extent of Mortgage Loans so acquired. The characteristics of the
Mortgage Loans will be as described in the related Prospectus
Supplement. The Mortgage Loans purchased by the Company from a
Mortgage Collateral Seller will be selected by the Company. Other
mortgage loans available for purchase by the Company may have had
characteristics that would have made them eligible for inclusion in
a Mortgage Pool, but were not selected by the Company for inclusion
in such Mortgage Pool.
If so stated in the related Prospectus Supplement, all or a
portion of the Mortgage Loans that underlie a series of Certificates
may have been purchased by the Company, either directly, or
indirectly through Residential Funding or other affiliates, from
Mortgage Collateral Sellers under Residential Funding's Expanded
Criteria Loan Program (the "Program") as described below (such
Mortgage Loans, the "Program Loans").
The Mortgage Loans may include mortgage loans insured by the
Federal Housing Administration (the "FHA" and such loans, "FHA
Loans"), a division of the United States Department of Housing and
Urban Development ("HUD"), mortgage loans partially guaranteed by
the Veterans Administration (the "VA" and such loans, "VA Loans")
and mortgage loans not insured or guaranteed by the FHA or VA
("Conventional Loans"). The Mortgage Loans may have fixed interest
rates or adjustable interest rates ("Mortgage Rates") and may
provide for fixed level payments or may be Mortgage Loans pursuant
to which the monthly payments by the Mortgagor during the early
years of the related Mortgage are less than the amount of interest
that would otherwise be payable thereon, with the interest not so
paid added to the outstanding principal balance of such Mortgage
Loan ("GPM Loans"), Mortgage Loans subject to temporary buy-down
plans ("Buy-Down Loans"), pursuant to which the monthly payments
made by the Mortgagor during the early years of the Mortgage Loan
will be less than the scheduled monthly payments on the Mortgage
Loan, Mortgage Loans that provide for payment every other week
during the term thereof ("Bi-Weekly Loans"), Mortgage Loans that
experience negative amortization, Mortgage Loans that require a
larger payment of principal upon maturity (a "Balloon Amount") that
may be all or a portion of the principal thereof ("Balloon Loans"),
or Mortgage Loans with other payment characteristics as described
below or in the related Prospectus Supplement. The Mortgage Loans
may be secured by mortgages, deeds of trust, deeds to secure debt or
other similar security instruments (collectively, "Mortgages")
creating a first lien on the related Mortgaged Properties. The
Mortgage Loans may also include Cooperative Loans evidenced by
promissory notes secured by a lien on shares issued by private, non-profit,
cooperative housing
corporations ("Cooperatives") and on the
related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific units within the apartment
building owned by a Cooperative ("Cooperative Dwellings").
If specified in the related Prospectus Supplement, a Mortgage
Pool will contain Mortgage Loans that, in addition to being secured
by the related Mortgaged Properties, are secured by other collateral
owned by the related Mortgagors or are supported by third-party
guarantees secured by collateral owned by the related guarantors.
Such Mortgage Loans are collectively referred to herein as
"Additional Collateral Loans," and such collateral is collectively
referred to herein as "Additional Collateral." Additional
Collateral may consist of marketable securities, insurance policies,
annuities, certificates of deposit, cash, accounts or other personal
property and, in the case of Additional Collateral owned by any
guarantor, may consist of real estate. Unless otherwise specified
in the related Prospectus Supplement, the security agreements and
other similar security instruments related to the Additional
Collateral for a Mortgage Pool will, in the case of Additional
Collateral consisting of personal property, create first liens
thereon, and, in the case of Additional Collateral consisting of
real estate, create first or second liens thereon. Additional
Collateral, or the liens thereon in favor of the related Additional
Collateral Loans, may be greater or less in value than the principal
balances of such Additional Collateral Loans, the Appraised Values
of the underlying Mortgaged Properties or the differences, if any,
between such principal balances and such Appraised Values, and the
requirements that Additional Collateral be maintained may be
terminated upon the reduction of the Loan-to-Value Ratios or
principal balances of the related Additional Collateral Loans to
certain pre-determined amounts. Additional Collateral (including
any related third-party guarantees) may be provided either in
addition to or in lieu of Primary Insurance Policies for the
Additional Collateral Loans in a Mortgage Pool, as specified in the
related Prospectus Supplement. Guarantees supporting Additional
Collateral Loans may be guarantees of payment or guarantees of
collectability and may be full guarantees or limited guarantees. If
a Mortgage Pool includes Additional Collateral Loans, the related
Prospectus Supplement will specify the nature and extent of such
Additional Collateral Loans and of the related Additional
Collateral. If specified in such Prospectus Supplement, the
Trustee, on behalf of the related Certificateholders, will have only
the right to receive certain proceeds from the disposition of any
such Additional Collateral consisting of personal property and the
liens thereon will not be assigned to the Trustee. No assurance can
be given that values of the Additional Collateral have remained or
will remain at their levels on the Cut-off Date or as to the timing
of collections thereunder from the disposition of such Additional
Collateral. No assurance can be given as to the amount of proceeds,
if any, that might be realized from the disposition of the
Additional Collateral for any of the Additional Collateral Loans.
See "Certain Legal Aspects of the Mortgage Loans and Related
Matters Anti-Deficiency Legislation and Other Limitations on
Lenders" herein.
If so specified in the related Prospectus Supplement, a Mortgage
Pool may include Mortgage Loans that have been modified (each, a
"Modified Mortgage Loan"). Such modifications may include
conversions from an adjustable to a fixed Mortgage Rate (discussed
below) or other changes in the related mortgage note. If a Mortgage
Loan is a Modified Mortgage Loan, references to origination
generally shall be deemed to be references to the date of
modification.
The Mortgaged Properties may consist of detached individual
dwellings, individual condominiums, townhouses, duplexes, row
houses, modular pre-cut/panelized housing, individual units or two-
to four- unit dwellings in planned unit developments, two- to four-family
dwellings and other
attached dwelling units. Each Mortgaged
Property will be located on land owned in fee simple by the
Mortgagor or, if specified in the related Prospectus Supplement,
land leased by the Mortgagor. Attached dwellings may include
structures where each Mortgagor 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 an
apartment building owned by a Cooperative. The proprietary lease or
occupancy agreement securing a Cooperative Loan is generally
subordinate to any blanket mortgage on the related cooperative
apartment building or on the underlying land. Additionally, in the
case of a Cooperative Loan, the proprietary lease or occupancy
agreement is subject to termination and the cooperative shares are
subject to cancellation by the Cooperative if the tenant-stockholder
fails to pay maintenance or other obligations or charges owed by
such tenant-stockholder. See "Certain Legal Aspects of Mortgage
Loans and Contracts."
The percentage of Mortgage Loans that are owner-occupied will be
disclosed in the related Prospectus Supplement. The basis for any
statement that a given percentage of the Mortgage Loans are secured
by Mortgaged Properties that are owner-occupied will be one or more
of the following: (i) the making of a representation by the
Mortgagor at origination of a Mortgage Loan that the Mortgagor
intends to use the Mortgaged Property as a primary residence, (ii)
a representation by the originator of the Mortgage Loan (which
representation may be based solely on (i) above) or (iii) the fact
that the mailing address for the Mortgagor is the same as the
address of the Mortgaged Property, and any representation and
warranty in the related Pooling and Servicing Agreement to such
effect may be qualified similarly. To the extent specified in the
related Prospectus Supplement, the Mortgaged Properties may include
vacation homes, second homes and non-owner-occupied investment
properties. Mortgage Loans secured by investment properties
(including two- to four-unit dwellings) may also be secured by an
assignment of leases and rents and operating or other cash flow
guarantees relating to the Mortgage Loans. The percentage of
Mortgage Loans made to International Borrowers will also be
disclosed in the related Prospectus Supplement.
Certain information, including information regarding loan-to-value ratios
(each, a
"Loan-to-Value Ratio") at origination (unless
otherwise specified in the related Prospectus Supplement) of the
Mortgage Loans underlying each series of Certificates, will be
supplied in the related Prospectus Supplement. In the case of
purchase money Mortgage Loans, the Loan-to-Value Ratio is defined
generally as the ratio, expressed as a percentage, of the principal
amount of the Mortgage Loan at origination to the lesser of (1) the
appraised value determined in an appraisal obtained at origination
of such Mortgage Loan and (2) the sales price for the related
Mortgaged Property, except that in the case of certain employee or
preferred customer loans, the denominator of such ratio may be the
sales price. In the case of certain non-purchase money Mortgage
Loans including refinance, modified or converted Mortgage Loans, the
Loan-to-Value Ratio at origination is defined generally as the
ratio, expressed as a percentage, of the principal amount of such
Mortgage Loan to either the appraised value determined in an
appraisal obtained at the time of refinancing, modification or
conversion or, if no such appraisal has been obtained, the value of
the related Mortgaged Property which value generally will be
supported by either (i) a representation by the related Mortgage
Collateral Seller (as described below) as to such value, (ii) a
broker's price opinion, automated appraisal, drive-by appraisal or
other certification of value, (iii) an appraisal obtained within
twelve months prior to such refinancing, modification or conversion
or (iv) the sales price, if the Mortgaged Property was purchased
within the previous twelve months. The denominator of the ratio
described in the preceding sentence or the second preceding
sentence, as the case may be, is hereinafter referred to as the
"Appraised Value." Certain Mortgage Loans that are subject to
negative amortization will have Loan-to-Value Ratios that will
increase after origination as a result of such negative
amortization. In the case of seasoned Mortgage Loans, the appraisals
upon which Loan-to-Value Ratios have been calculated may no longer
be accurate valuations of the Mortgaged Properties. Certain
Mortgaged Properties may be located in regions where property values
have declined significantly since the time of origination. In
addition, a Loan-to-Value calculation does not take into account any
secondary financing. Under the Company's underwriting standards, a
Mortgage Collateral Seller is generally permitted to provide
secondary financing to a Mortgagor contemporaneously with the
origination of a Mortgage Loan, provided that the combined Loan-to-Value Ratio
is not greater
than 100%. Secondary financing is
readily available and may be obtained by a Mortgagor from a lender
including the Mortgage Collateral Seller at any time (including at
origination).
The Mortgage Loans may be "equity refinance" Mortgage Loans, as
to which a portion of the proceeds are used to refinance an existing
mortgage loan, and the remaining proceeds may be retained by the
Mortgagor or used for purposes unrelated to the Mortgaged Property.
Alternatively, the Mortgage Loans may be "rate and term refinance"
Mortgage Loans, as to which substantially all of the proceeds (net
of related costs incurred by the Mortgagor) are used to refinance an
existing mortgage loan or loans (which may include a junior lien)
primarily in order to change the interest rate or other terms
thereof. The Mortgage Loans may be mortgage loans that have been
consolidated and/or have had various terms changed, mortgage loans
that have been converted from adjustable rate mortgage loans to
fixed rate mortgage loans, or construction loans which have been
converted to permanent mortgage loans. In addition, a Mortgaged
Property may be subject to secondary financing at the time of
origination of the Mortgage Loan or thereafter.
Mortgage Loans that have adjustable Mortgage Rates ("ARM Loans")
generally will provide for a fixed initial Mortgage Rate until the
first date on which such Mortgage Rate is to be adjusted.
Thereafter, the Mortgage Rate is subject to periodic adjustment as
described in the related Prospectus Supplement, subject to the
applicable limitations, based on changes in the relevant index (the
"Index") described in the applicable Prospectus Supplement, to a
rate equal to the Index plus a fixed percentage spread over the
Index established contractually for each ARM Loan at the time of its
origination (the "Gross Margin"). The initial Mortgage Rate on an
ARM Loan may be lower than the sum of the then-applicable Index and
the Gross Margin for such ARM Loan.
ARM Loans have features that provide different investment
considerations than fixed-rate mortgage loans. In particular,
adjustable mortgage rates can cause payment increases that may
exceed some Mortgagors' capacity to cover such payments. However, to
the extent specified in the related Prospectus Supplement, an ARM
Loan may provide that its Mortgage Rate may not be adjusted to a
rate above the applicable maximum Mortgage Rate (the "Maximum
Mortgage Rate") or below the applicable minimum Mortgage Rate (the
"Minimum Mortgage Rate"), if any, for such ARM Loan. In addition, to
the extent specified in the related Prospectus Supplement, certain
of the ARM Loans may provide for limitations on the maximum amount
by which their mortgage rates may adjust for any single adjustment
period (the "Periodic Cap"). Some ARM Loans provide for limitations
on the amount of scheduled payments of principal and interest.
Certain ARM Loans may be subject to negative amortization from
time to time prior to their maturity (such ARM Loans, "Neg-Am ARM
Loans"). Such negative amortization may result from either the
adjustment of the Mortgage Rate on a more frequent basis than the
adjustment of the scheduled payment or the application of a cap on
the size of the scheduled payment. In the first case, negative
amortization results if an increase in the Mortgage Rate occurs
prior to an adjustment of the scheduled payment on the related
Mortgage Loan and such increase causes accrued monthly interest on
the Mortgage Loan to exceed the scheduled payment. In the second
case, negative amortization results if an increase in the Mortgage
Rate causes accrued monthly interest on a Mortgage Loan to exceed
the limit on the size of the scheduled payment on such Mortgage
Loan. In the event that the scheduled payment is not sufficient to
pay the accrued monthly interest on a Neg-Am ARM Loan, the amount of
accrued monthly interest that exceeds the scheduled payment on such
Mortgage Loans (the "Deferred Interest") is added to the principal
balance of such ARM Loan and is to be repaid from future scheduled
payments. Neg-Am ARM Loans do not provide for the extension of their
original stated maturity to accommodate changes in their Mortgage
Rate. The related Prospectus Supplement will specify whether the ARM
Loans underlying a series are Neg-Am ARM Loans.
A Mortgage Pool may contain ARM Loans which allow the Mortgagors
to convert the adjustable rates on such Mortgage Loans to a fixed
rate at one or more specified periods during the life of such
Mortgage Loans (each, a "Convertible Mortgage Loan"), generally not
later than ten years subsequent to the date of origination. If
specified in the related Prospectus Supplement, upon any conversion,
the Company will repurchase or Residential Funding, the applicable
Servicer or Sub-Servicer or a third party will purchase the
converted Mortgage Loan as and to the extent set forth in the
related Prospectus Supplement. Alternatively, if specified in the
related Prospectus Supplement, the Company or Residential Funding
(or another party specified therein) may agree to act as remarketing
agent with respect to such converted Mortgage Loans and, in such
capacity, to use its best efforts to arrange for the sale of
converted Mortgage Loans under specified conditions. Upon the
failure of any party so obligated to purchase any such converted
Mortgage Loan, the inability of any remarketing agent to arrange for
the sale of the converted Mortgage Loan and the unwillingness of
such remarketing agent to exercise any election to purchase the
converted Mortgage Loan for its own account, the related Mortgage
Pool will thereafter include both fixed rate and adjustable rate
Mortgage Loans.
If specified in the related Prospectus Supplement, certain of the
Mortgage Loans may be Buy-Down Loans pursuant to which the monthly
payments made by the Mortgagor during the early years of the
Mortgage Loan (the "Buy-Down Period") will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting
difference to be made up from (i) an amount (such amount, exclusive
of investment earnings thereon, being hereinafter referred to as
"Buy-Down Funds") contributed by the seller of the Mortgaged
Property or another source and placed in an escrow account, (ii) if
the Buy-Down Funds are contributed on a present value basis,
investment earnings on such Buy-Down Funds or (iii) additional
buydown funds to be contributed over time by the Mortgagor's
employer or another source.
The related Prospectus Supplement will provide material
information concerning the types and characteristics of the Mortgage
Loans included in a Trust Fund as of the related Cut-off Date. In
the event that Mortgage Loans are added to or deleted from the Trust
Fund after the date of the related Prospectus Supplement and prior
to the Closing Date for the related series of Certificates, the
final characteristics of the Mortgage Pool will be noted in the Form
8-K.
Under the Pooling and Servicing Agreement for each series of
Certificates, the Company will cause the Mortgage Loans constituting
each Mortgage Pool to be assigned to the Trustee for such series of
Certificates, for the benefit of the holders of all such
Certificates. Such assignment of the Mortgage Loans to the Trustee
will be without recourse. See "Description of the
Certificates Assignment of Mortgage Loans."
Underwriting Policies
The Company generally expects that the originator of each of the
Mortgage Loans will have applied, consistent with applicable federal
and state laws and regulations, underwriting procedures intended to
evaluate the borrower's credit standing and repayment ability and/or
the value and adequacy of the related property as collateral. If so
specified in the related Prospectus Supplement, all or a portion of
the Mortgage Loans constituting the Mortgage Pool for a series of
Certificates may have been acquired either directly or indirectly by
the Company through the Program. Any FHA Loans or VA Loans will have
been originated in compliance with the underwriting policies of the
FHA or VA, respectively. The underwriting criteria applied by the
originators of the Mortgage Loans included in a Mortgage Pool may
vary significantly among Mortgage Collateral Sellers. The related
Prospectus Supplement will describe generally certain underwriting
criteria, to the extent known by the Company, that were applied by
the originators of such Mortgage Loans. The Company generally will
have less detailed information concerning the origination of
seasoned Mortgage Loans than it will have
concerning newly-originated Mortgage Loans.
General Standards. Generally, each Mortgagor will have been
required to complete an application designed to provide to the
original lender pertinent credit information concerning the
Mortgagor. As part of the description of the Mortgagor's financial
condition, such Mortgagor will have furnished information (which may
be supplied solely in such application) with respect to its assets,
liabilities, income (except as described below), credit history,
employment history and personal information, and furnished an
authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants and lenders and any
record of bankruptcy. The Mortgagor may also have been required to
authorize verifications of deposits at financial institutions where
the Mortgagor had demand or savings accounts. In the case of
investment properties and two- to four- unit dwellings, income
derived from the Mortgaged Property may have been considered for
underwriting purposes, in addition to the income of the Mortgagor
from other sources. With respect to Mortgaged Property consisting of
vacation or second homes, no income derived from the property
generally will have been considered for underwriting purposes. In
the case of certain borrowers with acceptable payment histories, no
income will be required to be stated (or verified) in connection
with the loan application.
As described in the related Prospectus Supplement, certain
Mortgage Loans may have been originated under "limited
documentation" or "no documentation" programs which require less
documentation and verification than do traditional "full
documentation" programs. Generally, under such a program, minimal
investigation into the Mortgagor's credit history and income profile
is undertaken by the originator and such underwriting may be based
primarily or entirely on an appraisal of the Mortgaged Property and
the Loan-to-Value Ratio at origination.
The adequacy of the Mortgaged Property as security for repayment
of the related Mortgage Loan will generally have been determined by
an appraisal in accordance with pre-established appraisal procedure
guidelines for appraisals established by or acceptable to the
originator. Appraisers may be staff appraisers employed by the
originator or independent appraisers selected in accordance with
pre-established guidelines established by the originator. The
appraisal procedure guidelines generally will have required the
appraiser or an agent on its behalf to personally inspect the
property and to verify whether the property was in good condition
and that construction, if new, had been substantially completed. The
appraisal generally will have been based upon a market data analysis
of recent sales of comparable properties and, when deemed
applicable, an analysis based on income generated from the property
or a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
The underwriting standards applied by an originator generally
require that the underwriting officers be satisfied that the value
of the property being financed, as indicated by an appraisal or
other acceptable valuation method, currently supports and is
anticipated to support in the future the outstanding loan balance.
In fact, certain states where the Mortgaged Properties may be
located have "anti-deficiency" laws requiring, in general, that
lenders providing credit on single family property look solely to
the property for repayment in the event of foreclosure. See "Certain
Legal Aspects of Mortgage Loans and Contracts." Any of these factors
could change nationwide or merely could affect a locality or region
in which all or some of the Mortgaged Properties are located.
However, declining values of real estate, as experienced recently in
certain regions, or increases in the principal balances of certain
Mortgage Loans, such as GPM Loans and Neg-Am ARM Loans, could cause
the principal balance of some or all of the Mortgage Loans to exceed
the value of the Mortgaged Properties.
Based on the data provided in the application, certain
verifications (if required) and the appraisal or other valuation of
the Mortgaged Property, a determination will have been made by the
original lender that the Mortgagor's monthly income (if required to
be stated) would be sufficient to enable the Mortgagor to meet its
monthly obligations on the Mortgage Loan and other expenses related
to the property (such as property taxes, utility costs, standard
hazard and primary mortgage insurance and, if applicable,
maintenance fees and other levies assessed by a Cooperative) and
other fixed obligations other than housing expenses. The
originator's guidelines for Mortgage Loans generally will specify
that scheduled payments on a Mortgage Loan during the first year of
its term plus taxes and insurance (including primary mortgage
insurance) and all scheduled payments on obligations that extend
beyond one year (including those mentioned above and other fixed
obligations) would generally equal no more than specified
percentages of the prospective Mortgagor's gross income. The
originator may also consider the amount of liquid assets available
to the Mortgagor after origination.
The level of review by Residential Funding, if any, will vary
depending on a number of factors. Residential Funding, on behalf of
the Company, generally will review a portion of the Mortgage Loans
constituting the Mortgage Pool for a series of Certificates for
conformity with the applicable underwriting standards and to assess
the likelihood of repayment of the Mortgage Loan from the various
sources for such repayment, including the Mortgagor, the Mortgaged
Property, and primary mortgage insurance, if any. In reviewing
seasoned Mortgage Loans (those which have been outstanding for more
than 12 months), Residential Funding may also take into
consideration the Mortgagor's actual payment history in assessing a
Mortgagor's current ability to make payments on the Mortgage Loan.
In addition, Residential Funding may conduct additional procedures
to assess the current value of the Mortgaged Properties. Such
procedures may consist of drive by appraisals or real estate
broker's price opinions. The Company may also consider a specific
area's housing value trends. These alternative valuation methods are
not generally as reliable as the type of mortgagor financial
information or appraisals that are generally obtained at
origination. Residential Funding may also consider the applicable
credit score of the related Mortgagor used in connection with the
origination of the Mortgage Loan (as determined based on a credit
scoring model acceptable to the Company.) Generally, such credit
scoring models provide a means for evaluating the information about
a prospective borrower that is available from a credit reporting
agency. The underwriting criteria applicable to any program under
which the Mortgage Loans may be originated and reviewed may provide
that qualification for the loan, or the availability of certain loan
features (such as maximum loan amount, maximum Loan-to-Value Ratio,
property type and use, and documentation level) may depend on the
borrower's credit score.
With respect to the Company's underwriting standards, as well as
any other underwriting standards that may be applicable to any
Mortgage Loans, such underwriting standards generally include a set
of specific criteria pursuant to which the underwriting evaluation
is made. However, the application of such underwriting standards
does not imply that each specific criterion was satisfied
individually. Rather, a Mortgage Loan will be considered to be
originated in accordance with a given set of underwriting standards
if, based on an overall qualitative evaluation, the loan is in
substantial compliance with such underwriting standards. For
example, a Mortgage Loan may be considered to comply with a set of
underwriting standards, even if one or more specific criteria
included in such underwriting standards were not satisfied, if other
factors compensated for the criteria that were not satisfied or if
the Mortgage Loan is considered to be in substantial compliance with
the underwriting standards.
The Program. The underwriting standards with respect to Program
Loans will generally conform to those published in Residential
Funding's Seller Guide (as applicable to the Program Loans, the
"Program Seller Guide"), as modified from time to time. The Program
Seller Guide will set forth general underwriting standards relating
to mortgage loans, which are generally less stringent than
underwriting standards applicable to mortgage loans originated under
other first mortgage loan purchase programs such as those run by
Fannie Mae or Freddie Mac or by the Company's affiliate, Residential
Funding, for the purpose of collateralizing securities issued by
Residential Funding Mortgage Securities I, Inc. For example, Program
Loans may include mortgage loans with higher Loan-to-Value Ratios,
larger principal balances, mortgage loans secured by smaller or
larger parcels of land or by investment properties, mortgage loans
with Loan-to-Value Ratios in excess of 80% that do not require
primary mortgage insurance, mortgage loans made to International
Borrowers, and mortgage loans
made to borrowers that are self-employed or are not required to
state their income. The underwriting
standards set forth in the Program Seller Guide are revised based on
changing conditions in the residential mortgage market and the
market for the Company's mortgage pass-through certificates and may
also be waived by Residential Funding from time to time. The
Prospectus Supplement for each series of Certificates secured by
Program Loans will set forth the general underwriting criteria
applicable to such Mortgage Loans.
A portion of Program Loans generally will be reviewed by
Residential Funding or by a designated third party for compliance
with applicable underwriting criteria. Certain of the Program Loans
may be purchased in negotiated transactions (which may be governed
by agreements relating to ongoing purchases of Program Loans by
Residential Funding) ("Master Commitments"), from Program Sellers
who will represent that Program Loans have been originated in
accordance with underwriting standards agreed to by Residential
Funding. Certain other Program Loans will be purchased from Program
Sellers who will represent that Program Loans were originated
pursuant to underwriting standards determined by a mortgage
insurance company or third party origination system acceptable to
Residential Funding. Residential Funding may accept a certification
from such insurance company as to a Program Loan's insurability in
a mortgage pool as of the date of certification as evidence of a
Program Loan conforming to applicable underwriting standards. Such
certifications will likely have been issued before the purchase of
the Program Loan by Residential Funding or the Company.
FHA and VA Programs. With respect to FHA Loans and VA Loans,
traditional underwriting guidelines used by the FHA and the VA, as
the case may be, which were in effect at the time of origination of
each such Mortgage Loan will have generally been applied.
The Contracts
General
The Trust Fund for a series may include a Contract Pool
evidencing interests in Contracts originated by one or more
manufactured housing dealers, or such other entity or entities
described in the related Prospectus Supplement. The Contracts may be
conventional Contracts or Contracts insured by the FHA ("FHA
Contracts") or partially guaranteed by the VA ("VA Contracts"). Each
Contract will be secured by a Manufactured Home. Unless otherwise
specified in the related Prospectus Supplement, the Contracts will
be fully amortizing.
The Manufactured Homes securing the Contracts will consist of
"manufactured homes" within the meaning of 42 U.S.C. 5402(6) which
are treated as "single family residences" for the purposes of the
REMIC provisions of the Code. Accordingly, a Manufactured Home will
be a structure built on a permanent chassis, which is transportable
in one or more sections and customarily used at a fixed location,
has a minimum of 400 square feet of living space and minimum width
in excess of 81/2 feet and is designed to be used as a dwelling with
or without a permanent foundation when connected to the required
utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein.
The related Prospectus Supplement will provide information
concerning the types or characteristics of the Contracts included in
a Trust Fund as of the related Cut-off Date. In the event that
Contracts are added to or deleted from the Trust Fund after the date
of the related Prospectus Supplement, the final characteristics of
the Contract Pool will be noted in the Form 8-K.
Underwriting Policies
Conventional Contracts will comply with the underwriting policies
of the applicable originator or Mortgage Collateral Seller, which
will be described in the related Prospectus Supplement. With respect
to FHA Contracts and VA Contracts, traditional underwriting
guidelines used by the FHA and the VA, as the case may be, which
were in effect at the time of origination of each such Contract will
generally have been applied.
With respect to a Contract made in connection with the
Mortgagor's purchase of a Manufactured Home, the "Appraised Value"
is generally the sales price of the Manufactured Home or the amount
determined by a professional appraiser. The appraiser must
personally inspect the Manufactured Home and prepare a report which
includes market data based on recent sales of comparable
Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home.
The Loan-to-Value Ratio for a Contract generally will be equal to
the original principal amount of the Contract divided by the lesser
of the Appraised Value or the sales price for the Manufactured Home;
however, unless otherwise specified in the related Prospectus
Supplement, an appraisal of the Manufactured Home will not be
required.
The Agency Securities
Government National Mortgage Association
Ginnie Mae is a wholly-owned corporate instrumentality of the
United States within HUD. Section 306(g) of Title III of the
National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the
principal of and interest on certificates representing interests in
a pool of mortgages (i) insured by the FHA, under the Housing Act or
under Title V of the Housing Act of 1949, or
(ii) partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or under Chapter 37 of Title
38, United States Code.
Section 306(g) of the Housing Act provides that "the full faith
and credit of the United States is pledged to the payment of all
amounts which may be required to be paid under any guarantee under
this subsection." In order to meet its obligations under any such
guarantee, Ginnie Mae may, under Section 306(d) of the Housing Act,
borrow from the United States Treasury an amount that is at any time
sufficient to enable Ginnie Mae to perform its obligations under its
guarantee. See "Additional Information" for the availability of
further information regarding Ginnie Mae and Ginnie Mae Securities.
Ginnie Mae Securities
Unless otherwise specified in the related Prospectus Supplement,
each Ginnie Mae Security relating to a series (which may be a
"Ginnie Mae I Certificate" or a "Ginnie Mae II Certificate" as
referred to by Ginnie Mae) will be a "fully modified pass-through"
mortgage-backed certificate issued and serviced by a mortgage
banking company or other financial concern approved by Ginnie Mae,
except with respect to any stripped mortgage backed securities
guaranteed by Ginnie Mae or any REMIC securities issued by Ginnie
Mae. The characteristics of any Ginnie Mae Securities included in
the Trust Fund for a series of Certificates will be set forth in the
related Prospectus Supplement.
Federal Home Loan Mortgage Corporation
Freddie Mac is a corporate instrumentality of the United States
created pursuant to Title III of the Emergency Home Finance Act of
1970, as amended (the "Freddie Mac Act"). Freddie Mac was
established primarily for the purpose of increasing the availability
of mortgage credit for the financing of needed housing. The
principal activity of Freddie Mac currently consists of purchasing
first-lien, conventional, residential mortgage loans or
participation interests in such mortgage loans and reselling the
mortgage loans so purchased in the form of guaranteed mortgage
securities, primarily Freddie Mac Securities. In 1981, Freddie Mac
initiated its Home Mortgage Guaranty Program under which it
purchases mortgage loans from sellers with Freddie Mac Securities
representing interests in the mortgage loans so purchased. All
mortgage loans purchased by Freddie Mac must meet certain standards
set forth in the Freddie Mac Act. Freddie Mac is confined to
purchasing, so far as practicable, mortgage loans that it deems to
be of such quality and type as to meet generally the purchase
standards imposed by private institutional mortgage investors. See
"Additional Information" for the availability of further information
regarding Freddie Mac and Freddie Mac Securities. Neither the United
States nor any agency thereof is obligated to finance Freddie Mac's
operations or to assist Freddie Mac in any other manner.
Freddie Mac Securities
Unless otherwise specified in the related Prospectus Supplement,
each Freddie Mac Security relating to a series will represent an
undivided interest in a pool of mortgage loans that typically
consists of conventional loans (but may include FHA Loans and VA
Loans) purchased by Freddie Mac, except with respect to any stripped
mortgage backed securities issued by Freddie Mac. Each such pool
will consist of mortgage loans
(i) substantially all of which are secured by one- to four-family
residential properties or (ii) if specified in the related
Prospectus Supplement, secured by five or more family residential
properties. The characteristics of any Freddie Mac Securities
included in the Trust Fund for a series of Certificates will be set
forth in the related Prospectus Supplement.
Federal National Mortgage Association
Fannie Mae is a federally chartered and privately owned
corporation organized and existing under the Federal National
Mortgage Association Charter Act (12 U.S.C. 1716 et seq.). It is
the nation's largest supplier of residential mortgage funds. Fannie
Mae was originally established in 1938 as a United States government
agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder-owned and privately managed
corporation by legislation enacted in 1968. Fannie Mae provides
funds to the mortgage market primarily by purchasing home mortgage
loans from local lenders, thereby replenishing their funds for
additional lending. See "Additional Information" for the
availability of further information respecting Fannie Mae and Fannie
Mae Securities. Although the Secretary of the Treasury of the United
States has authority to lend Fannie Mae up to $2.25 billion
outstanding at any time, neither the United States nor any agency
thereof is obligated to finance Fannie Mae's operations or to assist
Fannie Mae in any other manner.
Fannie Mae Securities
Unless otherwise specified in the related Prospectus Supplement,
each Fannie Mae Security relating to a series will represent a
fractional undivided interest in a pool of mortgage loans formed by
Fannie Mae, except with respect to any stripped mortgage backed
securities issued by Fannie Mae. Mortgage loans underlying Fannie
Mae Securities will consist of (i) fixed, variable or adjustable
rate conventional mortgage loans or (ii) fixed-rate FHA Loans or VA
Loans. Such mortgage loans
may be secured by either one- to four-family or multi-family
residential properties. The characteristics
of any Fannie Mae Securities included in the Trust Fund for a series
of Certificates will be set forth in the related Prospectus
Supplement.
Mortgage Collateral Sellers
The Mortgage Collateral to be included in a Trust Fund will be
purchased by the Company directly or indirectly (through Residential
Funding or other affiliates) from Mortgage Collateral Sellers that
may be (a) banks, savings and loan associations, mortgage bankers,
investment banking firms, insurance companies, the Federal Deposit
Insurance Corporation (the "FDIC") and other mortgage loan
originators or sellers not affiliated with the Company (each, an
"Unaffiliated Seller") or (b) Homecomings Financial Network, Inc.
and GMAC Mortgage Corporation of PA, each affiliates of the Company,
and their affiliates (each, an "Affiliated Seller"). Such purchases
may occur by one or more of the following methods: (i) one or more
direct or indirect purchases from Unaffiliated Sellers, which may
occur simultaneously with the issuance of the Certificates or which
may occur over an extended period of time; (ii) multiple direct or
indirect purchases through the Program; or (iii) one or more
purchases from Affiliated Sellers. The Prospectus Supplement for a
series of Certificates will disclose the method or methods used to
acquire the Mortgage Collateral for such series. The Company may
issue one or more classes of Certificates to a Mortgage Collateral
Seller as consideration for the purchase of the Mortgage Collateral
securing such series of Certificates, if so described in the related
Prospectus Supplement.
The Mortgage Collateral Sellers that participate in the Program
(each, a "Program Seller") will have been selected by Residential
Funding on the basis of criteria set forth in the Program Seller
Guide. A Program Seller may be an affiliate of the Company and the
Company presently anticipates that GMAC Mortgage Corporation of PA,
an affiliate of the Company, will be a Program Seller. Except in the
case of the FDIC and investment banking firms, each Program Seller
will have been approved by Residential Funding for participation in
Residential Funding's loan purchase programs. In determining whether
to approve a seller for participation in the loan purchase program,
Residential Funding generally will consider, among other things, the
financial status (including the net worth) of the seller, the
previous experience of the seller in originating mortgage loans, the
prior delinquency and loss experience of the seller, the
underwriting standards employed by the seller and the quality
control and, if applicable, the servicing operations established by
the seller. There can be no assurance that any Program Seller
presently meets any qualifications or will continue to meet any
qualifications at the time of inclusion of mortgage loans sold by it
in the Trust Fund for a series of Certificates, or thereafter. If a
Program Seller becomes subject to the direct or indirect control of
the FDIC or if a Program Seller's net worth, financial performance
or delinquency and foreclosure rates are adversely impacted, such
institution may continue to be treated as a Program Seller. Any such
event may adversely affect the ability of any such Program Seller to
repurchase Mortgage Collateral in the event of a breach of a
representation or warranty which has not been cured. See
" Repurchases of Mortgage Collateral" below.
Representations with Respect to Mortgage Collateral
Mortgage Collateral Sellers generally will make certain limited
representations and warranties with respect to the Mortgage
Collateral that they sell. The Company will assign to the Trustee
for the benefit of the related Certificateholders all of its right,
title and interest in each agreement pursuant to which it purchased
any item of Mortgage Collateral from a Mortgage Collateral Seller,
to the extent such agreement relates to (i) the representations and
warranties made by a Mortgage Collateral Seller or Residential
Funding, as the case may be, in respect of such item of Mortgage
Collateral and (ii) any remedies provided for any breach of such
representations and warranties.
With respect to any Mortgage Loan (including Program Loans) or
Contract constituting a part of the Trust Fund, unless otherwise
disclosed in the related Prospectus Supplement, Residential Funding
generally will represent and warrant that: (i) as of the Cut-off
Date, the information set forth in a listing of the related Mortgage
Loan or Contract was true and correct in all material respects; (ii)
except in the case of Cooperative Loans, a policy of title insurance
was effective or attorney's certificate was received at origination,
and each policy remained in full force and effect on the date of
sale of the related Mortgage Loan or Contract to the Company; (iii)
to the best of Residential Funding's knowledge, if required by
applicable underwriting standards, the Mortgage Loan or Contract is
the subject of a Primary Insurance Policy; (iv) Residential Funding
had good title to the Mortgage Loan or Contract and the Mortgage
Loan or Contract is not subject to offsets, defenses or
counterclaims except as may be provided under the Relief Act and
except with respect to any buydown agreement for a Buy-Down Loan;
(v) each Mortgaged Property is free of material damage and in good
repair; (vi) the Mortgage Loan or Contract was not one month or more
delinquent in payment of principal and interest as of the related
Cut-off Date and was not so delinquent more than once during the
twelve-month period prior to the Cut-off Date; and (vii) there is no
delinquent tax or assessment lien against the related Mortgaged
Property.
In the event of a breach of a representation or warranty made by
Residential Funding that materially adversely affects the interests
of the Certificateholders in the Mortgage Loan or Contract,
Residential Funding will be obligated to repurchase any such
Mortgage Loan or Contract or substitute for such Mortgage Loan or
Contract as described below. In addition, unless otherwise specified
in the related Prospectus Supplement, Residential Funding will be
obligated to repurchase or substitute for any Mortgage Loan as to
which it is discovered that the related Mortgage does not create a
valid first lien on, or in the case of a Contract a perfected
security interest in, the related Mortgaged Property, subject only
to (a) liens of real property taxes and assessments not yet due and
payable, (b) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of
recording of such Mortgage and certain other permissible title
exceptions and (c) other encumbrances to which like properties are
commonly subject which do not materially adversely affect the value,
use, enjoyment or marketability of the Mortgaged Property. In
addition, unless otherwise specified in the related Prospectus
Supplement, with respect to any Mortgage Loan or Contract as to
which the Company delivers to the Trustee an affidavit certifying
that the original Mortgage Note or Contract has been lost or
destroyed, if such Mortgage Loan or Contract subsequently is in
default and the enforcement thereof or of the related Mortgage or
Contract is materially adversely affected by the absence of the
original Mortgage Note or Contract, Residential Funding will be
obligated to repurchase or substitute for such Mortgage Loan or
Contract in the manner described below. However, unless otherwise
set forth in the related Prospectus Supplement, Residential Funding
will not be required to repurchase or substitute for any Mortgage
Loan or Contract if the circumstances giving rise to such
requirement also constitute fraud in the origination of the related
Mortgage Loan or Contract. Furthermore, because the listing of the
related Mortgage Collateral generally contains information with
respect to the Mortgage Collateral as of the Cut-off Date,
prepayments and, in certain limited circumstances, modifications to
the interest rate and principal and interest payments may have been
made with respect to one or more of the related items of Mortgage
Collateral between the Cut-off Date and the Closing Date. Neither
Residential Funding nor any Seller will be required to repurchase or
substitute for any item of Mortgage Collateral as a result of any
such prepayment or modification.
All of the representations and warranties of a Mortgage
Collateral Seller in respect of an item of Mortgage Collateral will
have been made as of the date on which such Mortgage Collateral
Seller sold the Mortgage Collateral to the Company or Residential
Funding or one of their affiliates. The date as of which such
representations and warranties were made generally will be a date
prior to the date of issuance of the related series of Certificates.
A substantial period of time may elapse between the date as of which
the representations and warranties were made and the date of
issuance of the related series of Certificates. The Mortgage
Collateral Seller's repurchase obligation (or, if specified in the
related Prospectus Supplement, limited substitution option) will not
arise if, after the sale of the related Mortgage Collateral, an
event occurs that would have given rise to such an obligation had
the event occurred prior to such period.
Repurchases of Mortgage Collateral
If a Mortgage Collateral Seller or Residential Funding, as the
case may be, cannot cure a breach of any representation or warranty
made by it in respect of an item of Mortgage Collateral within 90
days after notice from the Master Servicer, the Servicer, the
Certificate Administrator or the Trustee, and such breach materially
and adversely affects the interests of the Certificateholders in
such item of Mortgage Collateral, such Mortgage Collateral Seller or
Residential Funding, as the case may be, will be obligated to
purchase such item of Mortgage Collateral at a price set forth in
the related Pooling and Servicing Agreement or Trust Agreement.
Likewise, as described under "Description of the Certificates Review
of Mortgage Loan or Contract Documents," if the Company or the
Mortgage Collateral Seller, as applicable, cannot cure certain
documentary defects with respect to a Mortgage Loan or Contract, the
Company or the Mortgage Collateral Seller, as applicable, will be
required to repurchase such item of Mortgage Collateral. Unless
otherwise specified in the related Prospectus Supplement, the
"Purchase Price" for any such item of Mortgage Collateral will be
equal to the principal balance thereof as of the date of purchase
plus accrued and unpaid interest to the first day of the month
following the month of repurchase (less the amount, expressed as a
percentage per annum, payable in respect of servicing or
administrative compensation and the Excluded Spread, if any). In
certain limited cases, a substitution may be made in lieu of such
repurchase obligation. See " Limited Right of Substitution" below.
The Master Servicer, the Servicer or the Certificate
Administrator, as applicable, will be required under the applicable
Pooling and Servicing Agreement or Trust Agreement to enforce this
repurchase obligation, or the substitution right described below,
for the benefit of the Trustee and the Certificateholders, using
practices it would employ in its good faith business judgment and
which are normal and usual in its general mortgage servicing
activities; provided, however, that this purchase or substitution
obligation will not become an obligation of the Master Servicer in
the event the Seller or Residential Funding, as the case may be,
fails to honor such obligation. The Master Servicer will be
entitled to reimbursement for any costs and expenses incurred in
pursuing such a purchase or substitution obligation, including but
not limited to any costs or expenses associated with litigation.
If, as a result of a breach of representation or warranty, a
Mortgage Collateral Seller is required, but fails, to repurchase the
related Mortgage Collateral, the Company or Residential Funding will
only be required to repurchase such Mortgage Collateral if the
Company or Residential Funding has assumed such representations and
warranties. Consequently, such Mortgage Collateral will remain in
the related Trust Fund and any related losses not borne by any
applicable credit enhancement will be borne by Certificateholders.
If the Mortgage Collateral Seller fails to honor its repurchase or
substitution obligation, such obligation will not become an
obligation of Residential Funding, the Master Servicer or Servicer
(although Residential Funding, the Master Servicer or Servicer may
have an independent obligation to repurchase or substitute for such
Mortgage Collateral). In instances where a Mortgage Collateral
Seller is unable or disputes its obligation to repurchase affected
Mortgage Collateral, the Master Servicer or Servicer, using
practices it would employ in its good faith business judgment and
which are normal and usual in its general mortgage servicing
activities, may negotiate and enter into settlement agreements with
such Mortgage Collateral Seller that could provide for, among other
things, the repurchase of only a portion of the affected Mortgage
Collateral. Any such settlement could lead to losses on the Mortgage
Collateral which would be borne by the related Certificateholders.
In accordance with the above described practices, the Master
Servicer or Servicer will not be required to enforce any purchase
obligation of a Mortgage Collateral Seller arising from any
misrepresentation by the Mortgage Collateral Seller, if the Master
Servicer or Servicer determines in the reasonable exercise of its
business judgment that the matters related to such misrepresentation
did not directly cause or are not likely to directly cause a loss on
the related Mortgage Collateral. Unless otherwise specified in the
related Prospectus Supplement, the foregoing repurchase obligations
and the limited right of substitution (described below) will
constitute the sole remedies available to Certificateholders or the
Trustee for a breach of any representation by a Mortgage Collateral
Seller in its capacity as a seller of Mortgage Collateral, or for
any other event giving rise to such obligations as described above.
The Company and Residential Funding generally monitor which
Mortgage Collateral Sellers are under the control of the FDIC, or
are insolvent, otherwise in receivership or conservatorship or
financially distressed. Such Mortgage Collateral Sellers may not be
able or permitted to repurchase Mortgage Collateral for which there
has been a breach of representation or warranty. Moreover, any such
Mortgage Collateral Seller may make no representations or warranties
with respect to Mortgage Collateral sold by it. The FDIC (either in
its corporate capacity or as receiver for a depository institution),
may also be a Mortgage Collateral Seller, in which event neither the
FDIC nor the related depository institution may make representations
or warranties with respect to the Mortgage Collateral sold, or only
limited representations or warranties may be made (for example, that
the related legal documents are enforceable). The FDIC may have no
obligation to repurchase any Mortgage Collateral for a breach of a
representation or warranty.
Limited Right of Substitution
In the case of a Mortgage Loan or Contract required to be
repurchased from the Trust Fund (a "Repurchased Mortgage Loan" or a
"Repurchased Contract," respectively) the related Mortgage
Collateral Seller or Residential Funding, as applicable, may
substitute a new Mortgage Loan or Contract (a "Qualified Substitute
Mortgage Loan" or a "Qualified Substitute Contract," respectively)
for the Repurchased Mortgage Loan or Contract that was removed from
the Trust Fund, during the limited time period described below. Any
such substitution must be effected within 120 days of the date of
the issuance of the Certificates with respect to a Trust Fund for
which no REMIC election is to be made. With respect to a Trust Fund
for which a REMIC election is to be made, except as otherwise
provided in the related Prospectus Supplement, such substitution
must be effected within two years of the date of the issuance of the
Certificates, and may not be made if such substitution would cause
the Trust Fund to fail to qualify as a REMIC or result in a
prohibited transaction tax under the Code.
Except as otherwise provided in the related Prospectus
Supplement, any Qualified Substitute Mortgage Loan or Qualified
Substitute Contract generally will, on the date of substitution: (i)
have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of
substitution, not in excess of the outstanding principal balance of
the Repurchased Mortgage Loan or Repurchased Contract; (ii) have a
Mortgage Rate and a Net Mortgage Rate not less than (and not more
than one percentage point greater than) the Mortgage Rate and Net
Mortgage Rate, respectively, of the Repurchased Mortgage Loan or
Repurchased Contract as of the date of substitution; (iii) have a
Loan-to-Value Ratio at the time of substitution no higher than that
of the Repurchased Mortgage Loan or Repurchased Contract; (iv) have
a remaining term to maturity not greater than (and not more than one
year less than) that of the Repurchased Mortgage Loan or Repurchased
Contract; and (v) comply with all of the representations and
warranties set forth in the related Pooling and Servicing Agreement
as of the date of substitution. In the event the outstanding
principal balance of a Qualified Substitute Mortgage Loan or
Qualified Substitute Contract is less than the outstanding principal
balance of the related Repurchased Mortgage Loan or Repurchased
Contract, the amount of such shortfall shall be deposited into the
Custodial Account in the month of substitution for distribution to
the related Certificateholders. The related Pooling and Servicing
Agreement may include additional requirements relating to ARM Loans
or other specific types of Mortgage Loans or Contracts, or
additional provisions relating to meeting the foregoing requirements
on an aggregate basis where a number of substitutions occur
contemporaneously. Unless otherwise specified in the related
Prospectus Supplement, a Mortgage Collateral Seller will have no
option to substitute for a Mortgage Loan or Contract that it is
obligated to repurchase in connection with a breach of a
representation and warranty.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in series. Each series of
Certificates (or, in certain instances, two or more series of
Certificates) will be issued pursuant to a Pooling and Servicing
Agreement or, in the case of Certificates backed by Agency
Securities, a Trust Agreement, similar to one of the forms filed as
an exhibit to the Registration Statement of which this Prospectus is
a part. Each Pooling and Servicing Agreement or Trust Agreement will
be filed with the Commission as an exhibit to a Form 8-K. The
following summaries (together with additional summaries under "The
Pooling and Servicing Agreement" below) describe certain provisions
relating to the Certificates common to each Pooling and Servicing
Agreement or Trust Agreement. All references herein to a "Pooling
and Servicing Agreement" and any discussion of the provisions
thereof will also apply to Trust Agreements. The summaries do not
purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Pooling
and Servicing Agreement for each Trust Fund and the related
Prospectus Supplement.
Each series of Certificates may consist of any one or a
combination of the following: (i) a single class of Certificates;
(ii) two or more classes of Certificates, one or more classes of
which may be Senior Certificates that are senior in right of payment
to any class or classes of Mezzanine Certificates and to any other
class or classes of Subordinate Certificates, and as to which
certain classes of Senior (or Subordinate) Certificates may be
senior to other classes of Senior (or Subordinate) Certificates, as
described in the respective Prospectus Supplement (any such series,
a "Senior/Subordinate Series"); (iii) one or more classes of Strip
Certificates which will be entitled to (a) principal distributions,
with disproportionate, nominal or no interest distributions or (b)
interest distributions, with disproportionate, nominal or no
principal distributions; (iv) two or more classes of Certificates
which differ as to the timing, sequential order, rate, pass-through
rate or amount of distributions of principal or interest or both, or
as to which distributions of principal or interest or both on any
class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned
amortization classes" and "targeted amortization classes"), or on
the basis of collections from designated portions of the Mortgage
Pool or Contract Pool, which series may include one or more classes
of Accrual Certificates with respect to which certain accrued
interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period
described in the related Prospectus Supplement; or (v) other types
of classes of Certificates, as described in the related Prospectus
Supplement. Credit support for each series of Certificates will be
provided by a Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy, Bankruptcy Bond, Letter of Credit, Reserve Fund,
Certificate Insurance Policy, Overcollateralization, or other credit
enhancement as described under "Description of Credit Enhancement,"
or by the subordination of one or more classes of Certificates as
described under "Subordination" or by any combination of the
foregoing.
Form of Certificates
As specified in the related Prospectus Supplement, the
Certificates of each series will be issued either as physical
certificates or in book-entry form. If issued as physical
certificates, the Certificates will be in fully registered form only
in the denominations specified in the related Prospectus Supplement,
and will be transferable and exchangeable at the corporate trust
office of the person appointed under the related Pooling and
Servicing Agreement to register the Certificates (the "Certificate
Registrar"). No service charge will be made for any registration of
exchange or transfer of Certificates, but the Trustee may require
payment of a sum sufficient to cover any tax or other governmental
charge. The term "Certificateholder" as used herein refers to the
entity whose name appears on the records of the Certificate
Registrar (or, if applicable, a transfer agent) as the registered
holder thereof, except as otherwise indicated in the related
Prospectus Supplement.
If issued in book-entry form, certain classes of a series of
Certificates will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"), or Cedel Bank,
SA ("CEDEL") or the Euroclear System ("Euroclear") (in Europe) if
they are participants of such systems, or indirectly through
organizations which are participants in such systems, or through
such other depository or facility as may be specified in the related
Prospectus Supplement. As to any such class of Certificates so
issued ("Book-Entry Certificates"), the record holder of such
Certificates will be DTC's nominee. CEDEL and Euroclear will hold
omnibus positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries (the "Depositaries"), which in turn
will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws
of the State of New York, which holds securities for its
participating organizations ("DTC Participants," and together with
the CEDEL and Euroclear participating organizations, "Participants")
and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Other
institutions that are not Participants but clear through or maintain
a custodial relationship with Participants (such institutions,
"Indirect Participants") have indirect access to DTC's clearance
system.
Unless otherwise specified in the related Prospectus Supplement,
no person acquiring an interest in any Book-Entry Certificate (each
such person, a "Beneficial Owner") will be entitled to receive a
Certificate representing such interest in registered, certificated
form, unless either (i) DTC ceases to act as depository in respect
thereof and a successor depository is not obtained, or (ii) the
Company elects in its sole discretion to discontinue the
registration of such Certificates through DTC. Prior to any such
event, Beneficial Owners will not be recognized by the Trustee or
the Master Servicer as holders of the related Certificates for
purposes of the Pooling and Servicing Agreement, and Beneficial
Owners will be able to exercise their rights as owners of such
Certificates only indirectly through DTC, Participants and Indirect
Participants. Any Beneficial Owner that desires to purchase, sell or
otherwise transfer any interest in Book-Entry Certificates may do so
only through DTC, either directly if such Beneficial Owner is a
Participant or indirectly through Participants and, if applicable,
Indirect Participants. Pursuant to the procedures of DTC, transfers
of the beneficial ownership of any Book-Entry Certificates will be
required to be made in minimum denominations specified in the
related Prospectus Supplement. The ability of a Beneficial Owner to
pledge Book-Entry Certificates to persons or entities that are not
Participants in the DTC system, or to otherwise act with respect to
such Certificates, may be limited because of the lack of physical
certificates evidencing such Certificates and because DTC may act
only on behalf of Participants.
Because of time zone differences, the securities account of a
CEDEL or Euroclear participant as a result of a transaction with a
DTC Participant (other than a depositary holding on behalf of CEDEL
or Euroclear) will be credited during a subsequent securities
settlement processing day (which must be a business day for CEDEL or
Euroclear, as the case may be) immediately following the DTC
settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant
Euroclear Participant or CEDEL Participants on such business day.
Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant or Euroclear
Participant to a DTC Participant (other than the depositary for
CEDEL or Euroclear) will be received with value on the DTC
settlement date, but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in accordance with their respective rules
and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly
through CEDEL Participants or Euroclear Participants, on the other,
will be effected in DTC in accordance with DTC rules on behalf of
the relevant European international clearing system by the relevant
Depositaries; however, such cross market transactions will require
delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to its Depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in
DTC, and making or receiving payment in accordance with normal
procedures for same day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
CEDEL, a professional depository, holds securities for its
participating organizations ("CEDEL Participants") and facilitates
the clearance and settlement of securities transactions between
CEDEL Participants through electronic book-entry changes in accounts
of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. As a professional depository, CEDEL is
subject to regulation by the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"), under contract with
Euroclear Clearance Systems S.C., a Belgian co-operative corporation
(the "Clearance Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts
and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Clearance Cooperative. The Clearance Cooperative
establishes policy for Euroclear on behalf of Euroclear
Participants.
The Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear
System and applicable Belgian law (collectively, the "Terms and
Conditions"). The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a
fungible basis without attribution of specific certificates to
specific securities clearance accounts.
Distributions in respect of the Book-Entry Certificates will be
forwarded by the Trustee to DTC, and DTC will be responsible for
forwarding such payments to Participants, each of which will be
responsible for disbursing such payments to the Beneficial Owners it
represents or, if applicable, to Indirect Participants. Accordingly,
Beneficial Owners may experience delays in the receipt of payments
in respect of their Certificates. Under DTC's procedures, DTC will
take actions permitted to be taken by holders of any class of Book-Entry
Certificates under the
Pooling and Servicing Agreement only at
the direction of one or more
Participants to whose account the Book-Entry Certificates are
credited and whose aggregate holdings
represent no less than any minimum amount of Percentage Interests or
voting rights required therefor. DTC may take conflicting actions
with respect to any action of Certificateholders of any Class to the
extent that Participants authorize such actions. None of the Master
Servicer, the Company, the Trustee or any of their respective
affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership
interests in the Book-Entry Certificates, or for maintaining,
supervising or reviewing any records relating to such beneficial
ownership interests.
Assignment of Mortgage Loans
At the time of issuance of a series of Certificates, the Company
will cause the Mortgage Loans being included in the related Trust
Fund to be assigned to the Trustee or its nominee (which may be the
Custodian) together with all principal and interest received on or
with respect to such Mortgage Loans after the Cut-off Date (other
than principal and interest due on or before the Cut-off Date and
any Excluded Spread). The Trustee will, concurrently with such
assignment, deliver a series of Certificates to the Company in
exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related
Pooling and Servicing Agreement. Such schedule will include, among
other things, information as to the principal balance of each
Mortgage Loan as of the Cut-off Date, as well as information
respecting the Mortgage Rate, the currently scheduled monthly
payment of principal and interest, the maturity of the Mortgage Note
and the Loan-to-Value Ratio at origination or modification (without
regard to any secondary financing).
In addition, the Company will, as to each Mortgage Loan other
than a Mortgage Loan underlying any Agency Securities, deliver to
the Trustee (or to the Custodian) the legal documents relating to
such Mortgage Loan that are in possession of the Company, which may
include: (i) the note evidencing such Mortgage Loan (the "Mortgage
Note") (and any modification or amendment thereto) endorsed without
recourse either in blank or to the order of the Trustee (or its
nominee); (ii) the Mortgage (except for any Mortgage not returned
from the public recording office) with evidence of recording
indicated thereon or, in the case of a Cooperative Loan, the
respective security agreements and any applicable UCC financing
statements; (iii) an assignment in recordable form of the Mortgage
(or, with respect to a Cooperative Loan, an assignment of the
respective security agreements, any applicable UCC financing
statements, recognition agreements, relevant stock certificates,
related blank stock powers and the related proprietary leases or
occupancy agreements); and (iv) if applicable, any riders or
modifications to such Mortgage Note and Mortgage, together with
certain other documents at such times as set forth in the related
Pooling and Servicing Agreement. Such assignments may be blanket
assignments covering Mortgages secured by Mortgaged Properties
located in the same county, if permitted by law. If so provided in
the related Prospectus Supplement, the Company may not be required
to deliver one or more of such documents if such documents are
missing from the files of the party from whom such Mortgage Loans
were purchased. Notwithstanding the foregoing, a Trust Fund may
include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Company delivers to the Trustee or
the Custodian a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has
been lost or destroyed. With respect to such Mortgage Loans, the
Trustee (or its nominee) may not be able to enforce the Mortgage
Note against the related borrower. Residential Funding will agree
to repurchase or substitute for such a Mortgage Loan in certain
circumstances (see "The Trust Funds Representations with Respect to
Mortgage Collateral").
In the event that, with respect to any Mortgage Loan, the Company
cannot deliver the Mortgage or any assignment with evidence of
recording thereon concurrently with the execution and delivery of
the related Pooling and Servicing Agreement because of a delay
caused by the public recording office, the Company will deliver or
cause to be delivered to the Trustee or the Custodian a true and
correct photocopy of such Mortgage or assignment. The Company will
deliver or cause to be delivered to the Trustee or the Custodian
such Mortgage or assignment with evidence of recording indicated
thereon after receipt thereof from the public recording office or
from the related Servicer or Sub-Servicer.
Assignments of the Mortgage Loans to the Trustee will be recorded
in the appropriate public recording office, except in states where,
in the opinion of counsel acceptable to the Trustee, such recording
is not required to protect the Trustee's interests in the Mortgage
Loan against the claim of any subsequent transferee or any successor
to or creditor of the Company or the originator of such Mortgage
Loan, or except as otherwise specified in the related Prospectus
Supplement.
Assignment of Contracts
The Company will cause the Contracts constituting the Contract
Pool to be assigned to the Trustee or its nominee (which may be the
Custodian), together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including
principal and interest due on or before the Cut-off Date or any
Excluded Spread. Each Contract will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement. Such
schedule will specify, with respect to each Contract, among other
things: the original principal amount and the adjusted principal
balance as of the close of business on the Cut-off Date; the
Mortgage Rate; the current scheduled monthly level payment of
principal and interest; and the maturity date of the Contract.
In addition, the Company, the Servicer or the Master Servicer,
as to each Contract, will deliver or cause to be delivered to the
Trustee, or, as specified in the related Prospectus Supplement, the
Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in
the Manufactured Home securing each Contract. The Company, the
Master Servicer or the Servicer will cause a UCC-1 financing
statement to be executed by the Company identifying the Trustee as
the secured party and identifying all Contracts as collateral.
However, unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or otherwise marked to
reflect their assignment from the Company to the Trust Fund and no
recordings or filings will be made in the jurisdictions in which the
Manufactured Homes are located. See "Certain Legal Aspects of
Mortgage Loans and Contracts The Contracts."
Review of Mortgage Loan or Contract Documents
The Trustee or the Custodian will hold such documents in trust
for the benefit of the Certificateholders and, generally within 45
days after receipt thereof, will review such documents. Unless
otherwise provided in the related Prospectus Supplement, if any such
document is found to be defective in any material respect, the
Trustee or such Custodian shall immediately notify the Master
Servicer or the Servicer, if any, and the Company, and if so
specified in the related Prospectus Supplement, the Master Servicer,
the Servicer or the Trustee shall immediately notify the Mortgage
Collateral Seller. If the Mortgage Collateral Seller (or, if so
specified in the related Prospectus Supplement, the Company) cannot
cure such defect within 60 days (or within such other period
specified in the related Prospectus Supplement) after notice of the
defect is given to the Mortgage Collateral Seller (or, if
applicable, the Company), the Mortgage Collateral Seller (or, if
applicable, the Company) will, not later than 90 days after such
notice (or within such other period specified in the related
Prospectus Supplement), either repurchase the related Mortgage Loan
or Contract or any property acquired in respect thereof from the
Trustee or substitute for such Mortgage Loan or Contract, a new
Mortgage Loan or Contract in accordance with the standards set forth
herein. See "The Trust Funds Repurchases of Mortgage Collateral."
Unless otherwise specified in the related Prospectus Supplement, the
obligation to repurchase or substitute for a Mortgage Loan or
Contract constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a
constituent document.
Assignment of Agency Securities
The Company will transfer, convey and assign to the Trustee or
its nominee (which may be the Custodian) all right, title and
interest of the Company in the Agency Securities and other property
to be included in the Trust Fund for a series. Such assignment will
include all principal and interest due on or with respect to the
Agency Securities after the Cut-off Date specified in the related
Prospectus Supplement (except for any Excluded Spread). The Company
will cause the Agency Securities to be registered in the name of the
Trustee or its nominee, and the Trustee will concurrently
authenticate and deliver the Certificates. 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 any Agency Security. Each Agency Security will be
identified in a schedule appearing as an exhibit to the related
Pooling and Servicing Agreement, which will specify as to each
Agency Security the original principal amount and outstanding
principal balance as of the Cut-off Date; the annual pass-through
rate or interest rate for each Agency Security conveyed to the
Trustee.
Spread
The Company, the Master Servicer or any of their affiliates, or
such other entity as may be specified in the related Prospectus
Supplement may retain or be paid a portion of interest due with
respect to the related Mortgage Collateral. The payment of any such
portion of interest will be disclosed in the related Prospectus
Supplement. This payment may be in addition to any other payment
(such as the Servicing Fee) that any such entity is otherwise
entitled to receive with respect to the Mortgage Collateral. Any
such payment in respect of the Mortgage Collateral will represent a
specified portion of the interest payable thereon and, as specified
in the related Prospectus Supplement, will either be part of the
assets transferred to the related Trust Fund (the "Excess Spread")
or will be excluded from the assets transferred to the related Trust
Fund (the "Excluded Spread"). The interest portion of a Realized
Loss and any partial recovery of interest in respect of the Mortgage
Collateral will be allocated between the owners of any Excess Spread
or Excluded Spread and the Certificateholders entitled to payments
of interest as provided in the applicable Pooling and Servicing
Agreement.
Payments on Mortgage Collateral
The Trustee or the Master Servicer, if any, will, as to each
series of Certificates, establish and maintain in trust the
Certificate Account which will be a separate account that may be
interest bearing or non-interest bearing in the name of the Trustee,
maintained with a depository institution and in a manner acceptable
to each Rating Agency. If permitted by each such Rating Agency, a
Certificate Account may contain funds relating to one or more series
of Certificates.
The Trustee, the Servicer or the Master Servicer, if any, will
establish a Custodial Account which will be a separate trust
account, into which payments on the Mortgage Collateral for such
series may be transferred on a periodic basis and from which funds
may be transferred to the Certificate Account in order to make
payments to Certificateholders. The Custodial Account may contain
funds relating to more than one series of Certificates as well as
payments received on other mortgage loans serviced or master
serviced by the Master Servicer or the Servicer, as applicable.
Amounts held in the Certificate Account or a Custodial Account may
be invested in Permitted Investments. See " Collection of Payments
on Mortgage Loans and Contracts" below. In addition, if so stated in
such Prospectus Supplement, one or more other trust accounts,
including any Reserve Funds, will be established into which cash,
certificates of deposit or letters of credit, or a combination
thereof, will be deposited by the Company, if such assets are
required to make timely distributions with respect to the
Certificates of a series, are required as a condition to the rating
of such Certificates or are required in order to provide for certain
contingencies as described in the related Prospectus Supplement.
Collection of Payments on Mortgage Loans and Contracts
Each Servicer or the Master Servicer, if any, will be required
to deposit into the Custodial Account (unless otherwise specified in
the related Prospectus Supplement) all amounts enumerated in the
following paragraph in respect of the Mortgage Loans or Contracts
serviced by it, less the Servicing Fee and Excluded Spread, if any.
The Servicer or Master Servicer, as applicable, will deposit or
will cause to be deposited into the Custodial Account certain
payments and collections received by it subsequent to the Cut-off
Date (other than payments due on or before the Cut-off Date), as
specifically set forth in the related Pooling and Servicing
Agreement, which (except as otherwise provided therein) generally
will include the following:
(i) all payments on account of principal of the Mortgage Loans or
Contracts comprising a Trust Fund;
(ii) all payments on account of interest on the Mortgage Loans
comprising such Trust Fund, net of the portion of each payment
thereof retained by the Servicer or Sub-Servicer, if any, as
Excluded Spread, its servicing or other compensation;
(iii) all amounts (net of unreimbursed liquidation expenses and
insured expenses incurred, and unreimbursed Servicing Advances
made, by the related Servicer or Sub-Servicer) received and
retained in connection with the liquidation of any defaulted
Mortgage Loan or Contract, by foreclosure or otherwise
("Liquidation Proceeds"), including all proceeds of any Special
Hazard Insurance Policy, Bankruptcy Bond, Mortgage Pool Insurance
Policy, Contract Pool Insurance Policy, Primary Insurance Policy
and any title, hazard or other insurance policy covering any
Mortgage Loan or Contract in such Trust Fund (together with any
payments under any Letter of Credit, "Insurance Proceeds") or
proceeds from any alternative arrangements established in lieu
of any such insurance and described in the applicable Prospectus
Supplement, other than proceeds to be applied to the restoration
of the related property or released to the Mortgagor in
accordance with the Master Servicer's or Servicer's normal
servicing procedures;
(iv) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be paid to Certificateholders, as described
below;
(v) all proceeds of any Mortgage Loan or Contract in such Trust
Fund purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer, the
Company, Residential Funding, any Sub-Servicer or Mortgage
Collateral Seller or any other person pursuant to the terms of the
Pooling and Servicing Agreement. See "The Trust
Funds Representations with Respect to Mortgage Collateral" and
" Repurchases of Defective Mortgage Collateral" herein;
(vi) any amount required to be deposited by the Master Servicer
in connection with losses realized on investments of funds held in
the Custodial Account, as described below; and
(vii) any amounts required to be transferred from the Certificate
Account to the Custodial Account.
Both the Custodial Account and the Certificate Account must be
either (i) maintained with a depository institution whose debt
obligations at the time of any deposit therein are rated by any
Rating Agency that rated any Certificates of the related series not
less than a specified level comparable to the rating category of
such Certificates, (ii) an account or accounts the deposits in which
are fully insured to the limits established by the FDIC, provided
that any deposits not so insured shall be otherwise maintained such
that, as evidenced by an opinion of counsel, the Certificateholders
have a claim with respect to the funds in such accounts or a
perfected first priority security interest in any collateral
securing such funds that is superior to the claims of any other
depositors or creditors of the depository institution with which
such accounts are maintained, (iii) in the case of the Custodial
Account, a trust account or accounts maintained in either the
corporate trust department or the corporate asset services
department of a financial institution which has debt obligations
that meet certain rating criteria, (iv) in the case of the
Certificate Account, a trust account or accounts maintained with the
Trustee or (v) such other account or accounts acceptable to any
applicable Rating Agency (an "Eligible Account"). The collateral
that is eligible to secure amounts in an Eligible Account is limited
to certain permitted investments, which are generally limited to
United States government securities and other investments that are
rated, at the time of acquisition, in one of the categories
permitted by the related Pooling and Servicing Agreement ("Permitted
Investments").
Unless otherwise set forth in the related Prospectus Supplement,
not later than the business day preceding each Distribution Date,
the Master Servicer or Servicer, as applicable, will withdraw from
the Custodial Account and deposit into the applicable Certificate
Account, in immediately available funds, the amount to be
distributed therefrom to Certificateholders on such Distribution
Date. The Master Servicer, the Servicer or the Trustee, as
applicable, will also deposit or cause to be deposited into the
Certificate Account: (i) the amount of any advances made by the
Master Servicer or the Servicer as described herein under
" Advances," (ii) any payments under any Letter of Credit, and any
amounts required to be transferred to the Certificate Account from
a Reserve Fund, as described under "Description of Credit
Enhancement" below, (iii) any amounts required to be paid by the
Master Servicer or Servicer out of its own funds due to the
operation of a deductible clause in any blanket policy maintained by
the Master Servicer or Servicer to cover hazard losses on the
Mortgage Loans as described under "Insurance Policies on Mortgage
Loans or Contracts" below, (iv) any distributions received on any
Agency Securities included in the Trust Fund and (v) any other
amounts as set forth in the related Pooling and Servicing Agreement.
The portion of any payment received by the Master Servicer or the
Servicer in respect of a Mortgage Loan that is allocable to Excess
Spread or Excluded Spread, as applicable, will generally be
deposited into the Custodial Account, but any Excluded Spread will
not be deposited in the Certificate Account for the related series
of Certificates and will be distributed as provided in the related
Pooling and Servicing Agreement.
Funds on deposit in the Custodial Account may be invested in
Permitted Investments maturing in general not later than the
business day preceding the next Distribution Date and funds on
deposit in the related Certificate Account may be invested in
Permitted Investments maturing, in general, no later than the
Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, all income and gain realized from any such
investment will be for the account of the Servicer or the Master
Servicer as additional servicing compensation. The amount of any
loss incurred in connection with any such investment must be
deposited in the Custodial Account or in the Certificate Account, as
the case may be, by the Servicer or the Master Servicer out of its
own funds upon realization of such loss.
Collection of Payments on Agency Securities
The Trustee or the Certificate Administrator, as specified in the
related Prospectus Supplement, will deposit in the Certificate
Account all payments on the Agency Securities as they are received
after the Cut-off Date. If the Trustee has not received a
distribution with respect to any Agency Security by the second
business day after the date on which such distribution was due and
payable, the Trustee will request the issuer or guarantor, if any,
of such Agency Security to make such payment as promptly as possible
and legally permitted. The Trustee may take such legal action
against such issuer or guarantor as the Trustee deems appropriate
under the circumstances, including the prosecution of any claims in
connection therewith. The reasonable legal fees and expenses
incurred by the Trustee in connection with the prosecution of such
legal action will be reimbursable to the Trustee out of the proceeds
of any such action and will be retained by the Trustee prior to the
deposit of any remaining proceeds in the Certificate Account pending
distribution thereof to the Certificateholders of the affected
series. In the event that the Trustee has reason to believe that the
proceeds of any such legal action may be insufficient to cover its
projected legal fees and expenses, the Trustee will notify such
Certificateholders that it is not obligated to pursue any such
available remedies unless adequate indemnity for its legal fees and
expenses is provided by such Certificateholders.
Withdrawals from the Custodial Account
The Servicer or the Master Servicer, as applicable, may, from
time to time, make withdrawals from the Custodial Account for
certain purposes, as specifically set forth in the related Pooling
and Servicing Agreement, which (except as otherwise provided
therein) generally will include the following:
(i) to make deposits to the Certificate Account in the amounts
and in the manner provided in the Pooling and Servicing Agreement
and described above under " Payments on Mortgage Collateral";
(ii) to reimburse itself or any Sub-Servicer for Advances, or for
amounts advanced in respect of taxes, insurance premiums or similar
expenses or similar expenses incurred in connection with acquiring
by foreclosure or deed in lieu of foreclosure a Mortgaged Property,
including, if the Master Servicer and any affiliate of the Master
Servicer provides services such as appraisals and brokerage services
that are customarily provided by persons other than servicers of
mortgage loans, reasonable compensation for such services
("Servicing Advances") as to any Mortgaged Property, out of late
payments, Insurance Proceeds, Liquidation Proceeds, any proceeds in
respect of any REO Mortgage Loan or collections on the Mortgage Loan
or Contract with respect to which such Advances or Servicing
Advances were made;
(iii) to pay to itself or any Sub-Servicer unpaid Servicing Fees
and subservicing fees, out of payments or collections of interest on
each Mortgage Loan or Contract;
(iv) to pay to itself as additional servicing compensation any
investment income on funds deposited in the Custodial Account, any
amounts remitted by Sub-Servicers as interest in respect of partial
prepayments on the Mortgage Loans or Contracts, and, if so provided
in the Pooling and Servicing Agreement, any profits realized upon
disposition of a Mortgaged Property acquired by deed in lieu of
foreclosure or repossession or otherwise allowed under the Pooling
and Servicing Agreement;
(v) to pay to itself, a Sub-Servicer, Residential Funding, the
Company or the Mortgage Collateral Seller all amounts received with
respect to each Mortgage Loan or Contract purchased, repurchased or
removed pursuant to the terms of the Pooling and Servicing Agreement
and not required to be distributed as of the date on which the
related Purchase Price is determined;
(vi) to pay the Company or its assignee, or any other party named
in the related Prospectus Supplement, all amounts allocable to the
Excluded Spread, if any, out of collections or payments which
represent interest on each Mortgage Loan or Contract (including any
Mortgage Loan or Contract as to which title to the underlying
Mortgaged Property was acquired);
(vii) to reimburse itself or any Sub-Servicer for any Advance
previously made which the Master Servicer has determined to not be
ultimately recoverable from Liquidation Proceeds, Insurance Proceeds
or otherwise (a "Nonrecoverable Advance"), subject to any
limitations set forth in the Pooling and Servicing Agreement as
described in the related Prospectus Supplement;
(viii) to reimburse itself or the Company for certain other
expenses incurred for which it or the Company is entitled to
reimbursement (including reimbursement in connection with enforcing
any repurchase, substitution or indemnification obligation of any
Seller) or against which it or the Company is indemnified pursuant
to the Pooling and Servicing Agreement; and
(ix) to clear the Custodial Account of amounts relating to the
corresponding Mortgage Loans or Contracts in connection with the
termination of the Trust Fund pursuant to the Pooling and Servicing
Agreement, as described in "The Pooling and Servicing
Agreement Termination; Retirement of Certificates."
Distributions
Distributions of principal and interest (or, where applicable,
of principal only or interest only) on each class of Certificates
entitled thereto will be made on each Distribution Date either by
the Trustee, the Master Servicer or the Certificate Administrator
acting on behalf of the Trustee or a paying agent appointed by the
Trustee (the "Paying Agent"). Such distributions will be made to the
persons who are registered as the holders of such Certificates at
the close of business on the last business day of the preceding
month (the "Record Date"). Distributions will be made in immediately
available funds (by wire transfer or otherwise) to the account of a
Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified the
Trustee, the Master Servicer, the Certificate Administrator or the
Paying Agent, as the case may be, and the applicable Pooling and
Servicing Agreement provides for such form of payment, or by check
mailed to the address of the person entitled thereto as it appears
on the Certificate Register. The final distribution in retirement of
the Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency of the Trustee specified
in the notice to Certificateholders. Distributions will be made to
each Certificateholder in accordance with such holder's Percentage
Interest in a particular class. The "Percentage Interest"
represented by a Certificate of a particular class will be equal to
the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the aggregate initial amount
or notional balance of all the Certificates of such class.
Principal and Interest on the Certificates
The method of determining, and the amount of, distributions of
principal and interest (or, where applicable, of principal only or
interest only) on a particular series of Certificates will be
described in the related Prospectus Supplement. Distributions of
interest on each class of Certificates will be made prior to
distributions of principal thereon. Each class of Certificates
(other than certain classes of Strip Certificates) may have a
different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate, or any combination of two or more such
Pass-Through Rates. The related Prospectus Supplement will specify
the Pass-Through Rate or Rates for each class, or the initial Pass-Through Rate
or Rates and the
method for determining the Pass-Through Rate or Rates. Unless otherwise
specified in the
related
Prospectus Supplement, interest on the Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
On each Distribution Date for a series of Certificates, the
Trustee or the Master Servicer or the Certificate Administrator on
behalf of the Trustee will distribute or cause the Paying Agent to
distribute, as the case may be, to each holder of record on the
Record Date of a class of Certificates, an amount equal to the
Percentage Interest represented by the Certificate held by such
holder multiplied by such class's Distribution Amount. The
"Distribution Amount" for a class of Certificates for any
Distribution Date will be the portion, if any, of the Principal
Distribution Amount (as defined in the related Prospectus
Supplement) allocable to such class for such Distribution Date,
plus, if such class is entitled to payments of interest on such
Distribution Date, one month's interest at the applicable Pass-Through Rate on
the principal
balance or notional amount of such
class specified in the applicable Prospectus Supplement, less
certain interest shortfalls, which generally will include (i) any
Deferred Interest added to the principal balance of the Mortgage
Loans and/or the outstanding balance of one or more classes of
Certificates on the related Due Date, (ii) any other interest
shortfalls (including, without limitation, shortfalls resulting from
application of the Relief Act or similar legislation or regulations
as in effect from time to time) allocable to Certificateholders
which are not covered by advances or the applicable credit
enhancement and (iii) unless otherwise specified in the related
Prospectus Supplement, Prepayment Interest Shortfalls, in each case
in such amount that is allocated to such class on the basis set
forth in the Prospectus Supplement.
In the case of a series of Certificates which includes two or
more classes of Certificates, the timing, sequential order, priority
of payment or amount of distributions in respect of principal, and
any schedule or formula or other provisions applicable to the
determination thereof (including distributions among multiple
classes of Senior Certificates or Subordinate Certificates) shall be
set forth in the related Prospectus Supplement. Distributions in
respect of principal of any class of Certificates will be made on a
pro rata basis among all of the Certificates of such class unless
otherwise set forth in the related Prospectus Supplement.
Except as otherwise provided in the related Pooling and Servicing
Agreement, on or prior to the 20th day (or, if such day is not a
business day, the next business day) of the month of distribution
(the "Determination Date"), the Master Servicer or the Certificate
Administrator, as applicable, will determine the amounts of
principal and interest which will be passed through to
Certificateholders on the succeeding Distribution Date. Prior to the
close of business on the business day succeeding each Determination
Date, the Master Servicer or the Certificate Administrator, as
applicable, will furnish a statement to the Trustee (the information
in such statement to be made available to Certificateholders by the
Master Servicer or the Certificate Administrator, as applicable, on
request) setting forth, among other things, the amount to be
distributed on the next succeeding Distribution Date.
Example of Distributions
The following chart sets forth an example of the flow of funds
as it would relate to a hypothetical series of Certificates issued,
and with a Cut-off Date occurring, in July 1996:
Date
Note
Description
July 1 . . . . ..
(A)
Cut-off Date.
July 2-31 .
(B)
The Servicers or the Sub-Servicers, as
applicable, receive Principal Prepayments.
July 31 . . . . . . .
(C)
Record Date.
August 1 . . . . . . .
(D)
The due date for a Mortgage Loan or
Contract (the "Due
Date").
August 16 .
(E)
The Master Servicer or the Servicer, as
applicable, receives scheduled payments of
principal and interest due on August 1 and
received or advanced by Servicers or
Subservicers.
August 20 .
(F)
Determination Date.
August 26 .
(G)
Distribution Date.
Succeeding months follow the pattern of (B) through (G), except that
for succeeding months (B) will also include the first day of such
month. Certain series of Certificates may have different prepayment
periods, Cut-off Dates, Record Dates, Due Dates, remittance dates,
Determination Dates and/or Distribution Dates than those set forth
above.
(A) The initial principal balance of the Mortgage Pool or Contract
Pool will be the aggregate principal balance of the Mortgage
Loans or Contracts at the close of business on July 1, 1996,
after deducting principal payments due on or before such date.
Those principal payments due on or before July 1, and the
accompanying interest payments, and any Principal Prepayments
received as of the close of business on July 1, 1996 are not part
of the Mortgage Pool or Contract Pool and will not be passed
through to Certificateholders.
(B) Any principal payments received in advance of the scheduled
Due Date and not accompanied by a payment of interest for any
period following the date of payment ("Principal Prepayments")
may be received at any time during this period and will be
remitted to the Master Servicer or Servicer as described in (E)
below for distribution to Certificateholders as described in (F)
below. When a Mortgage Loan or Contract is prepaid in full,
interest on the amount prepaid is collected from the Mortgagor
only to the date of payment. Partial Principal Prepayments are
applied so as to reduce the principal balances of the related
Mortgage Loans or Contracts as of the first day of the month in
which the payments are made; no interest will be paid to
Certificateholders in respect of such prepaid amounts for the
month in which such partial Principal Prepayments were received.
(C) Distributions on August 26 (because August 25, 1996 is not a
business day) will be made to Certificateholders of record at the
close of business on July 31.
(D) Scheduled principal and interest payments are due from
Mortgagors.
(E) Payments due on August 1 from Mortgagors will be deposited by
the Sub-Servicers in subservicing accounts or Servicers in
collection accounts (or will be otherwise managed in a manner
acceptable to the Rating Agencies) as received and will include
the scheduled principal payments plus interest on the July
balances (with the exception of interest from the date of
prepayment of any Mortgage Loan or Contract prepaid in full
during July and interest on the amount of partial Principal
Prepayments in July). Funds required to be remitted from the
collection accounts or the subservicing accounts to the Master
Servicer or the Servicer, as applicable, will be so remitted on
August 16 (because August 18, 1996 is not a business day)
together with any required Advances by the Servicer or the Sub-Servicers
(except that Principal
Prepayments in full and certain
Principal Prepayments in part received by Sub-Servicers during
the month of July will have been remitted to the Master Servicer
or the Servicer, as applicable, within five business days of
receipt).
(F) On August 20, the Master Servicer or the Certificate
Administrator, if any, will determine the amounts of principal
and interest which will be passed through on August 26 to the
holders of each class of Certificates. The Master Servicer or the
Certificate Administrator, if any, will be obligated to
distribute those payments due August 1 which have been received
from Servicers or Sub-Servicers prior to and including August 16,
as well as all Principal Prepayments received on Mortgage Loans
in July (with interest adjusted to the Pass-Through Rates
applicable to the respective classes of Certificates and reduced
on account of Principal Prepayments as described above).
Distributions to the holders of Senior Certificates, if any, on
August 26 may include certain amounts otherwise distributable to
the holders of the related Subordinate Certificates, amounts
withdrawn from any Reserve Fund and amounts advanced by the
Master Servicer or the Servicer under the circumstances described
in "Subordination" and " Advances."
(G) On August 26 (because August 25 is not a business day, the
next succeeding business day), the amounts determined on August
20 will be distributed to Certificateholders.
If provided in the related Prospectus Supplement, the
Distribution Date with respect to any series of Certificates as to
which the Trust Fund includes Agency Securities may be a specified
date or dates other than the 25th day of each month in order to
allow for the receipt of distributions on such Agency Securities.
Advances
Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer or the applicable Servicer will agree to advance
(either out of its own funds, funds advanced to it by Servicers or
Sub-Servicers, as applicable, or funds being held in the Custodial
Account for future distribution), for the benefit of the related
Certificateholders, on or before each Distribution Date, an amount
equal to the aggregate of all scheduled payments of principal (other
than any Balloon Amount in the case of a Balloon Loan) and interest
at the applicable Pass-Through Rate or Net Mortgage Rate, as the
case may be (an "Advance"), which were delinquent as of the close of
business on the business day preceding the related Determination
Date on the related Mortgage Loans or Contracts, but only to the
extent that such Advances would, in the judgment of the Master
Servicer or the Servicer, be recoverable out of late payments by the
Mortgagors, Liquidation Proceeds, Insurance Proceeds or otherwise.
If a Trust Fund includes Agency Securities, any advancing
obligations with respect to underlying Mortgage Loans or Contracts
will be pursuant to the terms of such Agency Securities and may
differ from the provisions relating to Advances described herein.
Advances are intended to maintain a regular flow of scheduled
interest and principal payments to related Certificateholders. Such
Advances do not represent an obligation of the Master Servicer or
the Servicer to guarantee or insure against losses. If Advances have
been made by the Master Servicer or Servicer from cash being held
for future distribution to Certificateholders, such funds will be
required to be replaced on or before any future Distribution Date to
the extent that funds in the Certificate Account on such
Distribution Date would be less than payments required to be made to
Certificateholders. Any Advances will be reimbursable to the Master
Servicer or Servicer out of recoveries on the related Mortgage Loans
or Contracts for which such amounts were advanced (e.g., late
payments made by the related Mortgagor, any related Liquidation
Proceeds and Insurance Proceeds, proceeds of any applicable form of
credit enhancement or proceeds of any Mortgage Collateral purchased
by the Company, Residential Funding, a Sub-Servicer or a Mortgage
Collateral Seller under the circumstances described above). Such
Advances will also be reimbursable from cash otherwise distributable
to Certificateholders to the extent that the Master Servicer or
Servicer shall determine that any such Advances previously made are
not ultimately recoverable as described above. With respect to any
Senior/Subordinate Series, so long as the related Subordinate
Certificates remain outstanding and subject to certain limitations
with respect to Special Hazard Losses, Fraud Losses, Bankruptcy
Losses and Extraordinary Losses, such Advances may also be
reimbursable out of amounts otherwise distributable to holders of
the Subordinate Certificates, if any. The Master Servicer or the
Servicer will also be obligated to make Servicing Advances, to the
extent recoverable out of Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by
Mortgagors on a timely basis. Funds so advanced will be reimbursable
to the Master Servicer or Servicer to the extent permitted by the
Pooling and Servicing Agreement. The Master Servicer's or Servicer's
obligation to make Advances may be supported by another entity, a
letter of credit or other method as may be described in the related
Pooling and Servicing Agreement. In the event that the short-term or
long-term obligations of the provider of such support are downgraded
by a Rating Agency rating the related Certificates or if any
collateral supporting such obligation is not performing or is
removed pursuant to the terms of any agreement described in the
related Prospectus Supplement, the Certificates may also be
downgraded.
Prepayment Interest Shortfalls
When a Mortgagor prepays a Mortgage Loan or Contract in full
between scheduled Due Dates for such Mortgage Loan or Contract, the
Mortgagor pays interest on the amount prepaid only to but not
including the date on which such Principal Prepayment is made.
Similarly, Liquidation Proceeds from a Mortgaged Property will not
include interest for any period after the date on which the
liquidation took place. The shortfall between a full month's
interest due with respect to a Mortgage Loan or Contract and the
amount of interest paid or recovered with respect thereto in the
event of a prepayment or liquidation is referred to as a "Prepayment
Interest Shortfall." If so specified in the related Prospectus
Supplement, to the extent funds are available from the Servicing
Fee, the Servicer or Master Servicer may make an additional payment
to Certificateholders with respect to any Mortgage Loan or Contract
that prepaid in full during the related prepayment period equal to
the amount, if any, necessary to assure that, on the related
Distribution Date, the Available Distribution Amount would include
with respect to each such Mortgage Loan or Contract an amount equal
to interest at the Mortgage Rate (less the Servicing Fee and
Excluded Spread, if any) for such Mortgage Loan or Contract from the
date of such prepayment to the related Due Date (such amount,
"Compensating Interest"). Compensating Interest may be limited to
the aggregate amount (or any portion thereof) of the Servicing Fee
received by the Servicer or Master Servicer in that month in
relation to the Mortgage Loans or Contracts, or in any other manner,
and, if so limited, may not be sufficient to cover the Prepayment
Interest Shortfall. If so disclosed in the related Prospectus
Supplement, Prepayment Interest Shortfalls may be applied to reduce
interest otherwise payable with respect to one or more classes of
Certificates of a series. See "Yield Considerations."
Reports to Certificateholders
On each Distribution Date, the Master Servicer or the Certificate
Administrator, as applicable, will forward or cause to be forwarded
to each Certificateholder of record a statement or statements with
respect to the related Trust Fund setting forth the information
described in the related Pooling and Servicing Agreement. Except as
otherwise provided in the related Pooling and Servicing Agreement,
such information generally will include the following (as
applicable):
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest and the amount, if any, of any shortfall in the amount of
interest and principal;
(iii) the aggregate unpaid principal balance of the Mortgage
Collateral after giving effect to the distribution of principal on
such Distribution Date;
(iv) the outstanding principal balance or notional amount of each
class of Certificates after giving effect to the distribution of
principal on such Distribution Date;
(v) based on the most recent reports furnished by Servicers or
Sub-Servicers, the number and aggregate principal balances of any
items of Mortgage Collateral in the related Trust Fund that are
delinquent (a) one month, (b) two months and (c) three months, and
that are in foreclosure;
(vi) the book value of any property acquired by such Trust Fund
through foreclosure or grant of a deed in lieu of foreclosure;
(vii) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(viii) the Senior Percentage, if applicable, after giving effect
to the distributions on such Distribution Date;
(ix) the amount of coverage under any Letter of Credit, Mortgage
Pool Insurance Policy or other form of credit enhancement covering
default risk as of the close of business on the applicable
Determination Date and a description of any credit enhancement
substituted therefor;
(x) if applicable, the Special Hazard Amount, Fraud Loss Amount
and Bankruptcy Amount as of the close of business on the applicable
Distribution Date and a description of any change in the calculation
of such amounts;
(xi) in the case of Certificates benefiting from alternative
credit enhancement arrangements described in a Prospectus
Supplement, the amount of coverage under such alternative
arrangements as of the close of business on the applicable
Determination Date; and
(xii) with respect to any series of Certificates as to which the
Trust Fund includes Agency Securities, certain additional
information as required under the related Pooling and Servicing
Agreement.
Each amount set forth pursuant to clause (i) or (ii) above will
be expressed as a dollar amount per Single Certificate. As to a
particular class of Certificates, a "Single Certificate" generally
will evidence a Percentage Interest obtained by dividing $1,000 by
the initial principal balance or notional balance of all the
Certificates of such class, except as otherwise provided in the
related Pooling and Servicing Agreement. In addition to the
information described above, reports to Certificateholders will
contain such other information as is set forth in the applicable
Pooling and Servicing Agreement, which may include, without
limitation, information as to Advances, reimbursements to Sub-Servicers,
Servicers and the
Master Servicer and losses borne by the
related Trust Fund.
In addition, within a reasonable period of time after the end of
each calendar year, the Master Servicer or the Certificate
Administrator, as applicable, will furnish a report to each person
that was a holder of record of any class of Certificates at any time
during such calendar year. Such report will include information as
to the aggregate of amounts reported pursuant to clauses (i) and
(ii) above for such calendar year or, in the event such person was
a holder of record of a class of Certificates during a portion of
such calendar year, for the applicable portion of such year.
Servicing and Administration of Mortgage Collateral
General
The Master Servicer, the Certificate Administrator or any
Servicer, as applicable, that is a party to a Pooling and Servicing
Agreement, will be required to perform the services and duties
specified in the related Pooling and Servicing Agreement. The duties
to be performed by the Master Servicer or each Servicer, subject to
the general supervision by the Master Servicer or the Certificate
Administrator, if any, will include the customary functions of a
servicer, including collection of payments from Mortgagors;
maintenance of any primary mortgage insurance, hazard insurance and
other types of insurance; processing of assumptions or
substitutions; attempting to cure delinquencies; supervising
foreclosures; inspection and management of Mortgaged Properties
under certain circumstances; and maintaining accounting records
relating to the Mortgage Collateral. Each Servicer or the Master
Servicer, if any, may be obligated, under certain circumstances, to
make Advances in respect of delinquent installments of principal of
and interest on Mortgage Loans or Contracts and in respect of
certain taxes and insurance premiums not paid on a timely basis by
Mortgagors, as described under " Advances" above. With respect to
any series of Certificates for which the Trust Fund includes Agency
Securities, the Master Servicer's or Certificate Administrator's
servicing and administration obligations will be set forth in the
related Prospectus Supplement.
Pursuant to each Pooling and Servicing Agreement, each Servicer
or the Master Servicer, if there are no Servicers for the related
series, may enter into sub-servicing agreements (each, a "Sub-Servicing
Agreement") with one or
more sub-servicers (each, a "Sub-Servicer") who will agree to perform certain
functions for the
Servicer or Master Servicer relating to the servicing and
administration of the Mortgage Loans or Contracts included in the
Trust Fund relating to such
Sub-Servicing Agreement. Under any Sub-Servicing Agreement,
each Sub-Servicer, will agree, among other
things, to perform some or all of the Servicer's or the Master
Servicer's servicing obligations, including but not limited to,
making Advances to the related Certificateholders. The Servicer or
the Master Servicer, as applicable, will remain liable for its
servicing obligations that are delegated to a Sub-Servicer as if
such Servicer or the Master Servicer alone were servicing such
Mortgage Loans or Contracts.
Collection and Other Servicing Procedures
Each Servicer or the Master Servicer, as applicable, will make
reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the related
Pooling and Servicing Agreement and any applicable insurance policy
or other credit enhancement, follow such collection procedures as it
follows with respect to mortgage loans or contracts serviced by it
that are comparable to the Mortgage Loans or Contracts. The Servicer
or the Master Servicer may, in its discretion, waive any prepayment
charge in connection with the prepayment of a Mortgage Loan or
extend the due dates for payments due on a Mortgage Note or
Contract, provided that the insurance coverage for such Mortgage
Loan or Contract or any coverage provided by any alternative credit
enhancement will not be adversely affected.
In connection with any significant partial prepayment of a
Mortgage Loan, the Master Servicer, to the extent not inconsistent
with the terms of the Mortgage Note and local law and practice, may
permit the Mortgage Loan to be re-amortized such that the monthly
payment is recalculated as an amount that will fully amortize the
remaining principal amount thereof by the original maturity date
based on the original Mortgage Rate,
provided that such re-amortization shall not be permitted if
it would constitute a
modification of the Mortgage Loan for federal income tax purposes.
The Master Servicer, any Servicer or one or more Sub-Servicers
with respect to a given Trust Fund may establish and maintain an
escrow account (the "Escrow Account") in which Mortgagors will be
required to deposit amounts sufficient to pay taxes, assessments,
certain mortgage and hazard insurance premiums and other comparable
items. Withdrawals from any such Escrow Account may be made to
effect timely payment of taxes, assessments, mortgage and hazard
insurance, to refund to Mortgagors amounts determined to be owed, to
pay interest on balances in any such Escrow Account, if required, to
repair or otherwise protect the Mortgaged Properties and to clear
and terminate such account. The Master Servicer or any Servicer or
Sub-Servicer, as the case may be, will be responsible for the
administration of each such Escrow Account and will be obligated to
make advances to such accounts when a deficiency exists therein. The
Master Servicer, Servicer or Sub-Servicer will be entitled to
reimbursement for any such advances from the Collection Account.
Other duties and responsibilities of each Servicer, the Master
Servicer and the Certificate Administrator are described above under
" Payments on Mortgage Collateral."
Servicing Compensation and Payment of Expenses
Each Servicer, the Master Servicer or the Certificate
Administrator, as applicable, will be paid compensation for the
performance of its servicing obligations, which compensation will be
part of the servicing fee (the "Servicing Fee") specified in the
related Prospectus Supplement. Any Sub-Servicer will be entitled to
receive a portion of the Servicing Fee. Except as otherwise provided
in the related Prospectus Supplement, the Servicer or the Master
Servicer, if any, will deduct the Servicing Fee with respect to the
Mortgage Loans or Contracts underlying the Certificates of a Series
in an amount to be specified in the related Prospectus Supplement.
The Servicing Fee may be fixed or variable. In addition to the
Servicing Fee, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer,
any Servicer or the relevant Sub-Servicers, if any, will be
entitled to servicing compensation in the
form of assumption fees, late payments charges or excess proceeds
following disposition of property in connection with defaulted
Mortgage Loans or Contracts and any earnings on investments held in
the Certificate Account or any Custodial Account. Any Excluded
Spread retained by a Mortgage Collateral Seller, the Master
Servicer, or any Servicer or Sub-Servicer will not constitute part
of the Servicing Fee. Notwithstanding the foregoing, with respect to
a series of Certificates as to which the Trust Fund includes Agency
Securities, the compensation payable to the Master Servicer or
Certificate Administrator for servicing and administering such
Agency Securities on behalf of the holders of such Certificates may
be based on a percentage per annum described in the related
Prospectus Supplement of the outstanding balance of such Agency
Securities and may be retained from distributions of interest
thereon, if so specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
the Servicer, the Master Servicer or the Certificate Administrator
will pay from the Servicing Fee (i) the fees of any Sub-Servicers,
(ii) certain expenses incurred in connection with the servicing of
the Mortgage Loans or Contracts, including, without limitation,
payment of certain of the insurance policy premiums, fees or other
amounts payable for any alternative credit enhancement,
reimbursement of expenses incurred in connection with a foreclosure
or deed in lieu of foreclosure upon a Mortgaged Property, payment of
the fees and disbursements of the Trustee (and any Custodian
selected by the Trustee), the Certificate Registrar, any Paying
Agent, independent accountants and payment of expenses incurred in
enforcing the obligations of Sub-Servicers, Servicers and Mortgage
Collateral Sellers and (iii) expenses related to the preparation of
reports to Certificateholders. Certain of these expenses may be
reimbursable from Liquidation Proceeds or insurance policies and, in
the case of enforcement of the obligations of Sub-Servicers, from
any recoveries in excess of amounts due with respect to the related
Mortgage Loans or Contracts or from specific recoveries of costs.
The related Pooling and Servicing Agreement may provide that the
Certificate Administrator, the Master Servicer, and any Servicer and
Sub-Servicer may obtain their respective fees by deducting them from
amounts otherwise required to be deposited into the Collection
Account.
The related Trust Fund will suffer no loss by reason of the
expenses of the Servicer or Master Servicer described above to the
extent claims are fully paid from amounts in any Reserve Fund, any
related insurance policies, the Liquidation Proceeds, any proceeds
in respect of an REO Mortgage Loan (with respect to expenses
incurred in connection with a foreclosure or deed in lieu of
foreclosure) or any applicable alternative credit enhancement
described in the related Prospectus Supplement. In the event,
however, that claims are either not made or are not fully paid from
such sources, the related Trust Fund will suffer a loss to the
extent that Liquidation Proceeds, after reimbursement of the
expenses of the Master Servicer or any Servicer or Sub-Servicer, are
less than the principal balance of and accrued interest on the
related Mortgage Loan or Contract. In addition, the Master Servicer
or any Servicer or Sub-Servicer, as applicable, will be entitled to
reimbursement of expenditures incurred by it in connection with the
restoration of Mortgaged Property, such right of reimbursement being
prior to the rights of the Certificateholders to receive any
payments from any Reserve Fund or from any related Insurance
Proceeds, Liquidation Proceeds or any proceeds of alternative credit
enhancement.
Evidence as to Compliance
Each Servicer, the Master Servicer or the Certificate
Administrator, as appropriate, will, with respect to each series of
Certificates, deliver to the Trustee, on or before the date in each
year specified in the related Pooling and Servicing Agreement, an
officer's certificate stating that (i) a review of the activities of
the Certificate Administrator, each Servicer or the Master Servicer
and each Sub-Servicer, as applicable, during the preceding calendar
year and of performance under such Pooling and Servicing Agreement
and the applicable Sub-Servicing Agreement, if any, has been made
under the supervision of such officer, and (ii) to the best of such
officer's knowledge, based on such review, the Certificate
Administrator, each Servicer or the Master Servicer and each Sub-Servicer,
as applicable, has
fulfilled all its obligations under
such Pooling and Servicing Agreement throughout such year, or, if
there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature
and status thereof. If set forth in the Prospectus Supplement, such
officer's certificate shall be accompanied by a statement of a firm
of independent public accountants to the effect that, on the basis
of an examination of certain documents and records relating to
servicing of the Mortgage Loans or Contracts, including similar
reports delivered by each Servicer or Sub-Servicer (upon which such
firm is entitled to rely), conducted in accordance with the Uniform
Single Attestation Program for Mortgage Bankers or similar standards
acceptable to the Servicer, the Master Servicer or the Certificate
Administrator, as applicable, the servicing of the Mortgage Loans or
Contracts was conducted in compliance with the provisions of the
related Pooling and Servicing Agreement and the applicable Sub-Servicing
Agreement, if any,
except for (a) such exceptions as such
firm believes to be immaterial and (b) such other exceptions as are
set forth in such statement.
Certain Other Matters Regarding Servicing
Each Servicer, the Master Servicer or the Certificate
Administrator, as applicable, may not resign from its obligations
and duties under the related Pooling and Servicing Agreement except
with the consent of all Certificateholders or upon a determination
that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until the
Trustee or a successor servicer or administrator has assumed the
Servicer's, the Master Servicer's or the Certificate Administrator's
obligations and duties under such Pooling and Servicing Agreement.
A Servicer, the Master Servicer or the Certificate Administrator, as
applicable, may be removed upon the occurrence of certain Events of
Default described below under "The Pooling and Servicing
Agreement Events of Default" and " Rights Upon Event of Default."
Each Pooling and Servicing Agreement will also provide that
neither the Servicer, the Master Servicer or the Certificate
Administrator, nor any director, officer, employee or agent thereof,
will be under any liability to the Trust Fund or the
Certificateholders for any action taken or for restraining from
taking any action in good faith pursuant to the Pooling and
Servicing Agreement, or for errors in judgment. However, neither the
Servicer, the Master Servicer or the Certificate Administrator nor
any such person will be protected against any liability which would
otherwise be imposed by reason of the failure to perform its
obligations in compliance with any standard of care set forth in the
Pooling and Servicing Agreement. The Servicer, the Master Servicer
or the Certificate Administrator, as applicable, may, in its
discretion, undertake any such action that 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 interest 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 Servicer,
the Master Servicer or the Certificate Administrator will be
entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders.
The Master Servicer or Servicer may in its discretion (i) waive
any late payment charge or any prepayment charge or penalty interest
in connection with the prepayment of a Mortgage Loan or Contract and
(ii) extend the Due Date for payments due on a Mortgage Loan or
Contract, if the Master Servicer or Servicer has determined that any
such waiver or extension will not impair the coverage of any related
insurance policy, materially adversely affect the lien of the
related Mortgage or, if a REMIC election has been made with respect
to the Trust Fund, adversely affect such REMIC status.
The Master Servicer will be required to maintain a fidelity bond
and errors and omissions policy with respect to its officers and
employees and other persons acting on behalf of the Master Servicer
in connection with its activities under the Pooling and Servicing
Agreement.
A Servicer, the Master Servicer or the Certificate Administrator
may have other business relationships with the Company, any Mortgage
Collateral Seller or their affiliates.
Special Servicing
If provided for in the related Prospectus Supplement, the Pooling
and Servicing Agreement for a series of Certificates may name a
special servicer (a "Special Servicer"). The Special Servicer will
be responsible for the servicing of certain delinquent Mortgage
Loans or Contracts as described in the Prospectus Supplement. The
Special Servicer may have certain discretion to extend relief to
Mortgagors whose payments become delinquent. The Special Servicer
may be permitted to grant a period of temporary indulgence to a
Mortgagor or may enter into a liquidating plan providing for
repayment by the Mortgagor, in each case without the prior approval
of the Master Servicer or the Servicer, as applicable. Other types
of forbearance generally will require the approval of the Master
Servicer or Servicer, as applicable.
Enforcement of "Due-on-Sale" Clauses
Unless otherwise specified in the related Prospectus Supplement,
when any Mortgaged Property relating to a Mortgage Loan or Contract
(other than an ARM Loan described below) is about to be conveyed by
the Mortgagor, the Master Servicer or the Servicer, as applicable,
directly or through a Sub-Servicer, to the extent it has knowledge
of such proposed conveyance, generally will be obligated to exercise
the Trustee's rights to accelerate the maturity of such Mortgage
Loan or Contract under any due-on-sale clause applicable thereto. A
due-on-sale clause will be enforced only if the exercise of such
rights is permitted by applicable law and only to the extent it
would not adversely affect or jeopardize coverage under any Primary
Insurance Policy or applicable credit enhancement arrangements. See
"Certain Legal Aspects of Mortgage Loans and Contracts The Mortgage
Loans Enforceability of Certain Provisions" and " The
Contracts 'Due-on-Sale' Clauses." If the Master Servicer, Servicer
or Sub-Servicer is prevented from enforcing a due-on-sale clause
under applicable law or if the Master Servicer, Servicer or Sub-Servicer
determines that it is
reasonably likely that a legal action
would be instituted by the related Mortgagor to avoid enforcement of
such due-on-sale clause, the Master Servicer, Servicer or Sub-Servicer will
enter into an
assumption and modification agreement
with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable under the
Mortgage Note or Contract subject to certain specified conditions.
The original Mortgagor may be released from liability on a Mortgage
Loan or Contract if the Master Servicer, Servicer or Sub-Servicer
shall have determined in good faith that such release will not
adversely affect the collectability of the Mortgage Loan or
Contract. In the event of the sale of a Mortgaged Property subject
to an ARM Loan, such ARM Loan may be assumed if it is by its terms
assumable and if, in the reasonable judgment of the Master Servicer,
Servicer or Sub-Servicer, the proposed transferee of the related
Mortgaged Property establishes its ability to repay the loan and the
security for such ARM Loan would not be impaired by the assumption.
If a Mortgagor transfers the Mortgaged Property subject to an ARM
Loan without consent, such ARM Loan may be declared due and payable.
In connection with any such assumption, the Mortgage Rate borne by
the related Mortgage Note or Contract may not be altered. Mortgagors
may, from time to time, request partial releases of the Mortgaged
Properties, easements, consents to alteration or demolition and
other similar matters. The Master Servicer, Servicer or Sub-Servicer
may approve such a request if it has determined, exercising its good
faith business judgment, that such approval will not adversely
affect the security for, and the timely and full collectability of,
the related Mortgage Loan or Contract. Any fee collected by the
Master Servicer, Servicer or Sub-Servicer for entering into an
assumption or substitution of liability agreement or for processing
a request for partial release of the Mortgaged Property generally
will be retained by the Master Servicer, Servicer or Sub-Servicer as
additional servicing compensation.
Realization Upon Defaulted Property
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (or, in the case of
Contracts in certain states, by repossession of the related
Manufactured Home), the deed or certificate of sale will be issued
to the Trustee or to its nominee on behalf of Certificateholders.
Notwithstanding any such acquisition of title and cancellation of
the related Mortgage Loan or Contract, such Mortgage Loan (an "REO
Mortgage Loan") or Contract (an "REO Contract") will be considered
for most purposes to be an outstanding Mortgage Loan or Contract
held in the Trust Fund until such time as the Mortgaged Property is
sold and all recoverable Liquidation Proceeds and Insurance Proceeds
have been received with respect to such defaulted Mortgage Loan (a
"Liquidated Mortgage Loan") or Contract (a "Liquidated Contract").
For purposes of calculations of amounts distributable to
Certificateholders in respect of an REO Mortgage Loan or an REO
Contract, the amortization schedule in effect at the time of any
such acquisition of title (before any adjustment thereto by reason
of any bankruptcy or any similar proceeding or any moratorium or
similar waiver or grace period) will be deemed to have continued in
effect (and, in the case of an ARM Loan, such amortization schedule
will be deemed to have adjusted in accordance with any interest rate
changes occurring on any adjustment date therefor) so long as such
REO Mortgage Loan or REO Contract is considered to remain in the
Trust Fund. If a REMIC election has been made, any Mortgaged
Property so acquired by the Trust Fund must be disposed of in
accordance with applicable federal income tax regulations and
consistent with the status of the Trust Fund as a REMIC. To the
extent provided in the related Pooling and Servicing Agreement, any
income (net of expenses and other than gains described below)
received by the Sub-Servicer, Servicer or Master Servicer on such
Mortgaged Property prior to its disposition will be deposited in the
Custodial Account upon receipt and will be available at such time
for making payments to Certificateholders.
With respect to a Mortgage Loan or Contract in default, the
Master Servicer or Servicer may pursue foreclosure (or similar
remedies) concurrently with pursuing any remedy for a breach of a
representation and warranty. However, the Master Servicer or
Servicer is not required to continue to pursue both such remedies if
it determines that one such remedy is more likely to result in a
greater recovery. If such Mortgage Loan is an Additional Collateral
Loan, the Master Servicer (or the related Subservicer) may proceed
against the related Mortgaged Property or the related Additional
Collateral first or may proceed against both concurrently (as
permitted by applicable law and the terms under which such
Additional Collateral is held, including any third-party guarantee).
Upon the first to occur of final liquidation and a repurchase or
substitution pursuant to a breach of a representation and warranty,
such Mortgage Loan or Contract will be removed from the related
Trust Fund. The Master Servicer or Servicer may elect to treat a
defaulted Mortgage Loan or Contract as having been finally
liquidated if substantially all amounts expected to be received in
connection therewith have been received. Any additional liquidation
expenses relating to such Mortgage Loan or Contract thereafter
incurred will be reimbursable to the Master Servicer or Servicer (or
any Sub-Servicer) from any amounts otherwise distributable to the
related Certificateholders, or may be offset by any subsequent
recovery related to such Mortgage Loan or Contract. Alternatively,
for purposes of determining the amount of related Liquidation
Proceeds to be distributed to Certificateholders, the amount of any
Realized Loss or the amount required to be drawn under any
applicable form of credit enhancement, the Master Servicer or
Servicer may take into account minimal amounts of additional
receipts expected to be received, as well as estimated additional
liquidation expenses expected to be incurred in connection with such
defaulted Mortgage Loan or Contract.
With respect to certain series of Certificates, if so provided
in the related Prospectus Supplement, the applicable form of credit
enhancement may provide, to the extent of coverage thereunder, that
a defaulted Mortgage Loan or Contract or REO Mortgage Loan or REO
Contract will be removed from the Trust Fund prior to the final
liquidation thereof. In addition, the Master Servicer or Servicer
may have the option to purchase from the Trust Fund any defaulted
Mortgage Loan or Contract after a specified period of delinquency.
In the case of a Senior/Subordinate Series, unless otherwise
specified in the related Prospectus Supplement, if a final
liquidation of a Mortgage Loan or Contract resulted in a Realized
Loss and within two years thereafter the Master Servicer or Servicer
receives a subsequent recovery specifically related to such Mortgage
Loan or Contract (in connection with a related breach of a
representation or warranty or otherwise), such subsequent recovery
shall be distributed to the then-current Certificateholders of any
outstanding class to which such Realized Loss was allocated (with
the amounts to be distributed allocated among such classes in the
same proportions as such Realized Loss was allocated), provided that
no such distribution shall result in distributions on the
Certificates of any such class in excess of the total amounts of
principal and interest that would have been distributable thereon if
such Mortgage Loan or Contract had been liquidated with no Realized
Loss. In the case of a series of Certificates other than a
Senior/Subordinate Series, if so provided in the related Prospectus
Supplement, the applicable form of credit enhancement may provide
for reinstatement subject to certain conditions in the event that,
following the final liquidation of a Mortgage Loan or Contract and
a draw under such credit enhancement, subsequent recoveries are
received. If a defaulted Mortgage Loan or Contract or REO Mortgage
Loan or REO Contract is not so removed from the Trust Fund, then,
upon the final liquidation thereof, if a loss is realized which is
not covered by any applicable form of credit enhancement or other
insurance, the Certificateholders will bear such loss. However, if
a gain results from the final liquidation of an REO Mortgage Loan or
REO Contract which is not required by law to be remitted to the
related Mortgagor, the Master Servicer or the Servicer will be
entitled to retain such gain as additional servicing compensation
unless the related Prospectus Supplement provides otherwise. For a
description of the Certificate Administrator's, the Master
Servicer's or the Servicer's obligations to maintain and make claims
under applicable forms of credit enhancement and insurance relating
to the Mortgage Loans or Contracts, see "Description of Credit
Enhancement" and "Insurance Policies on Mortgage Loans or
Contracts."
For a discussion of legal rights and limitations associated with
the foreclosure of a Mortgage Loan or Contract, see "Certain Legal
Aspects of Mortgage Loans and Contracts."
The Master Servicer or the Certificate Administrator, as
applicable, will deal with any defaulted Agency Securities in the
manner set forth in the related Prospectus Supplement.
SUBORDINATION
A Senior/Subordinate Series of Certificates will consist of one
or more classes of Senior Certificates and one or more classes of
Subordinate Certificates, as set forth in the related Prospectus
Supplement. Subordination of the Subordinate Certificates of any
Senior/Subordinate Series will be effected by the following method,
unless an alternative method is specified in the related Prospectus
Supplement. In addition, certain classes of Senior (or Subordinate)
Certificates may be senior to other classes of Senior (or
Subordinate) Certificates, as specified in the related Prospectus
Supplement. With respect to any Senior/Subordinate Series, the total
amount available for distribution on each Distribution Date, as well
as the method for allocating such amount among the various classes
of Certificates included in such series, will be described in the
related Prospectus Supplement. Generally, with respect to any such
series, the amount available for distribution will be allocated
first to interest on the Senior Certificates and then to principal
of the Senior Certificates up to the amounts described in the
related Prospectus Supplement, prior to allocation of any amounts to
the Subordinate Certificates.
With respect to any defaulted Mortgage Loan or Contract that is
finally liquidated, the amount of loss realized, if any (as
described in the related Pooling and Servicing Agreement, a
"Realized Loss"), will equal the portion of the Stated Principal
Balance remaining after application of all amounts recovered (net of
amounts reimbursable to the Master Servicer or Servicer for related
Advances and expenses) towards interest and principal owing on the
Mortgage Loan. With respect to a Mortgage Loan or Contract, the
principal balance of which has been reduced in connection with
bankruptcy proceedings, the amount of such reduction will be treated
as a Realized Loss. If so provided in the Pooling and Servicing
Agreement, the Master Servicer may be permitted, under certain
circumstances, to purchase any Mortgage Loan that is three or more
months delinquent in payments of principal and interest, at the
Purchase Price. Any Realized Loss incurred in connection with any
such Mortgage Loan will be passed through to the then outstanding
Certificateholders of the related series in the same manner as
Realized Losses on Mortgage Loans that have not been so purchased.
In the event of any Realized Losses not in excess of the
limitations described below (other than Extraordinary Losses), the
rights of the Subordinate Certificateholders to receive
distributions will be subordinate to the rights of the Senior
Certificateholders.
Except as noted below, Realized Losses will be allocated to the
Subordinate Certificates of the related series until the outstanding
principal balance thereof has been reduced to zero. Additional
Realized Losses, if any, will be allocated to the Senior
Certificates. If such series includes more than one class of Senior
Certificates, such additional Realized Losses will be allocated
either on a pro rata basis among all of the Senior Certificates in
proportion to their respective outstanding principal balances or as
otherwise provided in the related Prospectus Supplement.
With respect to certain Realized Losses resulting from physical
damage to Mortgaged Properties which are generally of the same type
as are covered under a Special Hazard Insurance Policy, the amount
thereof that may be allocated to the Subordinate Certificates of the
related series may be limited to an amount (the "Special Hazard
Amount") specified in the related Prospectus Supplement. See
"Description of Credit Enhancement-Special Hazard Insurance
Policies." If so, any Special Hazard Losses in excess of the Special
Hazard Amount will be allocated among all outstanding classes of
Certificates of the related series, either on a pro rata basis in
proportion to their outstanding principal balances, or as otherwise
provided in the related Prospectus Supplement. The respective
amounts of other specified types of losses (including Fraud Losses
and Bankruptcy Losses) that may be borne solely by the Subordinate
Certificates may be similarly limited to an amount (with respect to
Fraud Losses, the "Fraud Loss Amount" and with respect to Bankruptcy
Losses, the "Bankruptcy Amount"), and the Subordinate Certificates
may provide no coverage with respect to certain other specified
types of losses, as described in the related Prospectus Supplement,
in which case such losses would be allocated on a pro rata basis
among all outstanding classes of Certificates. Each of the Special
Hazard Amount, Fraud Loss Amount and Bankruptcy Amount may be
subject to periodic reductions and may be subject to further
reduction or termination, without the consent of the
Certificateholders, upon the written confirmation from each
applicable Rating Agency that the then-current rating of the related
series of Certificates will not be adversely affected thereby.
Generally, any allocation of a Realized Loss (including a Special
Hazard Loss) to a Certificate will be made by reducing the
outstanding principal balance thereof as of the Distribution Date
following the calendar month in which such Realized Loss was
incurred. At any given time, the percentage of the outstanding
principal balances of all of the Certificates evidenced by the
Senior Certificates is the "Senior Percentage," determined in the
manner set forth in the related Prospectus Supplement. The "Stated
Principal Balance" of any item of Mortgage Collateral as of any date
of determination is equal to the principal balance thereof as of the
Cut-off Date, after application of all scheduled principal payments
due on or before the Cut-off Date, whether received or not, reduced
by all amounts allocable to principal that are distributed to
Certificateholders on or before the date of determination, and as
further reduced to the extent that any Realized Loss thereon has
been allocated to any Certificates on or before such date.
As set forth above, the rights of holders of the various classes
of Certificates of any series to receive distributions of principal
and interest is determined by the aggregate outstanding principal
balance of each such class (or, if applicable, the related notional
amount). The outstanding principal balance of any Certificate will
be reduced by all amounts previously distributed on such Certificate
in respect of principal and by any Realized Losses allocated
thereto. If there are no Realized Losses or Principal Prepayments on
any item of Mortgage Collateral, the respective rights of the
holders of Certificates of any series to future distributions
generally would not change. However, to the extent set forth in the
related Prospectus Supplement, holders of Senior Certificates may be
entitled to receive a disproportionately larger amount of
prepayments received during certain specified periods, which will
have the effect (absent offsetting losses) of accelerating the
amortization of the Senior Certificates and increasing the
respective percentage ownership interest evidenced by the
Subordinate Certificates in the related Trust Fund (with a
corresponding decrease in the Senior Percentage), thereby preserving
the availability of the subordination provided by the Subordinate
Certificates. In addition, as set forth above, certain Realized
Losses generally will be allocated first to Subordinate Certificates
by reduction of the outstanding principal balance thereof, which
will have the effect of increasing the respective ownership interest
evidenced by the Senior Certificates in the related Trust Fund.
If so provided in the related Prospectus Supplement, certain
amounts otherwise payable on any Distribution Date to holders of
Subordinate Certificates may be deposited into a Reserve Fund.
Amounts held in any Reserve Fund may be applied as described under
"Description of Credit Enhancement-Reserve Funds" and in the related
Prospectus Supplement.
With respect to any Senior/Subordinate Series, the terms and
provisions of the subordination may vary from those described above.
Any such variation and any additional credit enhancement will be
described in the related Prospectus Supplement.
Overcollateralization
If so specified in the related Prospectus Supplement, interest
collections on the Mortgage Collateral may exceed interest payments
on the Certificates for the related Distribution Date. To the
extent such excess interest is applied as principal payments on the
Certificates, the effect will be to reduce the principal balance of
the Certificates relative to the outstanding balance of the Mortgage
Loans, thereby creating "Overcollateralization" and additional
protection to the Certificateholders, as specified in the related
Prospectus Supplement.
DESCRIPTION OF CREDIT ENHANCEMENT
General
Credit support with respect to each series of Certificates may
be comprised of one or more of the following components. Each
component will have a dollar limit and will provide coverage with
respect to Realized Losses that are (i) attributable to the
Mortgagor's failure to make any payment of principal or interest as
required under the Mortgage Note or Contract, but not including
Special Hazard Losses, Extraordinary Losses or other losses
resulting from damage to a Mortgaged Property, Bankruptcy Losses or
Fraud Losses (any such losses, "Defaulted Mortgage Losses"); (ii) of
a type generally covered by a Special Hazard Insurance Policy (any
such losses, "Special Hazard Losses"); (iii) attributable to certain
actions which may be taken by a bankruptcy court in connection with
a Mortgage Loan, including a reduction by a bankruptcy court of the
principal balance of or the Mortgage Rate on a Mortgage Loan or
Contract or an extension of its maturity (any such losses,
"Bankruptcy Losses"); and (iv) incurred on defaulted Mortgage Loans
or Contracts as to which there was fraud in the origination of such
Mortgage Loans or Contracts (any such losses, "Fraud Losses").
Unless otherwise specified in the related Prospectus Supplement,
credit support will not provide protection against all risks of loss
and will not guarantee repayment of the entire outstanding principal
balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by credit support or which are not
covered by the credit support, Certificateholders will bear their
allocable share of deficiencies. In particular, Defaulted Mortgage
Losses, Special Hazard Losses, Bankruptcy Losses and Fraud Losses in
excess of the amount of coverage provided therefor and losses
occasioned by war, civil insurrection, certain governmental actions,
nuclear reaction and certain other risks ("Extraordinary Losses")
will not be covered. To the extent that the credit enhancement for
any series of Certificates is exhausted, the Certificateholders will
bear all further risks of loss not otherwise insured against.
As set forth below and in the related Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided
by a Mortgage Pool Insurance Policy or Contract Pool Insurance
Policy, (ii) coverage with respect to Special Hazard Losses may be
provided by a Special Hazard Insurance Policy, (iii) coverage with
respect to Bankruptcy Losses may be provided by a Bankruptcy Bond
and (iv) coverage with respect to Fraud Losses may be provided by a
Mortgage Pool Insurance Policy or mortgage repurchase bond. In
addition, if so specified in the applicable Prospectus Supplement,
in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of a Reserve
Fund to cover such losses, in the form of subordination of one or
more classes of Certificates or Overcollateralization, each as
described under "Subordination," or in the form of a Certificate
Insurance Policy, a Letter of Credit, surety bonds or other types of
insurance policies, certain other secured or unsecured corporate
guarantees or in such other form as may be described in the related
Prospectus Supplement, or in the form of a combination of two or
more of the foregoing. The credit support may be provided by an
assignment of the right to receive certain cash amounts, a deposit
of cash into a Reserve Fund or other pledged assets, or by banks,
insurance companies, guarantees or any combination thereof
identified in the related Prospectus Supplement. Credit support may
also be provided in the form of an insurance policy covering the
risk of collection and adequacy of any Additional Collateral
provided in connection with any Additional Collateral Loan, subject
to the limitations set forth in any such insurance policy. As set
forth in the Pooling and Servicing Agreement, credit support may
apply to all of the Mortgage Loans or to certain Mortgage Loans
contained in a Mortgage Pool.
Each Prospectus Supplement will include a description of (a) the
amount payable under the credit enhancement arrangement, if any,
provided with respect to a series, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions under
which the amount payable under such credit support may be reduced
and under which such credit support may be terminated or replaced
and (d) the material provisions of any agreement relating to such
credit support. Additionally, each such Prospectus Supplement will
set forth certain information with respect to the issuer of any
third-party credit enhancement.
The descriptions of any insurance policies, bonds or other
instruments described in this Prospectus or any Prospectus
Supplement and the coverage thereunder do not purport to be complete
and are qualified in their entirety by reference to the actual forms
of such policies, copies of which will be exhibits to the Current
Report on Form 8-K to be filed with the Securities and Exchange
Commission in connection with the issuance of the related series of
Certificates.
Letters of Credit
If any component of credit enhancement as to any series of
Certificates is to be provided by a letter of credit (the "Letter of
Credit"), a bank (the "Letter of Credit Bank") will deliver to the
Trustee an irrevocable Letter of Credit. The Letter of Credit may
provide direct coverage with respect to the Mortgage Collateral. The
Letter of Credit Bank, the amount available under the Letter of
Credit with respect to each component of credit enhancement, the
expiration date of the Letter of Credit, and a more detailed
description of the Letter of Credit will be specified in the related
Prospectus Supplement. On or before each Distribution Date, the
Letter of Credit Bank will be required to make certain payments
after notification from the Trustee, to be deposited in the related
Certificate Account with respect to the coverage provided thereby.
The Letter of Credit may also provide for the payment of Advances.
Mortgage Pool Insurance Policies
Any pool-wide insurance policy covering losses on Mortgage Loans
(each, a "Mortgage Pool Insurance Policy") obtained by the Company
for a Trust Fund will be issued by the insurer named in the related
Prospectus Supplement (the "Pool Insurer"). Each Mortgage Pool
Insurance Policy, subject to the limitations described below and in
the Prospectus Supplement, if any, will cover Defaulted Mortgage
Losses in an amount specified in the applicable Prospectus
Supplement. As set forth under " Maintenance of Credit Enhancement"
below, the Master Servicer, Servicer or Certificate Administrator,
as applicable, will use its best reasonable efforts to maintain the
Mortgage Pool Insurance Policy and to present claims thereunder to
the Pool Insurer on behalf of itself, the Trustee and the
Certificateholders. The Mortgage Pool Insurance Policies, however,
are not blanket policies against loss, since claims thereunder may
only be made respecting particular defaulted Mortgage Loans and only
upon satisfaction of certain conditions precedent described below.
Unless specified in the related Prospectus Supplement, the Mortgage
Pool Insurance Policies may not cover losses due to a failure to pay
or denial of a claim under a Primary Insurance Policy, irrespective
of the reason therefor.
Each Mortgage Pool Insurance Policy will provide that no claims
may be validly presented thereunder unless, among other things, (i)
any required Primary Insurance Policy is in effect for the defaulted
Mortgage Loan and a claim thereunder has been submitted and settled,
(ii) hazard insurance on the property securing such Mortgage Loan
has been kept in force and real estate taxes and other protection
and preservation expenses have been paid by the Master Servicer,
Servicer or Sub-Servicer, (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its
condition (reasonable wear and tear excepted) at the Cut-off Date
and (iv) the insured has acquired good and merchantable title to the
Mortgaged Property free and clear of liens except certain permitted
encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property
securing the defaulted Mortgage Loan at a price equal to the
outstanding principal balance thereof plus accrued and unpaid
interest at the applicable Mortgage Rate to the date of purchase and
certain expenses incurred by the Master Servicer, Servicer or Sub-Servicer on
behalf of the
Trustee and Certificateholders, or (b) to
pay the amount by which the sum of the outstanding principal balance
of the defaulted Mortgage Loan plus accrued and unpaid interest at
the Mortgage Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an
approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under any related
Primary Insurance Policy. Certificateholders will experience a
shortfall in the amount of interest payable on the related
Certificates in connection with the payment of claims under a
Mortgage Pool Insurance Policy because the Pool Insurer is only
required to remit unpaid interest through the date a claim is paid
rather than through the end of the month in which such claim is
paid. In addition, the Certificateholders will also experience
losses with respect to the related Certificates in connection with
payments made under a Mortgage Pool Insurance Policy to the extent
that the Master Servicer, Servicer or Sub-Servicer expends funds to
cover unpaid real estate taxes or to repair the related Mortgaged
Property in order to make a claim under a Mortgage Pool Insurance
Policy, as those amounts will not be covered by payments under such
policy and will be reimbursable to the Master Servicer, Servicer or
Sub-Servicer from funds otherwise payable to the Certificateholders.
If any Mortgaged Property securing a defaulted Mortgage Loan is
damaged and proceeds, if any (see " Special Hazard Insurance
Policies" below for risks which are not covered by such policies),
from the related hazard insurance policy or applicable Special
Hazard Instrument are insufficient to restore the damaged property
to a condition sufficient to permit recovery under the Mortgage Pool
Insurance Policy, the Master Servicer, Servicer or Sub-Servicer is
not required to expend its own funds to restore the damaged property
unless it determines that (a) such restoration will increase the
proceeds to Certificateholders on liquidation of the Mortgage Loan
after reimbursement of the Master Servicer, Servicer or Sub-Servicer
for its expenses and (b) such expenses will be recoverable by it
through Liquidation Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus Supplement,
a Mortgage Pool Insurance Policy (and certain Primary Insurance
Policies) will likely not insure against loss sustained by reason of
a default arising from, among other things, (i) fraud or negligence
in the origination or servicing of a Mortgage Loan, including
misrepresentation by the Mortgagor, the Mortgage Collateral Seller
or other persons involved in the origination thereof, or (ii)
failure to construct a Mortgaged Property in accordance with plans
and specifications. Depending upon the nature of the event, a breach
of representation made by a Mortgage Collateral Seller may also have
occurred. Such a breach, unless otherwise specified in the related
Prospectus Supplement, would not give rise to a repurchase
obligation on the part of the Company or Residential Funding.
The original amount of coverage under each Mortgage Pool
Insurance Policy will be reduced over the life of the related series
of Certificates by the aggregate amount of claims paid less the
aggregate of the net amounts realized by the Pool Insurer upon
disposition of all foreclosed properties. The amount of claims paid
includes certain expenses incurred by the Master Servicer, Servicer
or Sub-Servicer as well as accrued interest on delinquent Mortgage
Loans to the date of payment of the claim. See "Certain Legal
Aspects of Mortgage Loans and Contracts Foreclosure." Accordingly,
if aggregate net claims paid under any Mortgage Pool Insurance
Policy reach the original policy limit, coverage under that Mortgage
Pool Insurance Policy will be exhausted and any further losses will
be borne by the related Certificateholders. In addition, unless the
Master Servicer or Servicer determines that an Advance in respect of
a delinquent Mortgage Loan would be recoverable to it from the
proceeds of the liquidation of such Mortgage Loan or otherwise, the
Master Servicer or Servicer would not be obligated to make an
Advance respecting any such delinquency since the Advance would not
be ultimately recoverable to it from either the Mortgage Pool
Insurance Policy or from any other related source. See "Description
of the Certificates Advances."
Since each Mortgage Pool Insurance Policy will require that the
property subject to a defaulted Mortgage Loan be restored to its
original condition prior to claiming against the Pool Insurer, such
policy will not provide coverage against hazard losses. As set forth
under "Insurance Policies on Mortgage Loans or Contracts-Standard
Hazard Insurance on Mortgaged Properties," the hazard policies
covering the Mortgage Loans typically exclude from coverage physical
damage resulting from a number of causes and, even when the damage
is covered, may afford recoveries which are significantly less than
full replacement cost of such losses. Additionally, no coverage in
respect of Special Hazard Losses, Fraud Losses or Bankruptcy Losses
will cover all risks, and the amount of any such coverage will be
limited. See " Special Hazard Insurance Policies" below. As a
result, certain hazard risks will not be insured against and may be
borne by Certificateholders.
Contract Pools may be covered by pool insurance policies (each,
a "Contract Pool Insurance Policy") that are similar to the Mortgage
Pool Insurance Policies described above.
Special Hazard Insurance Policies
Any insurance policy covering Special Hazard Losses (a "Special
Hazard Insurance Policy") obtained for a Trust Fund will be issued
by the insurer named in the related Prospectus Supplement (the
"Special Hazard Insurer"). Each Special Hazard Insurance Policy,
subject to limitations described below and in the related Prospectus
Supplement, if any, will protect the related Certificateholders from
Special Hazard Losses which are (i) losses due to direct physical
damage to a Mortgaged Property other than any loss of a type covered
by a hazard insurance policy or a flood insurance policy, if
applicable, and (ii) losses from partial damage caused by reason of
the application of the co-insurance clauses contained in hazard
insurance policies. See "Insurance Policies on Mortgage Loans or
Contracts." A Special Hazard Insurance Policy will not cover losses
occasioned by war, civil insurrection, certain governmental actions,
errors in design, faulty workmanship or materials (except under
certain circumstances), nuclear reaction, chemical contamination or
waste by the Mortgagor. Aggregate claims under a Special Hazard
Insurance Policy will be limited to the amount set forth in the
related Pooling and Servicing Agreement and will be subject to
reduction as set forth in such related Pooling and Servicing
Agreement. A Special Hazard Insurance Policy will provide that no
claim may be paid unless hazard and, if applicable, flood insurance
on the property securing the Mortgage Loan or Contract has been kept
in force and other protection and preservation expenses have been
paid by the Master Servicer or Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance
Policy will provide that, where there has been damage to property
securing a foreclosed Mortgage Loan (title to which has been
acquired by the insured) and to the extent such damage is not
covered by the hazard insurance policy or flood insurance policy, if
any, maintained by the Mortgagor or the Master Servicer, Servicer or
Sub-Servicer, the insurer will pay the lesser of (i) the cost of
repair or replacement of such property or (ii) upon transfer of the
property to the insurer, the unpaid principal balance of such
Mortgage Loan or Contract at the time of acquisition of such
property by foreclosure or deed in lieu of foreclosure, plus accrued
interest at the Mortgage Rate to the date of claim settlement and
certain expenses incurred by the Master Servicer, Servicer or Sub-Servicer with
respect to such
property. If the property is
transferred to a third party in a sale approved by the Special
Hazard Insurer, the amount that the Special Hazard Insurer will pay
will be the amount under (ii) above reduced by the net proceeds of
the sale of the property. 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 related Special
Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the property. Any amount paid as the cost
of repair of the property will further reduce coverage by such
amount. Restoration of the property with the proceeds described
under (i) above will satisfy the condition under each Mortgage Pool
Insurance Policy or Contract Pool Insurance Policy that the property
be restored before a claim under such policy may be validly
presented with respect to the defaulted Mortgage Loan or Contract
secured by such property. The payment described under (ii) above
will render presentation of a claim in respect of such Mortgage Loan
or Contract under the related Mortgage Pool Insurance Policy or
Contract Pool Insurance Policy unnecessary. Therefore, so long as a
Mortgage Pool Insurance Policy or Contract Pool Insurance Policy
remains in effect, the payment by the insurer under a Special Hazard
Insurance Policy of the cost of repair or of the unpaid principal
balance of the related Mortgage Loan or Contract plus accrued
interest and certain expenses will not affect the total Insurance
Proceeds paid to Certificateholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard
Insurance Policy and Mortgage Pool Insurance Policy or Contract Pool
Insurance Policy.
To the extent set forth in the related Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of
Certificates may be provided, in whole or in part, by a type of
special hazard coverage other than a Special Hazard Insurance Policy
or by means of a representation of the Company or Residential
Funding.
Bankruptcy Bonds
In the event of a personal bankruptcy of a Mortgagor, a
bankruptcy court may establish the value of the Mortgaged Property
of such Mortgagor (and, if specified in the related Prospectus
Supplement, any related Additional Collateral) at an amount less
than the then outstanding principal balance of the Mortgage Loan or
Contract secured by such Mortgaged Property (such difference, a
"Deficient Valuation"). The amount of the secured debt could then be
reduced to such value and, thus, the holder of such Mortgage Loan or
Contract would become an unsecured creditor to the extent the
outstanding principal balance of such Mortgage Loan or Contract
exceeds the value assigned to the Mortgaged Property (and any
related Additional Collateral) by the bankruptcy court. In addition,
certain other modifications of the terms of a Mortgage Loan or
Contract can result from a bankruptcy proceeding, including a
reduction in the amount of the Monthly Payment on the related
Mortgage Loan (a "Debt Service Reduction"). See "Certain Legal
Aspects of Mortgage Loans and Contracts Mortgage Loans Anti-Deficiency
Legislation and
Other Limitations on Lenders." Any
Bankruptcy Bond to provide coverage for Bankruptcy Losses resulting
from proceedings under the federal Bankruptcy Code obtained for a
Trust Fund will be issued by an insurer named in the related
Prospectus Supplement. The level of coverage under each Bankruptcy
Bond will be set forth in the related Prospectus Supplement.
Reserve Funds
If so specified in the related Prospectus Supplement, the Company
will deposit or cause to be deposited in an account (a "Reserve
Fund") any combination of cash or Permitted Investments in specified
amounts, or any other instrument satisfactory to the Rating Agency
or Agencies, which will be applied and maintained in the manner and
under the conditions specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, to the extent described
in the related Prospectus Supplement, a Reserve Fund may be funded
through application of all or a portion of amounts otherwise payable
on any related Subordinate Certificates, from the Excess Spread,
Excluded Spread or otherwise. To the extent that the funding of the
Reserve Fund is dependent on amounts otherwise payable on related
Subordinate Certificates, Excess Spread, Excluded Spread or other
cash flows attributable to the related Mortgage Loans or on
reinvestment income, the Reserve Fund may provide less coverage than
initially expected if the cash flows or reinvestment income on which
such funding is dependent are lower than anticipated. With respect
to any series of Certificates as to which credit enhancement
includes a Letter of Credit, if so specified in the related
Prospectus Supplement, under certain circumstances the remaining
amount of the Letter of Credit may be drawn by the Trustee and
deposited in a Reserve Fund. Amounts in a Reserve Fund may be
distributed to Certificateholders, or applied to reimburse the
Master Servicer or Servicer for outstanding Advances, or may be used
for other purposes, in the manner and to the extent specified in the
related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, any such Reserve Fund will not be
deemed to be part of the related Trust Fund. A Reserve Fund may
provide coverage to more than one series of Certificates, if set
forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
the Trustee will have a perfected security interest for the benefit
of the Certificateholders in the assets in the Reserve Fund.
However, to the extent that the Company, any affiliate thereof or
any other entity has an interest in any Reserve Fund, in the event
of the bankruptcy, receivership or insolvency of such entity, there
could be delays in withdrawals from the Reserve Fund and the
corresponding payments to the Certificateholders. Such delays could
adversely affect the yield to investors on the related Certificates.
Amounts deposited in any Reserve Fund for a series will be
invested in Permitted Investments by, or at the direction of, and
for the benefit of a Servicer, the Master Servicer, the Certificate
Administrator or any other person named in the related Prospectus
Supplement.
Certificate Insurance Policies
If so specified in the related Prospectus Supplement, the Company
may obtain one or more certificate insurance policies (each, a
"Certificate Insurance Policy"), issued by insurers acceptable to
the Rating Agency or Agencies rating the Certificates offered
pursuant to such Prospectus Supplement, insuring the holders of one
or more classes of Certificates the payment of amounts due in
accordance with the terms of such class or classes of Certificates.
Any Certificate Insurance Policy will have the characteristics
described in and will be subject to such limitations and exceptions
as set forth in the related Prospectus Supplement.
Surety Bonds
If so specified in the related Prospectus Supplement, the Company
may obtain one or more surety bonds (each, a "Surety Bond"), issued
by insurers acceptable to the Rating Agency or Agencies rating the
Certificates offered pursuant to such Prospectus Supplement,
insuring the holders of one or more classes of Certificates the
payment of amounts due in accordance with the terms of such class or
classes of Certificates. Any surety bond will have the
characteristics described in and will be subject to such limitations
and exceptions as set forth in the related Prospectus Supplement.
Maintenance of Credit Enhancement
If credit enhancement has been obtained for a series of
Certificates, the Master Servicer, the Servicer or the Certificate
Administrator will be obligated to exercise its best reasonable
efforts to keep or cause to be kept such credit enhancement in full
force and effect throughout the term of the applicable Pooling and
Servicing Agreement or Trust Agreement, unless coverage thereunder
has been exhausted through payment of claims or otherwise, or
substitution therefor is made as described below under " Reduction
or Substitution of Credit Enhancement." The Master Servicer, the
Servicer or the Certificate Administrator, as applicable, on behalf
of itself, the Trustee and Certificateholders, will be required to
provide information required for the Trustee to draw under any
applicable credit enhancement.
Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer, the Servicer or the Certificate Administrator
will agree to pay the premiums for each Mortgage Pool Insurance
Policy, Contract Pool Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond, Certificate Insurance Policy or Surety
Bond, as applicable, on a timely basis. In the event the related
insurer ceases to be a "Qualified Insurer" because it ceases to be
qualified under applicable law to transact such insurance business
or coverage is terminated for any reason other than exhaustion of
such coverage, the Master Servicer, the Servicer or the Certificate
Administrator will use its best reasonable efforts to obtain from
another Qualified Insurer a comparable replacement insurance policy
or bond with a total coverage equal to the then outstanding coverage
of such policy or bond. If the cost of the replacement policy is
greater than the cost of such policy or bond, the coverage of the
replacement policy or bond will, unless otherwise agreed to by the
Company, be reduced to a level such that its premium rate does not
exceed the premium rate on the original insurance policy. In the
event that the Pool Insurer ceases to be a Qualified Insurer because
it ceases to be approved as an insurer by Freddie Mac, Fannie Mae or
any successor entity, the Master Servicer, the Servicer or the
Certificate Administrator, as applicable, will review, not less
often than monthly, the financial condition of the Pool Insurer with
a view toward determining whether recoveries under the Mortgage Pool
Insurance Policy or Contract Pool Insurance Policy are jeopardized
for reasons related to the financial condition of the Pool Insurer.
If the Master Servicer, the Servicer or the Certificate
Administrator determines that recoveries are so jeopardized, it will
exercise its best reasonable efforts to obtain from another
Qualified Insurer a replacement insurance policy as described above,
subject to the same cost limit. Any losses in market value of the
Certificates associated with any reduction or withdrawal in rating
by an applicable Rating Agency shall be borne by the
Certificateholders.
If any property securing a defaulted Mortgage Loan or Contract
is damaged and proceeds, if any, from the related hazard insurance
policy or any applicable Special Hazard Insurance Policy are
insufficient to restore the damaged property to a condition
sufficient to permit recovery under any Letter of Credit, Mortgage
Pool Insurance Policy, Contract Pool Insurance Policy or any related
Primary Insurance Policy, the Master Servicer or the Servicer, as
applicable, is not required to expend its own funds to restore the
damaged property unless it determines (i) that such restoration will
increase the proceeds to one or more classes of Certificateholders
on liquidation of the Mortgage Loan after reimbursement of the
Master Servicer or the Servicer, as applicable, for its expenses and
(ii) that such expenses will be recoverable by it through
Liquidation Proceeds or Insurance Proceeds. If recovery under any
Letter of Credit, Mortgage Pool Insurance Policy, Contract Pool
Insurance Policy, other credit enhancement or any related Primary
Insurance Policy is not available because the Master Servicer or the
Servicer, as applicable, has been unable to make the above
determinations, has made such determinations incorrectly or recovery
is not available for any other reason, the Master Servicer or the
Servicer, as applicable, is nevertheless obligated to follow such
normal practices and procedures (subject to the preceding sentence)
as it deems necessary or advisable to realize upon the defaulted
Mortgage Loan and in the event such determination has been
incorrectly made, is entitled to reimbursement of its expenses in
connection with such restoration.
Reduction or Substitution of Credit Enhancement
Unless otherwise specified in the Prospectus Supplement, the
amount of credit support provided with respect to any series of
Certificates may be reduced under certain specified circumstances.
In most cases, the amount available as credit support will be
subject to periodic reduction on a non-discretionary basis in
accordance with a schedule or formula set forth in the related
Pooling and Servicing Agreement or Trust Agreement. Additionally, in
most cases, such credit support may be replaced, reduced or
terminated, and the formula used in calculating the amount of
coverage with respect to Bankruptcy Losses, Special Hazard Losses or
Fraud Losses may be changed, without the consent of the
Certificateholders, upon the written assurance from each applicable
Rating Agency that the then-current rating of the related series of
Certificates will not be adversely affected thereby. Furthermore, in
the event that the credit rating of any obligor under any applicable
credit enhancement is downgraded, the credit rating of each class of
the related Certificates may be downgraded to a corresponding level,
and, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer, the Servicer or the Certificate
Administrator, as applicable, will not be obligated to obtain
replacement credit support in order to restore the rating of the
Certificates. The Master Servicer, the Servicer or the Certificate
Administrator, as applicable, will also be permitted to replace such
credit support with other credit enhancement instruments issued by
obligors whose credit ratings are equivalent to such downgraded
level and in lower amounts which would satisfy such downgraded
level, provided that the then-current rating of each class of the
related series of Certificates is maintained. Where the credit
support is in the form of a Reserve Fund, a permitted reduction in
the amount of credit enhancement will result in a release of all or
a portion of the assets in the Reserve Fund to the Company, the
Master Servicer or such other person that is entitled thereto. Any
assets so released will not be available for distributions in future
periods.
INSURANCE POLICIES ON MORTGAGE LOANS OR CONTRACTS
Each Mortgage Loan or Contract will be required to be covered by
a hazard insurance policy (as described below) and, in certain
cases, a Primary Insurance Policy. In addition, FHA Loans and VA
Loans will be covered by the government mortgage insurance programs
described below. The descriptions of any insurance policies set
forth in this Prospectus or any Prospectus Supplement and the
coverage thereunder do not purport to be complete and are qualified
in their entirety by reference to such forms of policies.
Primary Mortgage Insurance Policies
Unless otherwise specified in the related Prospectus Supplement,
(i) each Mortgage Loan having a Loan-to-Value Ratio at origination
of over 80% (except in the case of certain borrowers with acceptable
credit histories) will be covered by a primary mortgage guaranty
insurance policy (a "Primary Insurance Policy") insuring against
default on such Mortgage Loan as to at least the principal amount
thereof exceeding 75% of the Appraised Value of the Mortgaged
Property at origination of the Mortgage Loan, unless and until the
principal balance of the Mortgage Loan is reduced to a level that
would produce a Loan-to-Value Ratio equal to or less than 80%, and
(ii) the Company or the related Mortgage Collateral Seller will
represent and warrant that, to the best of such entity's knowledge,
such Mortgage Loans are so covered. Unless otherwise specified in
the Prospectus Supplement, the Company will have the ability to
cancel any Primary Insurance Policy if the Loan-to-Value Ratio of
the Mortgage Loan is reduced below 80% (or a lesser specified
percentage) based on an appraisal of the Mortgaged Property after
the related Closing Date or as a result of principal payments that
reduce the principal balance of the Mortgage Loan after such Closing
Date. Mortgage Loans which are subject to negative amortization will
only be covered by a Primary Insurance Policy if such coverage was
so required upon their origination, notwithstanding that subsequent
negative amortization may cause such Mortgage Loan's Loan-to-Value
Ratio (based on the then-current balance) to subsequently exceed the
limits which would have required such coverage upon their
origination.
While the terms and conditions of the Primary Insurance Policies
issued by one primary mortgage guaranty insurer (a "Primary
Insurer") will differ from those in Primary Insurance Policies
issued by other Primary Insurers, each Primary Insurance Policy
generally will pay either: (i) the insured percentage of the loss on
the related Mortgaged Property; (ii) the entire amount of such loss,
after receipt by the Primary Insurer of good and merchantable title
to, and possession of, the Mortgaged Property; or (iii) at the
option of the Primary Insurer under certain Primary Insurance
Policies, the sum of the delinquent monthly payments plus any
advances made by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that would have
become due under the Mortgage Loan if it had not been discharged
plus any advances made by the insured until the earlier of (a) the
date the Mortgage Loan would have been discharged in full if the
default had not occurred or (b) an approved sale. The amount of the
loss as calculated under a Primary Insurance Policy covering a
Mortgage Loan will generally consist of the unpaid principal amount
of such Mortgage Loan and accrued and unpaid interest thereon and
reimbursement of certain expenses, less (i) rents or other payments
received by the insured (other than the proceeds of hazard
insurance) that are derived from the related Mortgaged Property,
(ii) hazard insurance proceeds received by the insured in excess of
the amount required to restore such Mortgaged Property and which
have not been applied to the payment of the Mortgage Loan, (iii)
amounts expended but not approved by the Primary Insurer, (iv) claim
payments previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
As conditions precedent to the filing or payment of a claim under
a Primary Insurance Policy, in the event of default by the
Mortgagor, the insured will typically be required, among other
things, to: (i) advance or discharge (a) hazard insurance premiums
and (b) as necessary and approved in advance by the Primary Insurer,
real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical
loss or damage to the Mortgaged Property, have the Mortgaged
Property restored to at least its condition at the effective date of
the Primary Insurance Policy (ordinary wear and tear excepted); and
(iii) tender to the Primary Insurer good and merchantable title to,
and possession of, the Mortgaged Property.
The Pooling and Servicing Agreement for a series generally will
require that the Master Servicer or Servicer maintain, or cause to
be maintained, coverage under a Primary Insurance Policy to the
extent such coverage was in place on the Cut-off Date. In the event
that the Company gains knowledge that, as of the Closing Date, a
Mortgage Loan had a Loan-to-Value Ratio at origination in excess of
80% and was not the subject of a Primary Insurance Policy (and was
not included in any exception to such standard disclosed in the
related Prospectus Supplement) and that such Mortgage Loan has a
then current Loan-to-Value Ratio in excess of 80%, then the Master
Servicer or the Servicer is required to use its reasonable efforts
to obtain and maintain a Primary Insurance Policy to the extent that
such a policy is obtainable at a reasonable price.
Any primary mortgage insurance or primary credit insurance
policies relating to Contracts will be described in the related
Prospectus Supplement.
Standard Hazard Insurance on Mortgaged Properties
The terms of the Mortgage Loans (other than Cooperative Loans)
require each Mortgagor to maintain a hazard insurance policy
covering the related Mortgaged Property and providing for coverage
at least equal to that of the standard form of fire insurance policy
with extended coverage customary in the state in which the property
is located.
Such coverage generally will be in an amount equal to the lesser
of the principal balance of such Mortgage Loan or 100% of the
insurable value of the improvements securing the Mortgage Loan. The
Pooling and Servicing Agreement will provide that the Master
Servicer or Servicer shall cause such hazard policies to be
maintained or shall obtain a blanket policy insuring against losses
on the Mortgage Loans. The ability of the Master Servicer or
Servicer to ensure that hazard insurance proceeds are appropriately
applied may be dependent on its being named as an additional insured
under any hazard insurance policy and under any flood insurance
policy referred to below, or upon the extent to which information in
this regard is furnished to the Master Servicer or the Servicer by
Mortgagors or Sub-Servicers.
In general, the standard form of fire and extended coverage
policy covers physical damage to or destruction of the improvements
on the property by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions
and exclusions specified in each policy. The policies relating to
the Mortgage Loans will be underwritten by different insurers under
different state laws in accordance with different applicable state
forms and therefore will not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws. Such
policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes,
landslides and mudflows), nuclear reactions, wet or dry rot, vermin,
rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds
of uninsured risks and is not intended to be all-inclusive. Where
the improvements securing a Mortgage Loan are located in a federally
designated flood area at the time of origination of such Mortgage
Loan, the Pooling and Servicing Agreement generally requires the
Master Servicer or Servicer to cause to be maintained for each such
Mortgage Loan serviced, flood insurance (to the extent available) in
an amount equal in general to the lesser of the amount required to
compensate for any loss or damage on a replacement cost basis or the
maximum insurance available under the federal flood insurance
program.
Since the amount of hazard insurance that Mortgagors are required
to maintain on the improvements securing the Mortgage Loans may
decline as the principal balances owing thereon decrease, and since
residential properties have historically appreciated in value over
time, hazard insurance proceeds could be insufficient to restore
fully the damaged property in the event of a partial loss. See
"Subordination" above for a description of when subordination is
provided, the protection (limited to the Special Hazard Amount as
described in the related Prospectus Supplement) afforded by such
subordination, and "Description of Credit Enhancement-Special Hazard
Insurance Policies" for a description of the limited protection
afforded by any Special Hazard Insurance Policy against losses
occasioned by hazards which are otherwise uninsured against.
Standard Hazard Insurance on Manufactured Homes
The terms of the Pooling and Servicing Agreement will require the
Servicer or the Master Servicer, as applicable, to cause to be
maintained with respect to each Contract one or more Standard Hazard
Insurance Policies which provide, at a minimum, the same coverage as
a standard form fire and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized
to issue such policies in the state in which the Manufactured Home
is located, and in an amount which is not less than the maximum
insurable value of such Manufactured Home or the principal balance
due from the Mortgagor on the related Contract, whichever is less.
Such coverage may be provided by one or more blanket insurance
policies covering losses on the Contracts resulting from the absence
or insufficiency of individual Standard Hazard Insurance Policies.
If a Manufactured Home's location was, at the time of origination of
the related Contract, within a federally designated flood area, the
Servicer or the Master Servicer also will be required to maintain
flood insurance.
If the Servicer or the Master Servicer repossesses a Manufactured
Home on behalf of the Trustee, the Servicer or the Master Servicer
will either (i) maintain at its expense hazard insurance with
respect to such Manufactured Home or (ii) indemnify the Trustee
against any damage to such Manufactured Home prior to resale or
other disposition.
FHA Mortgage Insurance
The Housing Act authorizes various FHA mortgage insurance
programs. Some of the Mortgage Loans may be insured under either
Section 203(b), Section 234 or Section 235 of the Housing Act. Under
Section 203(b), FHA insures mortgage loans of up to 30 years'
duration for the purchase of one- to four-family dwelling units.
Mortgage Loans for the purchase of condominium units are insured by
FHA under Section 234. Loans insured under these programs must bear
interest at a rate not exceeding the maximum rate in effect at the
time the loan is made, as established by HUD, and may not exceed
specified percentages of the lesser of the appraised value of the
property and the sales price, less seller paid closing costs for the
property, up to certain specified maximums. In addition, FHA imposes
initial investment minimums and other requirements on mortgage loans
insured under the Section 203(b) and Section 234 programs.
Under Section 235, assistance payments are paid by HUD to the
mortgagee on behalf of eligible mortgagors for as long as the
mortgagors continue to be eligible for the payments. To be eligible,
a mortgagor must be part of a family, have income within the limits
prescribed by HUD at the time of initial occupancy, occupy the
property and meet requirements for recertification at least
annually.
The regulations governing these programs provide that insurance
benefits are payable either (i) upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged premises
to HUD or (ii) upon assignment of the defaulted mortgage loan to
HUD. The FHA insurance that may be provided under these programs
upon the conveyance of the home to HUD is equal to 100% of the
outstanding principal balance of the mortgage loan, plus accrued
interest, as described below, and certain additional costs and
expenses. When entitlement to insurance benefits results from
assignment of the mortgage loan to HUD, the insurance payment is
computed as of the date of the assignment and includes the unpaid
principal amount of the mortgage loan plus mortgage interest accrued
and unpaid to the assignment date.
When entitlement to insurance benefits results from foreclosure
(or other acquisition of possession) and conveyance, the insurance
payment is equal to the unpaid principal amount of the mortgage
loan, adjusted to reimburse the mortgagee for certain tax, insurance
and similar payments made by it and to deduct certain amounts
received or retained by the mortgagee after default, plus
reimbursement not to exceed two-thirds of the mortgagee's
foreclosure costs. Any FHA insurance relating to Contracts
underlying a series of Certificates will be described in the related
Prospectus Supplement.
VA Mortgage Guaranty
The Servicemen's Readjustment Act of 1944, as amended, permits
a veteran (or, in certain instances, his or her spouse) to obtain a
mortgage loan guaranty by the VA covering mortgage financing of the
purchase of a one- to four-family dwelling unit to be occupied as
the veteran's home at an interest rate not exceeding the maximum
rate in effect at the time the loan is made, as established by HUD.
The program has no limit on the amount of a mortgage loan, requires
no down payment from the purchaser and permits the guaranty of
mortgage loans with terms, limited by the estimated economic life of
the property, up to 30 years. The maximum guaranty that may be
issued by the VA under this program is 50% of the original principal
amount of the mortgage loan up to a certain dollar limit established
by the VA. 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. Notwithstanding the dollar and
percentage limitations of the guaranty, a mortgagee will ordinarily
suffer a monetary loss only when the difference between the
unsatisfied indebtedness and the proceeds of a foreclosure sale of
mortgaged premises is greater than the original guaranty as
adjusted. The VA may, at its option, and without regard to the
guaranty, make full payment to a mortgagee of the unsatisfied
indebtedness on a mortgage upon its assignment to the VA.
Since there is no limit imposed by the VA on the principal amount
of a VA-guaranteed mortgage loan but there is a limit on the amount
of the VA guaranty, additional coverage under a Primary Mortgage
Insurance Policy may be required by the Company for VA loans in
excess of certain amounts. The amount of any such additional
coverage will be set forth in the related Prospectus Supplement. Any
VA guaranty relating to Contracts underlying a series of
Certificates will be described in the related Prospectus Supplement.
THE COMPANY
The Company is an indirect wholly-owned subsidiary of GMAC
Mortgage which is a wholly-owned subsidiary of General Motors
Acceptance Corporation. The Company was incorporated in the State of
Delaware in August 1995. The Company was organized for the purpose
of acquiring mortgage loans and contracts and issuing securities
backed by such mortgage loans or contracts. The Company anticipates
that it will in many cases have acquired Mortgage Loans indirectly
through Residential Funding, which is also an indirect wholly-owned
subsidiary of GMAC Mortgage. The Company does not have, nor is it
expected in the future to have, any significant assets.
The Certificates do not represent an interest in or an obligation
of the Company. The Company's only obligations with respect to a
series of Certificates will be pursuant to certain limited
representations and warranties made by the Company or as otherwise
provided in the related Prospectus Supplement.
The Company maintains its principal office at 8400 Normandale
Lake Boulevard, Suite 700, Minneapolis, Minnesota 55437. Its
telephone number is (612) 832-7000.
RESIDENTIAL FUNDING CORPORATION
Unless otherwise specified in the related Prospectus Supplement,
Residential Funding, an affiliate of the Company, will act as the
Master Servicer or Certificate Administrator for each series of
Certificates.
Residential Funding buys conventional mortgage loans under
several loan purchase programs from mortgage loan originators or
sellers nationwide that meet its seller/servicer eligibility
requirements and services mortgage loans for its own account and for
others. Residential Funding's principal executive offices are
located at 8400 Normandale Lake Boulevard, Suite 700, Minneapolis,
Minnesota 55437. Its telephone number is (612) 832-7000. Residential
Funding conducts operations from its headquarters in Minneapolis and
from offices located in California, Colorado, Connecticut, New York,
Florida, Georgia, Maryland, North Carolina, Rhode Island and Texas.
At March 31, 1996, Residential Funding was master servicing a
mortgage loan portfolio of approximately $28.9 billion.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the Certificates-General," each
series of Certificates
will be issued pursuant to a
Pooling and Servicing Agreement or, if the Trust Fund for a series
of Certificates contains Agency Securities, a Trust Agreement. The
discussion below covers Pooling and Servicing Agreements, but its
terms are also generally applicable to Trust Agreements. The
following summaries describe certain additional provisions common to
each Pooling and Servicing Agreement and are qualified entirely by
reference to the actual terms of the Pooling and Servicing Agreement
for a series of Certificates.
Servicing and Administration
The Pooling and Servicing Agreement for a series of Certificates
will set forth the party responsible for performing servicing
functions for such series which may be the Master Servicer or one or
more Servicers. If there is more than one Servicer and there is no
Master Servicer, a Certificate Administrator may be party to the
Pooling and Servicing Agreement. The Certificate Administrator will
not be responsible for servicing Mortgage Loans or Contracts and
instead will perform certain specified administrative and reporting
functions with regard to the Trust Fund. In addition, if the Trust
Fund for a series of Certificates contains Agency Securities,
generally the Certificate Administrator will perform collection,
administrative and reporting functions pursuant to a Trust Agreement
and no Master Servicer or Servicer will be appointed for such
series.
The Master Servicer or any Servicer for a series of Certificates
generally will perform the functions set forth under "Description of
the Certificates-Servicing and Administration of Mortgage
Collateral" above.
Events of Default
Events of Default under the Pooling and Servicing Agreement in
respect of a series of Certificates, unless otherwise specified in
the Prospectus Supplement, will include: (i) in the case of a Trust
Fund including Mortgage Loans or Contracts, any failure by the
Certificate Administrator, the Master Servicer or a Servicer (if
such Servicer is a party to the Pooling and Servicing Agreement) to
make a required deposit to the Certificate Account or, if the
Certificate Administrator or the Master Servicer is the Paying
Agent, to distribute to the holders of any class of Certificates of
such series any required payment which continues unremedied for five
days after the giving of written notice of such failure to the
Master Servicer or the Certificate Administrator, as applicable, by
the Trustee or the Company, or to the Master Servicer, the
Certificate Administrator, the Company and the Trustee by the
holders of Certificates of such class evidencing not less than 25%
of the aggregate Percentage Interests constituting such class; (ii)
any failure by the Master Servicer or the Certificate Administrator,
as applicable, duly to observe or perform in any material respect
any other of its covenants or agreements in the Pooling and
Servicing Agreement with respect to such series of Certificates
which continues unremedied for 30 days (15 days in the case of a
failure to pay the premium for any insurance policy which is
required to be maintained under the Pooling and Servicing Agreement)
after the giving of written notice of such failure to the Master
Servicer or the Certificate Administrator, as applicable, by the
Trustee or the Company, or to the Master Servicer, the Certificate
Administrator, the Company and the Trustee by the holders of any
class of Certificates of such series evidencing not less than 25%
(33% in the case of a Trust Fund including Agency Securities) of the
aggregate Percentage Interests constituting such class; and (iii)
certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the Master
Servicer or the Certificate Administrator, as applicable, and
certain actions by the Master Servicer or the Certificate
Administrator indicating its insolvency or inability to pay its
obligations. A default pursuant to the terms of any Agency
Securities included in any Trust Fund will not constitute an Event
of Default under the related Pooling and Servicing Agreement.
Rights Upon Event of Default
So long as an Event of Default remains unremedied, either the
Company or the Trustee may, and, at the direction of the holders of
Certificates evidencing not less than 51% of the aggregate voting
rights in the related Trust Fund, the Trustee shall, by written
notification to the Master Servicer or the Certificate
Administrator, as applicable, and to the Company or the Trustee,
terminate all of the rights and obligations of the Master Servicer
or the Certificate Administrator under the Pooling and Servicing
Agreement (other than any rights of the Master Servicer or the
Certificate Administrator as Certificateholder) covering such Trust
Fund and in and to the Mortgage Collateral and the proceeds thereof,
whereupon the Trustee or, upon notice to the Company and with the
Company's consent, its designee will succeed to all
responsibilities, duties and liabilities of the Master Servicer or
the Certificate Administrator under such Pooling and Servicing
Agreement (other than the obligation to purchase Mortgage Collateral
under certain circumstances) and will be entitled to similar
compensation arrangements. In the event that the Trustee would be
obligated to succeed the Master Servicer but is unwilling so to act,
it may appoint (or if it is unable so to act, it shall appoint) or
petition a court of competent jurisdiction for the appointment of,
a Fannie Mae or Freddie Mac approved mortgage servicing institution
with a net worth of at least $10,000,000 to act as successor to the
Master Servicer under the Pooling and Servicing Agreement (unless
otherwise set forth in the Pooling and Servicing Agreement). Pending
such appointment, the Trustee is obligated to act in such capacity.
The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the
compensation to the initial Master Servicer or the Certificate
Administrator under the Pooling and Servicing Agreement.
No Certificateholder will have any right under a Pooling and
Servicing Agreement to institute any proceeding with respect to such
Pooling and Servicing Agreement unless such holder previously has
given to the Trustee written notice of default and the continuance
thereof and unless the holders of Certificates of any class
evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee
to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days after receipt of such request and indemnity has
neglected or refused to institute any such proceeding. However, the
Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
holders of Certificates covered by such Pooling and Servicing
Agreement, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
Amendment
Each Pooling and Servicing Agreement may be amended by the
Company, the Master Servicer, the Certificate Administrator or any
Servicer, as applicable, and the Trustee, without the consent of the
related Certificateholders: (i) to cure any ambiguity; (ii) to
correct or supplement any provision therein which may be
inconsistent with any other provision therein or to correct any
error; (iii) to change the timing and/or nature of deposits in the
Custodial Account or the Certificate Account or to change the name
in which the Custodial Account is maintained (except that (a)
deposits to the Certificate Account may not occur later than the
related Distribution Date, (b) such change may not adversely affect
in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (c) such change may not
adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable Rating
Agency); (iv) if a REMIC election has been made with respect to the
related Trust Fund, to modify, eliminate or add to any of its
provisions (a) to the extent necessary to maintain the qualification
of the Trust Fund as a REMIC or to avoid or minimize the risk of
imposition of any tax on the related Trust Fund, provided that the
Trustee has received an opinion of counsel to the effect that (1)
such action is necessary or desirable to maintain such qualification
or to avoid or minimize such risk and (2) such action will not
adversely affect in any material respect the interests of any
related Certificateholder or (b) to restrict the transfer of the
REMIC Residual Certificates, provided that the Company has
determined that such change would not adversely affect the
applicable ratings of any classes of the Certificates, as evidenced
by a letter from each applicable Rating Agency, and that any such
amendment will not give rise to any tax with respect to the transfer
of the REMIC Residual Certificates to a non-permitted transferee; or
(v) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement which
are not materially inconsistent with the provisions thereof, so long
as such action will not adversely affect in any material respect the
interests of any Certificateholder.
The Pooling and Servicing Agreement may also be amended by the
Company, the Master Servicer, the Certificate Administrator or any
Servicer, as applicable, and the Trustee with the consent of the
holders of Certificates of each class affected thereby evidencing,
in each case, not less than 66% of the aggregate Percentage
Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreement or of modifying
in any manner the rights of the related Certificateholders, except
that no such amendment may (i) reduce in any manner the amount of,
or delay the timing of, payments received on Mortgage Collateral
which are required to be distributed on a Certificate of any class
without the consent of the holder of such Certificate or (ii) reduce
the percentage of Certificates of any class the holders of which are
required to consent to any such amendment unless the holders of all
Certificates of such class have consented to the change in such
percentage.
Notwithstanding the foregoing, if a REMIC election has been made
with respect to the related Trust Fund, the Trustee will not be
entitled to consent to any amendment to a Pooling and Servicing
Agreement without having first received an opinion of counsel to the
effect that such amendment or the exercise of any power granted to
the Master Servicer, the Certificate Administrator, any Servicer,
the Company or the Trustee in accordance with such amendment will
not result in the imposition of a tax on the related Trust Fund or
cause such Trust Fund to fail to qualify as a REMIC.
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing Agreement
for each series of Certificates (other than certain limited payment
and notice obligations of the Trustee and the Company, respectively)
will terminate upon the payment to the related Certificateholders of
all amounts held in the Certificate Account or by the Master
Servicer or any Servicer and required to be paid to
Certificateholders following the earlier of (i) the final payment or
other liquidation or disposition (or any advance with respect
thereto) of the last item of Mortgage Collateral subject thereto and
all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan or Contract and (ii) the purchase
by the Master Servicer, the Certificate Administrator, a Servicer or
the Company or, if specified in the related Prospectus Supplement,
by the holder of the REMIC Residual Certificates (see "Certain
Federal Income Tax Consequences" below) from the Trust Fund for such
series of all remaining Mortgage Collateral and all property
acquired in respect of such Mortgage Collateral. In addition to the
foregoing, the Master Servicer, the Certificate Administrator or the
Company may have the option to purchase, in whole but not in part,
the Certificates specified in the related Prospectus Supplement in
the manner set forth in the related Prospectus Supplement. Upon the
purchase of such Certificates or at any time thereafter, at the
option of the Master Servicer, the Certificate Administrator or the
Company, the Mortgage Collateral may be sold, thereby effecting a
retirement of the Certificates and the termination of the Trust
Fund, or the Certificates so purchased may be held or resold by the
Master Servicer, the Certificate Administrator or the Company.
Written notice of termination of the Pooling and Servicing Agreement
will be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which
will be specified in the notice of termination. If the
Certificateholders are permitted to terminate the trust under the
applicable Pooling and Servicing Agreement, a penalty may be imposed
upon the Certificateholders based upon the fee that would be
foregone by the Master Servicer, the Certificate Administrator or a
Servicer, as applicable, because of such termination.
Any such purchase of Mortgage Collateral and property acquired
in respect of Mortgage Collateral evidenced by a series of
Certificates shall be made at the option of the Master Servicer, the
Certificate Administrator, a Servicer, the Company or, if
applicable, the holder of the REMIC Residual Certificates at the
price specified in the related Prospectus Supplement. The exercise
of such right will effect early retirement of the Certificates of
that series, but the right of any such entity to purchase the
Mortgage Collateral and related property will be subject to the
criteria, and will be at the price, set forth in the related
Prospectus Supplement. Such early termination may adversely affect
the yield to holders of certain classes of such Certificates. If a
REMIC election has been made, the termination of the related Trust
Fund will be effected in a manner consistent with applicable federal
income tax regulations and its status as a REMIC.
The Trustee
The Trustee under each Pooling and Servicing Agreement will be
named in the related Prospectus Supplement. The commercial bank or
trust company serving as Trustee may have normal banking
relationships with the Company and/or its affiliates, including
Residential Funding.
The Trustee may resign at any time, in which event the Company
will be obligated to appoint a successor trustee. The Company may
also remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Company will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the holders
of Certificates evidencing not less than 51% of the aggregate voting
rights in the related Trust Fund. Any resignation or removal of the
Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor
Trustee.
YIELD CONSIDERATIONS
The yield to maturity of a Certificate will depend on the price
paid by the holder for such Certificate, the Pass-Through Rate on
any such Certificate entitled to payments of interest (which Pass-Through Rate
may vary if so
specified in the related Prospectus
Supplement) and the rate and timing of principal payments (including
prepayments, defaults, liquidations and repurchases) on the Mortgage
Collateral and the allocation thereof to reduce the principal
balance of such Certificate (or notional amount thereof, if
applicable).
The rate of defaults on the Mortgage Loans or Contracts will
affect the rate and timing of principal prepayments on such Mortgage
Collateral and, thus, the yield on the Certificates. Defaults on the
Mortgage Loans or Contracts may lead to Realized Losses upon
foreclosure and liquidation. To the extent Realized Losses are not
covered by any credit enhancement, they will be allocated to
Certificates as described in the related Prospectus Supplement and,
accordingly, will affect the yield on such Certificates. In general,
defaults on mortgage loans or manufactured housing contracts are
expected to occur with greater frequency in their early years. The
rate of default on refinance, limited documentation or no
documentation mortgage loans, and on mortgage loans or manufactured
housing contracts with higher Loan-to-Value Ratios, borrowers whose
income is not required to be stated in the loan application, and
mortgage loans with Loan-to-Value Ratios over 80% that do not
require primary mortgage insurance, may be higher than on other
mortgage loans or manufactured housing contracts. Likewise, the rate
of default on mortgage loans or manufactured housing contracts that
are secured by investment properties or mortgaged properties with
smaller or larger parcels of land or mortgage loans that are made to
International Borrowers may be higher than on other mortgage loans
or manufactured housing contracts. See "Risk Factors Special
Features of the Mortgage Collateral." In addition, the rate and
timing of prepayments, defaults and liquidations on the Mortgage
Loans or Contracts will be affected by the general economic
condition of the region of the country or the locality in which the
related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where
a weak or deteriorating economy exists, as may be evidenced by,
among other factors, increasing unemployment or falling property
values. In addition, Manufactured Homes may decline in value even in
areas where real estate values generally have not declined. Each
Prospectus Supplement will highlight any material characteristics of
the Mortgage Collateral in the related Trust Fund that may make such
Mortgage Collateral more susceptible to default.
The amount of interest payments with respect to each item of
Mortgage Collateral distributed (or accrued in the case of Deferred
Interest or Accrual Certificates) monthly to holders of a class of
Certificates entitled to payments of interest will be calculated on
the basis of such class's specified percentage of each such payment
of interest (or accrual in the case of Accrual Certificates) and
will be expressed as a fixed, adjustable or variable Pass-Through
Rate payable on the outstanding principal balance or notional amount
of such Certificate, or any combination of such Pass-Through Rates,
calculated as described herein and in the related Prospectus
Supplement. See "Description of the Certificates Distributions."
Holders of Strip Certificates or a class of Certificates having a
Pass-Through Rate that varies based on the weighted average interest
rate of the underlying Mortgage Collateral will be affected by
disproportionate prepayments and repurchases of Mortgage Collateral
having higher net interest rates or higher rates applicable to the
Strip Certificates, as applicable.
The effective yield to maturity to each holder of Certificates
entitled to payments of interest will be below that otherwise
produced by the applicable Pass-Through Rate and purchase price of
such Certificate because, while interest will accrue on each
Mortgage Loan or Contract from the first day of each month, the
distribution of such interest will be made on the 25th day (or, if
such day is not a business day, the next succeeding business day) of
the month following the month of accrual or, in the case of a Trust
Fund including Agency Certificates, such other day that is specified
in the related Prospectus Supplement.
A class of Certificates may be entitled to payments of interest
at a fixed, variable or adjustable Pass-Through Rate, or any
combination of such Pass-Through Rates, as specified in the related
Prospectus Supplement. A variable Pass-Through Rate may be
calculated based on the weighted average of the Mortgage Rates (net
of Servicing Fees and any Certificate Administrator fee, Excess
Spread or Excluded Spread (each, a "Net Mortgage Rate")) of the
related Mortgage Collateral for the month preceding the Distribution
Date, by reference to an index or otherwise. The aggregate payments
of interest on a class of Certificates, and the yield to maturity
thereon, will be affected by the rate of payment of principal on the
Certificates (or the rate of reduction in the notional amount of
Certificates entitled to payments of interest only) and, in the case
of Certificates evidencing interests in ARM Loans, by changes in the
Net Mortgage Rates on the ARM Loans. See "Maturity and Prepayment
Considerations" below. The yield on the Certificates will also be
affected by liquidations of Mortgage Loans or Contracts following
Mortgagor defaults and by purchases of Mortgage Collateral in the
event of breaches of representations made in respect of such
Mortgage Collateral by the Company, the Master Servicer and others,
or conversions of ARM Loans to a fixed interest rate. See "The Trust
Funds Representations with Respect to Mortgage Collateral."
In general, if a Certificate is purchased at a premium over its
face amount and payments of principal on the related Mortgage
Collateral occur at a rate faster than anticipated at the time of
purchase, the purchaser's actual yield to maturity will be lower
than that assumed at the time of purchase. Conversely, if a class of
Certificates is purchased at a discount from its face amount and
payments of principal on the related Mortgage Collateral occur at a
rate slower than that assumed at the time of purchase, the
purchaser's actual yield to maturity will be lower than that
originally anticipated. If Strip Certificates are issued evidencing
a right to payments of interest only or disproportionate payments of
interest, a faster than expected rate of principal prepayments on
the Mortgage Collateral will negatively affect the total return to
investors in any such Certificates. If Strip Certificates are issued
evidencing a right to payments of principal only or disproportionate
payments of principal, a slower than expected rate of principal
payments on the Mortgage Collateral could negatively affect the
anticipated yield on such Strip Certificates. If Certificates with
either of the foregoing characteristics are issued, the total return
to investors of such Certificates will be extremely sensitive to
such prepayments. In addition, the total return to investors of
Certificates evidencing a right to distributions of interest at a
rate that is based on the weighted average Net Mortgage Rate of the
Mortgage Collateral from time to time will be adversely affected by
principal prepayments on Mortgage Collateral with Mortgage Rates
higher than the weighted average Mortgage Rate on the Mortgage
Collateral. In general, mortgage loans or manufactured housing
contracts with higher Mortgage Rates prepay at a faster rate than
mortgage loans or manufactured housing contracts with lower Mortgage
Rates. The yield on a class of Strip Certificates that is entitled
to receive a portion of principal or interest from each item of
Mortgage Collateral in a Trust Fund will be affected by any losses
on the Mortgage Collateral because of the affect on timing and
amount of payments. In certain circumstances, rapid prepayments may
result in the failure of such holders to recoup their original
investment. In addition, the yield to maturity on certain other
types of classes of Certificates, including Accrual Certificates,
Certificates with a Pass-Through Rate that fluctuates inversely with
or at a multiple of an index or certain other classes in a series
including more than one class of Certificates, may be relatively
more sensitive to the rate of prepayment on the related Mortgage
Collateral than other classes of Certificates.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Collateral may significantly affect an
investor's actual yield to maturity, even if the average rate of
principal payments experienced over time is consistent with an
investor's expectation. In general, the earlier a prepayment of
principal on the Mortgage Collateral or a repurchase thereof, the
greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and
repurchases occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following
the issuance of a series of Certificates would not be fully offset
by a subsequent like reduction (or increase) in the rate of
principal payments.
Unless otherwise specified in the related Prospectus Supplement,
prepayments in full or final liquidations will reduce the amount of
interest distributed in the following month to holders of
Certificates entitled to distributions of interest because the
resulting Prepayment Interest Shortfall will not be covered by
Compensating Interest. See "Description of the
Certificates Prepayment Interest Shortfalls." Unless otherwise
specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal
balance of the related Mortgage Loan or Contract as of the first day
of the month in which such partial prepayment is received. As a
result, unless otherwise specified in the related Prospectus
Supplement, the effect of a partial prepayment on a Mortgage Loan or
Contract will be to reduce the amount of interest distributed to
holders of Certificates in the month following the receipt of such
partial prepayment by an amount equal to one month's interest at the
applicable Pass-Through Rate or Net Mortgage Rate, as the case may
be, on the prepaid amount. See "Description of the
Certificates Prepayment Interest Shortfalls." Neither full or
partial principal prepayments nor Liquidation Proceeds will be
distributed until the Distribution Date in the month following
receipt. See "Maturity and Prepayment Considerations."
With respect to certain ARM Loans, the Mortgage Rate at
origination may be below the rate that would result from the sum of
the then-applicable Index and Gross Margin. Under the applicable
underwriting standards, the Mortgagor under each Mortgage Loan or
Contract generally will be qualified on the basis of the Mortgage
Rate in effect at origination and not the higher rate that would be
produced by the sum of the Index and Gross Margin. The repayment of
any such Mortgage Loan or Contract may thus be dependent on the
ability of the Mortgagor to make larger level monthly payments
following the adjustment of the Mortgage Rate. In addition, the
periodic increase in the amount paid by the Mortgagor of a Buy-Down
Loan during or at the end of the applicable Buy-Down Period may
create a greater financial burden for the Mortgagor, who might not
have otherwise qualified for a mortgage under the applicable
underwriting guidelines, and may accordingly increase the risk of
default with respect to the related Mortgage Loan.
If so specified in the related Prospectus Supplement, a Trust
Fund may contain Neg-Am ARM Loans with fluctuating Mortgage Rates
that adjust more frequently than the monthly payment with respect to
such Mortgage Loans or Contracts. During a period of rising interest
rates as well as immediately after origination, the amount of
interest accruing on the principal balance of such Mortgage Loans
may exceed the amount of the minimum scheduled monthly payment
thereon. As a result, a portion of the accrued interest on Neg-Am
ARM Loans may become Deferred Interest which will be added to the
principal balance thereof and will bear interest at the applicable
Mortgage Rate. The addition of any such Deferred Interest to the
principal balance of any related class of Certificates will lengthen
the weighted average life thereof and may adversely affect yield to
holders thereof. In addition, with respect to certain Neg-Am ARM
Loans, during a period of declining interest rates, it might be
expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and
accrued interest on the principal balance thereof, and since such
excess will be applied to reduce the principal balance of the
related class or classes of Certificates, the weighted average life
of such Certificates will be reduced and may adversely affect yield
to holders thereof.
If so specified in the related Prospectus Supplement, a Trust
Fund may contain GPM Loans or Buy-Down Loans which have monthly
payments that increase during the first few years following
origination. Mortgagors generally will be qualified for such loans
on the basis of the initial monthly payment. To the extent that the
related Mortgagor's income does not increase at the same rate as the
monthly payment, such a loan may be more likely to default than a
mortgage loan with level monthly payments.
If so specified in the related Prospectus Supplement, a Trust
Fund may contain Balloon Loans which require a single payment of a
Balloon Amount. The payment of Balloon Amounts may result in a lower
yield on Certificates than would be the case if all such Mortgage
Collateral was fully-amortizing because the maturity of a Balloon
Loan occurs earlier than that for a fully-amortizing Mortgage Loan
due to the payment of a Balloon Amount. Balloon Loans also pose a
greater risk of default than fully-amortizing Mortgage Loans because
Mortgagors are required to pay the Balloon Amount upon maturity. A
Mortgagor's ability to pay a Balloon Amount may depend on its
ability to refinance the related Mortgaged Property.
If credit enhancement for a series of Certificates is provided
by a Letter of Credit, insurance policy or bond that is issued or
guaranteed by an entity that suffers financial difficulty, such
credit enhancement may not provide the level of support that was
anticipated at the time an investor purchased its Certificate. In
the event of a default under the terms of such a Letter of Credit,
insurance policy or bond, any Realized Losses on the Mortgage
Collateral not covered by such credit enhancement will be applied to
a series of Certificates in the manner described in the related
Prospectus Supplement and may reduce an investor's anticipated yield
to maturity.
The related Prospectus Supplement may set forth other factors
concerning the Mortgage Collateral securing a series of Certificates
or the structure of such series that will affect the yield on such
Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Trust Funds," the original terms
to maturity of the Mortgage Collateral in a given Trust Fund will
vary depending upon the type of Mortgage Collateral included in such
Trust Fund. The Prospectus Supplement for a series of Certificates
will contain information with respect to the types and maturities of
the Mortgage Collateral in the related Trust Fund. The prepayment
experience, the timing and rate of repurchases and the timing and
amount of liquidations with respect to the related Mortgage Loans or
Contracts will affect the life and yield of the related series of
Certificates.
Prepayments on mortgage loans and manufactured housing contracts
are commonly measured relative to a prepayment standard or model.
The Prospectus Supplement for each series of Certificates may
describe one or more such prepayment standards or models and may
contain tables setting forth the projected yields to maturity on
each class of Certificates or the weighted average life of each
class of Certificates and the percentage of the original principal
amount of each class of Certificates of such series that would be
outstanding on specified payment dates for such series based on the
assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Mortgage Collateral are made at
rates corresponding to various percentages of the prepayment
standard or model specified in the related Prospectus Supplement.
There is no assurance that prepayment of the Mortgage Collateral
underlying a series of Certificates will conform to any level of the
prepayment standard or model specified in the related Prospectus
Supplement. A number of factors, including homeowner mobility,
economic conditions, changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the properties
securing the mortgages, servicing decisions, enforceability of due-on-sale
clauses, mortgage
market interest rates, mortgage recording
taxes, solicitations and the availability of mortgage funds, may
affect prepayment experience. The rate of prepayment with respect to
conventional fixed-rate mortgage loans and contracts has fluctuated
significantly in recent years. In general, however, if prevailing
interest rates fall significantly below the Mortgage Rates on the
Mortgage Loans or Contracts underlying a series of Certificates, the
prepayment rate of such Mortgage Loans or Contracts is likely to be
higher than if prevailing rates remain at or above the rates borne
by such Mortgage Loans or Contracts. It should be noted that
Certificates of a certain series may evidence an interest in
Mortgage Loans or Contracts with different Mortgage Rates.
Accordingly, the prepayment experience of these Certificates will to
some extent be a function of the range of interest rates of such
Mortgage Loans or Contracts.
Unless otherwise specified in the related Prospectus Supplement,
all of the Mortgage Loans or Contracts may be prepaid without
penalty in full or in part at any time. The terms of the related
Pooling and Servicing Agreement generally will require the Servicer
or Master Servicer, as the case may be, to enforce any due-on-sale
clause to the extent it has knowledge of the conveyance or the
proposed conveyance of the underlying Mortgaged Property and to the
extent permitted by applicable law, except that any enforcement
action that would impair or threaten to impair any recovery under
any related insurance policy will not be required or permitted. See
"Description of the Certificates Servicing and Administration of
Mortgage Collateral Enforcement of 'Due-on-Sale' Clauses" and
"Certain Legal Aspects of Mortgage Loans and Contracts The Mortgage
Loans Enforceability of Certain Provisions" and " The Contracts"
for a description of certain provisions of each Pooling and
Servicing Agreement and certain legal aspects that may affect the
prepayment rate of Mortgage Loans or Contracts.
Certain types of Mortgage Collateral included in a Trust Fund may
have characteristics that make it more likely to default than
collateral provided for mortgage pass-through certificates from
other mortgage purchase programs. The Company anticipates including
"limited documentation" and "no documentation" Mortgage Loans and
Contracts, as well as Mortgage Loans and Contracts that were made to
International Borrowers, secured by investment properties and have
other characteristics not present in such other programs. Such
Mortgage Collateral may be susceptible to a greater risk of default
and liquidation than might otherwise be expected by investors in the
related Certificates. See "Yield Considerations."
The Master Servicer, a Servicer, a Sub-Servicer or a Mortgage
Collateral Seller may refinance a Mortgage Loan or Contract in a
Trust Fund by accepting full prepayment thereof and making a new
loan secured by a mortgage on the same property. A Mortgagor may be
legally entitled to require the Master Servicer, Servicer, Sub-Servicer or
Mortgage Collateral
Seller, as applicable, to allow such
refinancing. Any such refinancing will have the same effect on the
Certificateholders as a prepayment in full of the refinanced
Mortgage Loan or Contract, thereby affecting the yield to
Certificateholders.
There are no uniform statistics compiled for prepayments of
contracts relating to Manufactured Homes. Prepayments on
manufactured housing contracts may be influenced by a variety of
economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations.
Other factors affecting prepayment of manufactured housing contracts
include changes in housing needs, job transfers, unemployment and
servicing decisions. An investment in Certificates evidencing
interests in Contracts may be affected by, among other things, a
downturn in regional or local economic conditions. These regional or
local economic conditions are often volatile, and historically have
affected the delinquency, loan loss and repossession experience of
the Contracts. To the extent that losses on the Contracts are not
covered by any credit enhancement, holders of the Certificates of a
series evidencing interests in such Contracts will bear all risk of
loss resulting from default by Mortgagors and will have to look
primarily to the value of the Manufactured Homes, which generally
depreciate in value, for recovery of the outstanding principal and
unpaid interest of the defaulted Contracts. See "The Trust Funds The
Contracts."
While most manufactured housing contracts will contain "due-on-sale"
provisions permitting
the holder of the contract to accelerate
the maturity of the contract upon conveyance by the Mortgagor, the
Master Servicer, Servicer or Sub-Servicer, as applicable, may permit
proposed assumptions of contracts where the proposed buyer of the
Manufactured Home meets the underwriting standards described above.
Such assumption would have the effect of extending the average life
of the contract. FHA Loans, FHA Contracts, VA Loans and VA Contracts
are not permitted to contain "due-on-sale" clauses, and are freely
assumable.
Although the Mortgage Rates on ARM Loans will be subject to
periodic adjustments, such adjustments generally will (i) not
increase or decrease such Mortgage Rates by more than a fixed
percentage amount on each adjustment date, (ii) not increase such
Mortgage Rates over a fixed percentage amount during the life of any
ARM Loan and (iii) be based on an index (which may not rise and fall
consistently with mortgage interest rates) plus the related Gross
Margin (which may be different from margins being used at the time
for newly-originated adjustable rate mortgage loans). As a result,
the Mortgage Rates on the ARM Loans in a Trust Fund at any time may
not equal the prevailing rates for similar, newly originated
adjustable rate mortgage loans. In certain rate environments, the
prevailing rates on fixed-rate mortgage loans may be sufficiently
low in relation to the then-current Mortgage Rates on ARM Loans that
the rate of prepayment may increase as a result of refinancings.
There can be no certainty as to the rate of prepayments on the
Mortgage Collateral during any period or over the life of any series
of Certificates.
With respect to Balloon Loans, payment of the Balloon Amount
(which, based on the amortization schedule of such Mortgage Loans,
is expected to be a substantial amount) will generally depend on the
Mortgagor's ability to obtain refinancing of such a Mortgage Loan or
to sell the Mortgaged Property prior to the maturity of the Balloon
Loan. The ability to obtain refinancing will depend on a number of
factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the Mortgagor's
financial situation, prevailing mortgage loan interest rates, the
Mortgagor's equity in the related Mortgaged Property, tax laws and
prevailing general economic conditions. Unless otherwise specified
in the related Prospectus Supplement, none of the Company, the
Master Servicer, a Servicer, a Sub-Servicer, a Mortgage Collateral
Seller nor any of their affiliates will be obligated to refinance or
repurchase any Mortgage Loan or to sell the Mortgaged Property.
An ARM Loan is assumable under certain conditions if the proposed
transferee of the related Mortgaged Property establishes its ability
to repay the Mortgage Loan and, in the reasonable judgment of the
Master Servicer or the related Sub-Servicer, the security for the
ARM Loan would not be impaired by the assumption. The extent to
which ARM Loans are assumed by purchasers of the Mortgaged
Properties rather than prepaid by the related Mortgagors in
connection with the sales of the Mortgaged Properties will affect
the weighted average life of the related series of Certificates. See
"Description of the Certificates" and "Certain Legal Aspects of
Mortgage Loans and Contracts."
No assurance can be given that the value of the Mortgaged
Property securing a Mortgage Loan or Contract has remained or will
remain at the level existing on the date of origination. If the
residential real estate market should experience an overall decline
in property values such that the outstanding balances of the
Mortgage Loans or Contracts and any secondary financing on the
Mortgaged Properties in a particular Mortgage Pool or Contract Pool
become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the
mortgage lending industry. In addition, the value of property
securing Cooperative Loans and the delinquency rates with respect to
Cooperative Loans could be adversely affected if the current
favorable tax treatment of cooperative tenant stockholders were to
become less favorable. See "Certain Legal Aspects of Mortgage Loans
and Contracts."
To the extent that losses resulting from delinquencies, losses
and foreclosures or repossession of Mortgaged Property with respect
to Mortgage Loans or Contracts included in a Trust Fund for a series
of Certificates are not covered by the methods of credit enhancement
described herein under "Description of Credit Enhancement" or in the
related Prospectus Supplement, such losses will be borne by holders
of the Certificates of such series. Even where credit enhancement
covers all Realized Losses resulting from delinquency and
foreclosure or repossession, the effect of foreclosures and
repossessions may be to increase prepayment experience on the
Mortgage Collateral, thus reducing average weighted life and
affecting yield to maturity. See "Yield Considerations."
Under certain circumstances, the Master Servicer, a Servicer, the
Company or, if specified in the related Prospectus Supplement, the
holders of the REMIC Residual Certificates may have the option to
purchase the Mortgage Loans in a Trust Fund. See "The Pooling and
Servicing Agreement Termination; Retirement of Certificates." Any
such repurchase will shorten the weighted average lives of the
related Certificates.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal
aspects of mortgage loans and manufactured housing contracts that
are general in nature. Because such legal aspects are governed in
part by state law (which laws may differ substantially from state to
state), the summaries do not purport to be complete, to reflect the
laws of any particular state or to encompass the laws of all states
in which the Mortgaged Properties may be situated. The summaries are
qualified in their entirety by reference to the applicable federal
and state laws governing the Mortgage Loans or Contracts.
The Mortgage Loans
General
The Mortgage Loans (other than Cooperative Loans) will be secured
by deeds of trust, mortgages or deeds to secure debt depending upon
the prevailing practice in the state in which the related Mortgaged
Property is located. In some states, a mortgage, deed of trust or
deed to secure debt creates a lien upon the real property encumbered
by the mortgage. In other states, the mortgage, deed of trust or
deed to secure debt conveys legal title to the property to the
mortgagee subject to a condition subsequent (i.e., the payment of
the indebtedness secured thereby). It is not prior to the lien for
real estate taxes and assessments and other charges imposed under
governmental police powers. Priority with respect to such
instruments depends on their terms and in some cases on the terms of
separate subordination or inter-creditor agreements, and generally
on the order of recordation of the mortgage in the appropriate
recording office. There are two parties to a mortgage, the
mortgagor, who is the borrower and homeowner, 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 is the beneficiary; at origination of a mortgage loan, the
borrower executes a separate undertaking to make payments on the
mortgage note. Although a deed of trust is similar to a mortgage, a
deed of trust has three parties: the trustor, who is the
borrower/homeowner; the beneficiary, who is the lender; and a third-party
grantee called the
trustee. Under a deed of trust, the
borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure
payment of the obligation. A deed to secure debt typically has two
parties, pursuant to which the borrower, or grantor, conveys title
to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. The trustee's
authority under a deed of trust and the mortgagee's authority under
a mortgage are governed by the law of the state in which the real
property is located, the express provisions of the deed of trust,
mortgage or deed to secure debt and, in certain deed of trust,
transactions, the directions of the beneficiary.
Cooperative Loans
If specified in the Prospectus Supplement relating to a series
of Certificates, the Mortgage Loans may include Cooperative Loans.
Each debt instrument (a "Cooperative Note") evidencing a Cooperative
Loan will be secured by a security interest in shares issued by the
related corporation (a "Cooperative") that owns the related
apartment building, which is a corporation entitled to be treated as
a housing cooperative under federal tax law, and in the related
proprietary lease or occupancy agreement granting exclusive rights
to occupy a specific dwelling unit in the Cooperative's building.
The security agreement will create a lien upon, or grant a security
interest in, the Cooperative shares and proprietary leases or
occupancy agreements, the priority of which will depend on the terms
of the particular security agreement as well as the order of
recordation of the agreement (or the filing of the financing
statements related thereto) in the appropriate recording office or
the taking of possession of the Cooperative shares, depending on the
law of the state in which the Cooperative is located. Such a lien or
security interest is not, in general, prior to liens in favor of the
cooperative corporation for unpaid assessments or common charges.
Unless otherwise specified in the related Prospectus Supplement,
all Cooperative buildings relating to the Cooperative Loans are
located in the State of New York. Generally, each Cooperative owns
in fee or has a leasehold interest in all the real property and owns
in fee or leases the building and all separate dwelling units
therein. The Cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other
governmental impositions and hazard and liability insurance. If
there is an underlying mortgage (or mortgages) on the Cooperative's
building or underlying land, as is generally the case, or an
underlying lease of the land, as is the case in some instances, the
Cooperative, as mortgagor or lessee, as the case may be, is also
responsible for fulfilling such mortgage or rental obligations. An
underlying mortgage loan is ordinarily obtained by the Cooperative
in connection with either the construction or purchase of the
Cooperative's building or the obtaining of capital by the
Cooperative. The interest of the occupant under proprietary leases
or occupancy agreements as to which that Cooperative is the landlord
is generally subordinate to the interest of the holder of an
underlying mortgage and to the interest of the holder of a land
lease. If the Cooperative is unable to meet the payment obligations
(i) arising under an underlying mortgage, the mortgagee holding an
underlying mortgage could foreclose on that mortgage and terminate
all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest
under the land lease could terminate it and all subordinate
proprietary leases and occupancy agreements. In addition, an
underlying mortgage on a Cooperative may provide financing in the
form of a mortgage that does not fully amortize, with a significant
portion of principal being due in one final payment at maturity. The
inability of the Cooperative to refinance a mortgage and its
consequent inability to make such final payment could lead to
foreclosure by the mortgagee. Similarly, a land lease has an
expiration date and the inability of the Cooperative to extend its
term or, in the alternative, to purchase the land, could lead to
termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In
either event, a foreclosure by the holder of an underlying mortgage
or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder
of shares of the Cooperative or, in the case of the Mortgage Loans,
the collateral securing the Cooperative Loans.
Each Cooperative is owned by
shareholders (referred to as tenant-stockholders)
who, through
ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements
which confer exclusive rights to occupy specific dwellings.
Generally, a tenant-stockholder of a Cooperative must make a monthly
rental payment to the Cooperative pursuant to the proprietary lease,
which rental payment represents such tenant-stockholder's pro rata
share of the Cooperative's payments for its underlying mortgage,
real property taxes, maintenance expenses and other capital or
ordinary expenses. An ownership interest in a Cooperative and
accompanying occupancy rights may be financed through a Cooperative
Loan evidenced by a Cooperative Note and secured by an assignment of
and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related shares of the related
Cooperative. The lender generally takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy
agreement and a financing statement covering the proprietary lease
or occupancy agreement and the Cooperative shares is filed in the
appropriate state and local offices to perfect the lender's interest
in its collateral. Subject to the limitations discussed below, upon
default of the tenant-stockholder, the lender may sue for judgment
on the Cooperative Note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as
provided in the security agreement
covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares. See " Foreclosure on
Shares of Cooperatives" below.
Tax Aspects of Cooperative Ownership
In general, a "tenant-stockholder" (as defined in Section
216(b)(2) of the Internal Revenue Code (the "Code") of a corporation
that qualifies as a "cooperative housing corporation" within the
meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his or her taxable year to the
corporation representing his or her proportionate share of certain
interest expenses and certain real estate taxes allowable as a
deduction under Section 216(a) of the Code to the corporation under
Sections 163 and 164 of the Code. In order for a corporation to
qualify under Section 216(b)(1) of the Code for its taxable year in
which such items are allowable as a deduction to the corporation,
such section requires, among other things, that at least 80% of the
gross income of the corporation be derived from its tenant-stockholders. By
virtue of this
requirement, the status of a
corporation for purposes of Section 216(b)(1) of the Code must be
determined on a year-to-year basis. Consequently, there can be no
assurance that Cooperatives relating to the Cooperative Loans will
qualify under such section for any particular year. In the event
that such a Cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could
be significantly impaired because no deduction would be allowable to
tenant-stockholders under Section 216(a) of the Code with respect to
those years. In view of the significance of the tax benefits
accorded tenant-stockholders of a corporation that qualifies under
Section 216(b)(1) of the Code, the likelihood that such a failure
would be permitted to continue over a period of years appears
remote.
Foreclosure on Mortgage Loans
Although a deed of trust or a deed to secure debt may also be
foreclosed by judicial action, foreclosure of a deed of trust or a
deed to secure debt is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust which
authorizes the trustee or lender, as applicable, to sell the
property upon any default by the borrower under the terms of the
note or deed of trust. In addition to any notice requirements
contained in a deed of trust, in some states, the trustee must
record a notice of default and send a copy to the borrower/trustor
and to any person who has recorded a request for a copy of notice of
default and notice of sale. In addition, in some states, the trustee
or lender, as applicable, must provide notice to any other
individual having an interest of record in the real property,
including any junior lienholders. If the deed of trust is not
reinstated within a specified period, a notice of sale must be
posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some
states' laws require that a copy of the notice of sale be posted on
the property and sent to all parties having an interest of record in
the real property.
Foreclosure of a mortgage generally is accomplished by judicial
action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the real
property. Delays in completion of the foreclosure may result from
difficulties in locating and serving necessary parties, including
borrowers located outside the jurisdiction in which the mortgaged
property is located. Difficulties in foreclosing on mortgaged
properties owned by International Borrowers may also result in
increased foreclosure costs, which may reduce the amount of proceeds
from the liquidation of the related mortgage loan available to be
distributed to the Certificateholders of the related series. If the
mortgagee's right to foreclose is contested, the legal proceedings
necessary to resolve the issue may be time-consuming.
In some states, the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the
trustee's sale. In general, in such states, the borrower, or any
other person having a junior encumbrance on the real estate, may,
during a reinstatement period, cure the default by paying the entire
amount in arrears plus the costs and expenses incurred in enforcing
the obligation.
In the case of foreclosure under a mortgage, a deed of trust or
deed to secure debt, the sale by the referee or other designated
officer or by the trustee is a public sale. However, because of the
difficulty a potential buyer at the sale would have in determining
the exact status of title and because the physical condition of the
property may have deteriorated during the foreclosure proceedings,
it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase
the property from the trustee or referee for a credit bid less than
or equal to the unpaid principal amount of the mortgage or deed of
trust, accrued and unpaid interest and the expense of foreclosure.
Generally, state law controls the amount of foreclosure costs and
expenses, including attorneys' fees, which may be recovered by a
lender. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the
lender will assume the burdens of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. Generally, the
lender will obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the
property and, in some states, the lender may be entitled to a
deficiency judgment. See " Anti-Deficiency Legislation and Other
Limitations on Lenders" below. In some cases, a deficiency judgment
may be pursued in lieu of foreclosure. Any loss may be reduced by
the receipt of any mortgage insurance proceeds or other forms of
credit enhancement for a series of Certificates. See "Description of
Credit Enhancement."
Foreclosure on Shares of Cooperatives
The Cooperative shares owned by the tenant-stockholder, together
with the rights of the tenant-stockholder under the proprietary
lease or occupancy agreement, are pledged to the lender and are, in
almost all cases, subject to restrictions on transfer as set forth
in the Cooperative's certificate of incorporation and by-laws, as
well as in the proprietary lease or occupancy agreement. The
proprietary lease or occupancy agreement, even while pledged, may be
cancelled by the Cooperative for failure by the tenant-stockholder
to pay rent or other obligations or charges owed by such tenant-stockholder,
including
mechanics' liens against the Cooperative's
building incurred by such tenant-stockholder. Generally, rent and
other obligations and charges arising under a proprietary lease or
occupancy agreement which are owed to the Cooperative are made liens
upon the shares to which the proprietary lease or occupancy
agreement relates. In addition, the proprietary lease or occupancy
agreement generally permits the Cooperative to terminate such lease
or agreement in the event the borrower defaults in the performance
of covenants thereunder. Typically, the lender and the Cooperative
enter into a recognition agreement which, together with any lender
protection provisions contained in the proprietary lease or
occupancy agreement, establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A
default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event
that the tenant-stockholder has defaulted under the proprietary
lease or occupancy agreement, the Cooperative will take no action to
terminate such lease or agreement until the lender has been provided
with notice of and an opportunity to cure the default. The
recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the
shares and the proprietary lease or occupancy agreement allocated to
the dwelling, subject, however, to the Cooperative's right to sums
due under such proprietary lease or occupancy agreement or which
have become liens on the shares relating to the proprietary lease or
occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and
does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the event
the lender succeeds to the tenant-shareholder's shares and
proprietary lease or occupancy agreement as the result of realizing
upon its collateral for a Cooperative Loan, the lender must obtain
the approval or consent of the board of directors of the Cooperative
as required by the proprietary lease before transferring the
Cooperative shares and assigning the proprietary lease. Such
approval or consent is usually based on the prospective purchaser's
income and net worth, among other factors, and may significantly
reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the
collateral. Generally, the lender is not limited in any rights it
may have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not
require the tenant-stockholder (i.e., the borrower) to obtain title
insurance of any type. Consequently, the existence of any prior
liens or other imperfections of title affecting the Cooperative's
building or real estate also may adversely affect the marketability
of the shares allocated to the dwelling unit in the event of
foreclosure.
A foreclosure on the Cooperative shares is accomplished by public
sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to
those shares. Article 9 of the UCC requires that a sale be conducted
in a "commercially reasonable" manner. Whether a sale has been
conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method,
manner, time, place and terms of the sale and the sale price.
Generally, a sale conducted according to the usual practice of
creditors selling similar collateral in the same area will be
considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will
be applied first to pay the costs and expenses of the sale and then
to satisfy the indebtedness secured by the lender's security
interest. The recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of
the Cooperative corporation to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender must account to the tenant-stockholder for the
surplus. Conversely, if a portion of the indebtedness remains
unpaid, the tenant-stockholder is generally responsible for the
deficiency. See " Anti-Deficiency Legislation and Other Limitations
on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust, a deed
to secure debt or foreclosure of a mortgage, the borrower and
foreclosed junior lienors or other parties are given a statutory
period (generally ranging from six months to two years) in which to
redeem the property from 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 rights of redemption would defeat the title
of any purchaser subsequent to foreclosure or sale under a deed of
trust or a deed to secure debt. Consequently, the practical effect
of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption
period has expired.
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 or a deed to secure debt. In some states (including
California), statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower
following foreclosure. A deficiency judgment is a personal judgment
against the former borrower equal in most cases to the difference
between the net amount realized upon the public sale of the real
property and the amount due to the lender. In the case of a Mortgage
Loan secured by a property owned by a trust where the Mortgage Note
is executed on behalf of the trust, a deficiency judgment against
the trust following foreclosure or sale under a deed of trust, even
if obtainable under applicable law, may be of little value to the
mortgagee or beneficiary if there are no trust assets against which
such deficiency judgment may be executed. In addition, a deficiency
judgment against a borrower who resides outside of the jurisdiction
in which the property is located may be difficult to obtain because,
unless a court orders otherwise, service of process must be effected
by personal delivery. Some state statutes require the beneficiary or
mortgagee to exhaust the security afforded under a deed of trust,
deed to secure debt or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of
bringing a personal action against the borrower on the debt without
first exhausting such security; however, in some of these states,
the lender, following judgment on such personal action, may be
deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical
effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security
first rather than bringing a personal action against the borrower.
Finally, in certain other states, statutory provisions limit any
deficiency judgment against the borrower following a foreclosure to
the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these
statutes is generally to prevent a beneficiary or mortgagee from
obtaining a large deficiency judgment against the borrower as a
result of low or no bids at the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on
Cooperative Shares and the related proprietary lease or occupancy
agreement. Some courts have interpreted Article 9 to prohibit or
limit a deficiency award in certain circumstances, including
circumstances where the disposition of the collateral (which, in the
case of a Cooperative Loan, would be the shares of the Cooperative
and the related proprietary lease or occupancy agreement) was not
conducted in a commercially reasonable manner.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the
federal bankruptcy laws and state laws affording relief to debtors,
may interfere with or affect the ability of the secured mortgage
lender to realize upon its collateral and/or enforce a deficiency
judgment. For example, under the federal bankruptcy law, all actions
against the debtor, the debtor's property and any co-debtor are
automatically stayed upon the filing of a bankruptcy petition.
Moreover, a court having federal bankruptcy jurisdiction may permit
a debtor through its Chapter 11 or Chapter 13 rehabilitative plan to
cure a monetary default in respect of a mortgage loan on such
debtor's residence by paying arrearages within a reasonable time
period and reinstating the original mortgage loan payment schedule,
even though the lender accelerated the mortgage loan and final
judgment of foreclosure had been entered in state court (provided no
sale of the residence had yet occurred) prior to the filing of the
debtor's petition. Some courts with federal bankruptcy jurisdiction
have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated
that the terms of a mortgage loan secured by property which is not
the principal residence of the debtor may be modified. These courts
have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the
repayment schedule, forgiving all or a portion of the debt and
reducing the lender's security interest to the value of the
residence, thus leaving the lender a general unsecured creditor for
the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a
mortgage loan secured only by a mortgage on real property that is
the debtor's principal residence may not be modified pursuant to a
plan confirmed pursuant to Chapter 13 except with respect to
mortgage payment arrearages, which may be cured within a reasonable
time period. Courts with federal bankruptcy jurisdiction similarly
may be able to modify the terms of a Cooperative Loan.
Certain tax liens arising under the Code may, in certain
circumstances, have priority over the lien of a mortgage, deed to
secure debt or deed of trust. This may have the effect of delaying
or interfering with the enforcement of rights with respect to a
defaulted Mortgage Loan.
In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity
Act, Fair Credit Billing Act, Fair Credit Reporting Act and related
statutes. These federal laws impose specific statutory liabilities
upon lenders who originate mortgage loans and who fail to comply
with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
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 Homeownership and Equity
Protection Act of 1994 (such Mortgage Loans, "High Cost Loans"), if
such Mortgage Loans were originated on or after October 1, 1995, 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. Purchasers or assignees of any High Cost
Loan, including any Trust Fund, could be liable for all claims and
subject to all defenses arising under such provisions that the
borrower could assert against the originator thereof. Remedies
available to the borrower include monetary penalties, as well as
recission rights if the appropriate disclosures were not given as
required.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise, the
Mortgage Loans generally contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the
borrower sells, transfers or conveys the property. The
enforceability of these clauses has been the subject of legislation
or litigation in many states, and in some cases the enforceability
of these clauses has been limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act"), preempts state constitutional, statutory and case law that
prohibit the enforcement of due-on-sale clauses and permits lenders
to enforce these clauses in accordance with their terms, subject to
certain limited exceptions. The Garn-St Germain Act does "encourage"
lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original
rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances
in which a mortgage lender covered by the Garn-St Germain Act may
not exercise a due-on-sale clause, notwithstanding the fact that a
transfer of the property may have occurred. These include intra-family
transfers, certain transfers
by operation of law, leases of
fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a
loan pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a
mortgage loan bearing an interest rate below the current market rate
being assumed by a new home buyer rather than being paid off, which
may have an impact upon the average life of the Mortgage Loans and
the number of Mortgage Loans which may be outstanding until
maturity.
Upon foreclosure, courts have imposed general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of its defaults under the
loan documents. Examples of judicial remedies that have been
fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able
to reinstate the loan. In some cases, courts have 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 the
lender to foreclose if the default under the mortgage instrument is
not monetary, such as the borrower failing to adequately maintain
the property. Finally, some courts have been faced with the issue of
whether or not federal or state constitutional provisions reflecting
due process concerns for adequate notice require that borrowers
under deeds of trust, deeds to secure debt or mortgages receive
notices in addition to the statutorily prescribed minimum. For the
most part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed of
trust, or under a deed to secure a debt or a mortgage having a power
of sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first
mortgage loans originated by certain lenders after March 31, 1980.
A similar federal statute was in effect with respect to mortgage
loans made during the first three months of 1980. The Office of
Thrift Supervision is authorized to issue rules and regulations and
to publish interpretations governing implementation of Title V. The
statute authorized any state to impose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision
which expressly rejects application of the federal law. In addition,
even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have
taken action to reimpose interest rate limits or to limit discount
points or other charges.
Unless otherwise set forth in the related Prospectus Supplement,
each Mortgage Collateral Seller, or another specified party, will
have represented that each Mortgage Loan was originated in
compliance with then applicable state laws, including usury laws, in
all material respects. However, the Mortgage Rates on the Mortgage
Loans will be subject to applicable usury laws as in effect from
time to time.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate
mortgage loans and early ownership mortgage loans, originated by
non-federally chartered lenders, have historically been subjected to
a variety of restrictions. Such restrictions differed from state to
state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered
lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title
VIII of the Garn-St Germain Act ("Title VIII"). Title VIII provides
that, notwithstanding any state law to the contrary, (i) state-chartered banks
may originate
alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the
Currency with respect to the origination of alternative mortgage
instruments by national banks, (ii) state-chartered credit unions
may originate alternative mortgage instruments in accordance with
regulations promulgated by the National Credit Union Administration
with respect to origination of alternative mortgage instruments by
federal credit unions and (iii) all other non-federally chartered
housing creditors, including state-chartered savings and loan
associations, state-chartered savings banks and mutual savings banks
and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the
Federal Home Loan Bank Board, predecessor to the Office of Thrift
Supervision, with respect to origination of alternative mortgage
instruments by federal savings and loan associations. Title VIII
also provides that any state may reject applicability of the
provisions of Title VIII by adopting, prior to October 15, 1985, a
law or constitutional provision expressly rejecting the
applicability of such provisions. Certain states have taken such
action.
The Contracts
General
A Contract evidences both (a) the obligation of the Mortgagor to
repay the loan evidenced thereby and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan.
Certain aspects of both features of the Contracts are described
below.
Security Interests in Manufactured Homes
The law governing perfection of a security interest in a
Manufactured Home varies from state to state. Security interests in
manufactured homes may be perfected either by notation of the
secured party's lien on the certificate of title or by delivery of
the required documents and payments of a fee to the state motor
vehicle authority, depending on state law. In some non-title states,
perfection pursuant to the provisions of the UCC is required. The
lender, the Servicer or the Master Servicer may effect such notation
or delivery of the required documents and fees, and obtain
possession of the certificate of title, as appropriate under the
laws of the state in which any Manufactured Home securing a Contract
is registered. In the event the Master Servicer, the Servicer or the
lender fails to effect such notation or delivery, or files the
security interest under the wrong law (for example, under a motor
vehicle title statute rather than under the UCC, in a few states),
the Certificateholders may not have a first priority security
interest in the Manufactured Home securing a Contract. As
manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts
in many states have held that manufactured homes, under certain
circumstances, may become subject to real estate title and recording
laws. As a result, a security interest in a manufactured home could
be rendered subordinate to the interests of other parties claiming
an interest in the home under applicable state real estate law. In
order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must record a
mortgage, deed of trust or deed to secure debt, as applicable, under
the real estate laws of the state where the manufactured home is
located. These filings must be made in the real estate records
office of the county where the manufactured home is located. Unless
otherwise provided in the related Prospectus Supplement,
substantially all of the Contracts will contain provisions
prohibiting the Mortgagor from permanently attaching the
Manufactured Home to its site. So long as the Mortgagor does not
violate this agreement and a court does not hold that the
Manufactured Home is real property, a security interest in the
Manufactured Home will be governed by the certificate of title laws
or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement will
be effective to maintain the priority of the seller's security
interest in the Manufactured Home. If, however, a Manufactured Home
is permanently attached to its site or if a court determines that a
Manufactured Home is real property, other parties could obtain an
interest in the Manufactured Home which is prior to the security
interest originally retained by the Mortgage Collateral Seller and
transferred to the Company. In certain cases, the Master Servicer or
the Servicer, as applicable, may be required to perfect a security
interest in the Manufactured Home under applicable real estate laws.
If such real estate recordings are not required and if any of the
foregoing events were to occur, the only recourse of the
Certificateholders would be against the Mortgage Collateral Seller
pursuant to its repurchase obligation for breach of representations
or warranties.
The Company will assign its security interests in the
Manufactured Homes to the Trustee on behalf of the
Certificateholders. See "Description of the Certificates-Assignment
of Contracts." Unless otherwise specified in the related Prospectus
Supplement, if a Manufactured Home is governed by the applicable
motor vehicle laws of the relevant state neither the Company nor the
Trustee will amend the certificates of title to identify the Trustee
as the new secured party. Accordingly, the Company or such other
entity as may be specified in the Prospectus Supplement will
continue to be named as the secured party on the certificates of
title relating to the Manufactured Homes. However, there exists a
risk that, in the absence of an amendment to the certificate of
title, such assignment of the security interest may not be held
effective against subsequent purchasers of a Manufactured Home or
subsequent lenders who take a security interest in the Manufactured
Home or creditors of the assignor.
If the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is
registered and if steps are not taken to re-perfect the Trustee's
security interest in such state, the security interest in the
Manufactured Home will cease to be perfected. While in many
circumstances the Trustee would have the opportunity to re-perfect
its security interest in the Manufactured Home in the state of
relocation, there can be no assurance that the Trustee will be able
to do so.
When a Mortgagor under a Contract sells a Manufactured Home, the
Trustee, or the Servicer or the Master Servicer on behalf of the
Trustee, must surrender possession of the certificate of title or
will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the
related lien before release of the lien.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority over a perfected security interest.
The applicable Mortgage Collateral Seller generally will represent
that it has no knowledge of any such liens with respect to any
Manufactured Home securing payment on any Contract. However, such
liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee or Certificateholders in the
event such a lien arises and such lien would not give rise to a
repurchase obligation on the part of the party specified in the
Pooling and Servicing Agreement.
To the extent that Manufactured Homes are not treated as real
property under applicable state law, contracts generally are
"chattel paper" as defined in the UCC in effect in the states in
which the Manufactured Homes initially were registered. 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
Pooling and Servicing Agreement, the Master Servicer or the Company,
as the case may be, will transfer physical possession of the
Contracts to the Trustee or its Custodian. In addition, the Master
Servicer 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
marked otherwise to reflect their assignment from the Company to the
Trustee. Therefore, if 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. To the extent that Manufactured Homes are treated as real
property under applicable state law, Contracts will be treated in a
manner similar to that described above with regard to Mortgage
Loans. See " The Mortgage Loans" above.
Enforcement of Security Interests in Manufactured Homes
The Servicer or the Master Servicer on behalf of the Trustee, to
the extent required by the related Pooling and Servicing Agreement,
may take action to enforce the Trustee's security interest with
respect to Contracts in default by repossession and sale of the
Manufactured Homes securing such defaulted Contracts. So long as the
Manufactured Home has not become subject to real estate law, a
creditor generally can repossess a Manufactured Home securing a
Contract by voluntary surrender, by "self-help" repossession that is
"peaceful" or, in the absence of voluntary surrender and the ability
to repossess without breach of the peace, by judicial process. 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
debtor may also have a right to redeem the Manufactured Home at or
before resale.
Certain 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 judgment. For a discussion of
deficiency judgments, see " The Mortgage Loans-Anti-Deficiency
Legislation and Other Limitations on Lenders" above.
Consumer Protection Laws
If the transferor of a consumer credit contract is also the
seller of goods that give rise to the transaction (and, in certain
cases, related lenders and assignees), the "Holder-in-Due-Course"
rule of the Federal Trade Commission is intended to defeat the
ability of such transferor 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
that the debtor could assert against the seller of goods. Liability
under this rule is limited to amounts paid under a Contract;
however, the Mortgagor also may be able to assert the rule to set
off remaining amounts due as a defense against a claim brought
against such Mortgagor. 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.
"Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the
related Manufactured Homes without the consent of the Company, the
Master Servicer or the Servicer and permit the acceleration of the
maturity of the Contracts by the Company, the Master Servicer or the
Servicer upon any such sale or transfer that is not consented to.
Unless otherwise specified in the related Prospectus Supplement, the
Company, the Master Servicer or the Servicer generally will permit
most transfers of Manufactured Homes and not accelerate the maturity
of the related Contracts. In certain cases, the transfer may be made
by a delinquent Mortgagor in order to avoid a repossession
proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the
Company desires to accelerate the maturity of the related Contract,
the Company's ability to do so will depend on the enforceability
under state law of the "due-on-sale" clause. The Garn-St Germain Act
preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of "due-on-sale" clauses applicable to the
Manufactured Homes. In some states the Company or the Master
Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V provides that, subject to certain conditions, state usury
limitations shall not apply to any loan that is secured by a first
lien on certain kinds of manufactured housing. For a discussion of
Title V, see "-The Mortgage Loans-Applicability of Usury Laws"
above. Unless otherwise specified in the related Pooling and
Servicing Agreement, each Mortgage Collateral Seller, or another
specified party, will represent that all of the Contracts comply
with applicable usury laws.
Environmental Legislation
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Most environmental statutes create
obligations for any party that can be classified as the "owner" or
"operator" of a "facility" (referring to both operating facilities
and to real property). Under the laws of some states and under the
federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, a lender may be liable, as an "owner" or
"operator," for costs arising out of releases or threatened releases
of hazardous substances that require remedy at a mortgaged property,
if agents or employees of the lender have become sufficiently
involved in the operations of the borrower or, subsequent to a
foreclosure, in the management of the property. Such liability may
arise regardless of whether the environmental damage or threat was
caused by a prior owner.
Under federal and certain state laws, contamination of a property
may give rise to a lien on the property to assure the payment of
costs of clean-up. Under federal law and in several states, such a
lien has priority over the lien of an existing mortgage against such
property. If a lender is or becomes directly liable following a
foreclosure, it may be precluded from bringing an action for
contribution against the owner or operator who created the
environmental hazard. Such clean-up costs may be substantial. It is
possible that such costs could become a liability of the related
Trust Fund and occasion a loss to Certificateholders in certain
circumstances described above if such remedial costs were incurred.
Except as otherwise specified in the applicable Prospectus
Supplement, at the time the Mortgage Loans or Contracts were
originated, no environmental assessment or a very limited
environment assessment of the Mortgaged Properties will have been
conducted.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Relief Act, a borrower who enters military
service after the origination of such borrower's mortgage loan or
contract (including a borrower who was in reserve status and is
called to active duty after origination of the mortgage loan or
contract), may not be charged interest (including fees and charges)
above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application
of the lender. The Relief Act applies to borrowers who are members
of the Air Force, Army, Marines, Navy, National Guard, Reserves or
Coast Guard, and officers of the U.S. Public Health Service assigned
to duty with the military. Because the Relief Act applies to
borrowers who enter military service (including reservists who are
called to active duty) after origination of the related mortgage
loan or contract, no information can be provided as to the number of
Mortgage Loans or Contracts that may be affected by the Relief Act.
With respect to Mortgage Loans or Contracts included in a Trust
Fund, application of the Relief Act would adversely affect, for an
indeterminate period of time, the ability of the Servicer or the
Master Servicer, as applicable, to collect full amounts of interest
on such Mortgage Collateral. Any shortfall in interest collections
resulting from the application of the Relief Act or similar
legislation or regulations, which would not be recoverable from the
related Mortgage Loans or Contracts, would result in a reduction of
the amounts distributable to the holders of the related
Certificates, and would not be covered by Advances or any form of
credit enhancement provided in connection with the related series of
Certificates. In addition, the Relief Act imposes limitations that
would impair the ability of the Servicer or the Master Servicer, as
applicable, to foreclose on an affected Mortgage Loan or Contract
during the Mortgagor's period of active duty status, and, under
certain circumstances, during an additional three month period
thereafter. Thus, in the event that the Relief Act or similar
legislation or regulations applies to any Mortgage Loan or Contract
which goes into default, there may be delays in payment and losses
on the related Certificates in connection therewith. Any other
interest shortfalls, deferrals or forgiveness of payments on the
Mortgage Loans or Contracts resulting from similar legislation or
regulations may result in delays in payments or losses to
Certificateholders of the related series.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the
borrower to pay a late charge or additional interest if payments are
not timely made, and in some circumstances, may prohibit prepayments
for a specified period and/or condition prepayments upon the
borrower's payment of prepayment fees or yield maintenance
penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a
borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional
charge if the loan is prepaid. In addition, the enforceability of
provisions that provide for prepayment fees or penalties upon an
involuntary prepayment is unclear under the laws of many states.
Most conventional single-family mortgage loans may be prepaid in
full or in part without penalty. The regulations of the Federal Home
Loan Bank Board, as succeeded by 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 the Mortgage Loans.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer
Influenced and Corrupt Organizations ("RICO") statute can be seized
by the government if the property was used in, or purchased with the
proceeds of, such crimes. Under procedures contained in the
Comprehensive Crime Control Act of 1984 (the "Crime Control Act"),
the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may
give notice to all parties "known to have an alleged interest in the
property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if
it establishes that: (i) its mortgage was executed and recorded
before commission of the crime upon which the forfeiture is based,
or (ii) the lender was, at the time of execution of the mortgage,
"reasonably without cause to believe" that the property was used in,
or purchased with the proceeds of, illegal drug or RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain anticipated
material federal income tax consequences of the purchase, ownership
and disposition of the Certificates offered hereunder. This
discussion has been prepared with the advice of Orrick, Herrington
& Sutcliffe and Thacher Proffitt & Wood, counsel to the Company.
This discussion is directed solely to Certificateholders that hold
the Certificates as capital assets within the meaning of Section
1221 of the Code and does not purport to discuss all federal income
tax consequences that may be applicable to particular categories of
investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special rules. In addition, the
authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations,
which could apply retroactively. Taxpayers and preparers of tax
returns (including those filed by any REMIC or other issuer) should
be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to
events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions,
and (ii) is directly relevant to the determination of an entry on a
tax return. Accordingly, taxpayers should consult their tax advisors
and tax return preparers regarding the preparation of any item on a
tax return, even where the anticipated tax treatment has been
discussed herein or in a Prospectus Supplement. In addition to the
federal income tax consequences described herein, potential
investors should consider the state and local tax consequences, if
any, of the purchase, ownership and disposition of the Certificates.
See "State and Other Tax Consequences." Certificateholders are
advised to consult their tax advisors concerning the federal, state,
local or other tax consequences to them of the purchase, ownership
and disposition of the Certificates offered hereunder.
The following discussion addresses certificates (the "REMIC
Certificates") representing interests in a Trust Fund, or a portion
thereof, which the Master Servicer or Certificate Administrator, as
applicable, will covenant to elect to have treated as a REMIC under
Sections 860A through 860G (the "REMIC Provisions") of the Code. The
Prospectus Supplement for each series of Certificates will indicate
whether a REMIC election (or elections) will be made for the related
Trust Fund and, if such an election is to be made, will identify all
"regular interests" and "residual interests" in the REMIC. If a
REMIC election will not be made for a Trust Fund, the federal income
consequences of the purchase, ownership and disposition of the
related Certificates will be set forth in the related Prospectus
Supplement. For purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a
Certificate.
The following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections
1271 through 1273 and Section 1275 of the Code and in the Treasury
regulations issued thereunder (the "OID Regulations"), and in part
upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations, which are
effective with respect to debt instruments issued on or after April
4, 1994, do not adequately address certain issues relevant to, and
in some instances provide that they are not applicable to,
securities such as the Certificates.
REMICs
Classification of REMICs
Upon the issuance of each series of REMIC Certificates, Orrick,
Herrington & Sutcliffe or Thacher Proffitt & Wood, counsel to the
Company, will deliver their opinion generally to the effect that,
assuming compliance with all provisions of the related Pooling and
Servicing Agreement or Trust Agreement, the related Trust Fund (or
each applicable portion thereof) will qualify as a REMIC and the
REMIC Certificates offered with respect thereto will be considered
to evidence ownership of "regular interests" ("REMIC Regular
Certificates") or "residual interests" ("REMIC Residual
Certificates") in that REMIC within the meaning of the REMIC
Provisions.
If an entity electing to be treated as a REMIC fails to comply
with one or more of the ongoing requirements of the Code for such
status during any taxable year, the Code provides that the entity
will not be treated as a REMIC for such year and thereafter. In that
event, such entity may be taxable as a separate corporation under
Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below.
Although the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent
termination of REMIC status, no such regulations have been issued.
Any such relief, moreover, may be accompanied by sanctions, such as
the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such
status are not satisfied. The Pooling and Servicing Agreement or
Trust Agreement, with respect to each REMIC will include provisions
designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust
Fund as a REMIC will be terminated.
Characterization of Investments in REMIC Certificates
In general, the REMIC Certificates will be "qualifying real
property loans" within the meaning of Section 593(d) of the Code,
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code and assets described in Section 7701(a)(19)(C) of the Code
in the same proportion that the assets of the REMIC underlying such
Certificates would be so treated. Moreover, if 95% or more of the
assets of the REMIC qualify for any of the foregoing treatments at
all times during a calendar year, the REMIC Certificates will
qualify for the corresponding status in their entirety for that
calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the class of
REMIC Residual Certificates will be interest described in Section
856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" within the meaning of
Section 860G(a)(3)(C) of the Code if transferred to another REMIC on
its startup day in exchange for regular or residual interests
therein. The determination as to the percentage of the REMIC's
assets that constitute assets described in the foregoing sections of
the Code will be made with respect to each calendar quarter based on
the average adjusted basis of each category of the assets held by
the REMIC during such calendar quarter. The Master Servicer or the
Certificate Administrator, as applicable, will report those
determinations to Certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage
Collateral, payments on Mortgage Collateral held pending
distribution on the REMIC Certificates and property acquired by
foreclosure held pending sale, and may include amounts in reserve
accounts. It is unclear whether property acquired by foreclosure
held pending sale and amounts in reserve accounts would be
considered to be part of the Mortgage Collateral, or whether such
assets (to the extent not invested in assets described in the
foregoing sections) otherwise would receive the same treatment as
the Mortgage Collateral for purposes of all of the foregoing
sections. In addition, in some instances Mortgage Collateral
(including Additional Collateral Loans) may not be treated entirely
as assets described in the foregoing sections. If the assets of a
REMIC include Additional Collateral Loans, the non-real property
collateral, while itself not an asset of the REMIC, could cause the
Mortgage Collateral not to qualify for one or more of such
characterizations. If so, the related Prospectus Supplement will
describe the Mortgage Collateral (including Additional Collateral
Loans) that may not be so treated. The REMIC Regulations do provide,
however, that payments on Mortgage Collateral held pending
distribution are considered part of the Mortgage Collateral for
purposes of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more separate
elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax
purposes. Upon the issuance of any such series of REMIC
Certificates, Orrick, Herrington & Sutcliffe or Thacher Proffitt &
Wood, counsel to the Company, will deliver their opinion generally
to the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement or Trust Agreement, the
Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs, respectively, will be
considered to evidence ownership of REMIC Regular Certificates or
REMIC Residual Certificates in the related REMIC within the meaning
of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates
will be "qualifying real property loans" under Section 593(d) of the
Code, "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code, and "loans secured by an interest in real
property" under Section 7701(a)(19)(C) of the Code, and whether the
income on such Certificates is interest described in Section
856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC
Regular Certificates will be treated for federal income tax purposes
as debt instruments issued by the REMIC and not as ownership
interests in the REMIC or its assets. Moreover, holders of REMIC
Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may
be issued with "original issue discount" within the meaning of
Section 1273(a) of the Code. Any holders of REMIC Regular
Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues,
in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to
REMIC Regular Certificates and certain other debt instruments issued
with original issue discount. Regulations have not been issued under
that section.
The Code requires that a prepayment assumption be used with
respect to Mortgage Collateral held by a REMIC in computing the
accrual of original issue discount on REMIC Regular Certificates
issued by that REMIC, and that adjustments be made in the amount and
rate of accrual of such discount to reflect differences between the
actual prepayment rate and the prepayment assumption. The prepayment
assumption is to be determined in a manner prescribed in Treasury
regulations; as noted above, those regulations have not been issued.
The Conference Committee Report (the "Committee Report")
accompanying the Tax Reform Act of 1986 indicates that the
regulations will provide that the prepayment assumption used with
respect to a REMIC Regular Certificate must be the same as that used
in pricing the initial offering of such REMIC Regular Certificate.
The Prepayment Assumption used by the Master Servicer or the
Certificate Administrator, as applicable, in reporting original
issue discount for each series of REMIC Regular Certificates will be
consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Company, the Master
Servicer nor the Certificate Administrator will make any
representation that the Mortgage Collateral will in fact prepay at
a rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular
Certificate will be the excess of its stated redemption price at
maturity over its issue price. The issue price of a particular class
of REMIC Regular Certificates will be the first cash price at which
a substantial amount of REMIC Regular Certificates of that class is
sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of
their initial issuance (the "Closing Date"), the issue price for
such class will be treated as the fair market value of such class on
the Closing Date. Under the OID Regulations, the stated redemption
price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated
interest." "Qualified stated interest" includes interest that is
unconditionally payable at least annually at a single fixed rate, or
in the case of a variable rate debt instrument, at a "qualified
floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified
inverse floating rate," or a combination of "qualified floating
rates" that generally does not operate in a manner that accelerates
or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable
interest rates, the determination of the total amount of original
issue discount and the timing of the inclusion thereof will vary
according to the characteristics of such REMIC Regular Certificates.
If the original issue discount rules apply to such Certificates, the
related Prospectus Supplement will describe the manner in which such
rules will be applied by the Master Servicer or the Certificate
Administrator, as applicable, with respect to those Certificates in
preparing information returns to the Certificateholders and the
Internal Revenue Service ("IRS").
Certain classes of the REMIC Regular Certificates may provide for
the first interest payment with respect to such Certificates to be
made more than one month after the date of issuance, a period which
is longer than the subsequent monthly intervals between interest
payments. Assuming the "accrual period" (as defined herein) for
original issue discount is each monthly period that ends on a
Distribution Date, in some cases, as a consequence of this "long
first accrual period," some or all interest payments may be required
to be included in the stated redemption price of the REMIC Regular
Certificate and accounted for as original issue discount. Because
interest on REMIC Regular Certificates must in any event be
accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in
income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins
prior to the Closing Date, a portion of the purchase price paid for
a REMIC Regular Certificate will reflect such accrued interest. In
such cases, information returns to the Certificateholders and the
IRS will be based on the position that the portion of the purchase
price paid for the interest accrued with respect to periods prior to
the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of
which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the
first Distribution Date in excess of interest accrued for a number
of days corresponding to the number of days from the Closing Date to
the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued interest
may be treated as a separate asset the cost of which is recovered
entirely out of interest paid on the first Distribution Date. It is
unclear how an election to do so would be made under the OID
Regulations and whether such an election could be made unilaterally
by a Certificateholder.
Notwithstanding the general definition of original issue
discount, original issue discount on a REMIC Regular Certificate
will be considered to be de minimis if it is less than 0.25% of the
stated redemption price of the REMIC Regular Certificate multiplied
by its weighted average maturity. For this purpose, the weighted
average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the
stated redemption price of such REMIC Regular Certificate, by
multiplying (i) the number of complete years (rounding down for
partial years) from the issue date until such payment is expected to
be made (presumably taking into account the Prepayment Assumption)
by (ii) a fraction, the numerator of which is the amount of the
payment, and the denominator of which is the stated redemption price
at maturity of such REMIC Regular Certificate. Under the OID
Regulations, original issue discount of only a de minimis amount
(other than de minimis original issue discount attributable to a so-called
"teaser" interest rate or
an initial interest holiday) will
be included in income as each payment of stated principal is made,
based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount
of such principal payment and the denominator of which is the
outstanding stated principal amount of the REMIC Regular
Certificate. The OID Regulations also would permit a
Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See
" Market Discount" for a description of such election under the OID
Regulations.
If original issue discount on a REMIC Regular Certificate is in
excess of a de minimis amount, the holder of such Certificate must
include in ordinary gross income the sum of the "daily portions" of
original issue discount for each day during its taxable year on
which it held such REMIC Regular Certificate, including the purchase
date but excluding the disposition date. In the case of an original
holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in
the related Prospectus Supplement, each period that ends on a date
that corresponds to a Distribution Date and begins on the first day
following the immediately preceding accrual period (or in the case
of the first such period, begins on the Closing Date), a calculation
will be made of the portion of the original issue discount that
accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess,
if any, of (i) the sum of (A) the present value, as of the end of
the accrual period, of all of the distributions remaining to be made
on the REMIC Regular Certificate, if any, in future periods and (B)
the distributions made on such REMIC Regular Certificate during the
accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will
be calculated (1) assuming that distributions on the REMIC Regular
Certificate will be received in future periods based on the Mortgage
Collateral being prepaid at a rate equal to the Prepayment
Assumption and (2) using a discount rate equal to the original yield
to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its
issue price and assuming that distributions on the Certificate will
be made in all accrual periods based on the Mortgage Collateral
being prepaid at a rate equal to the Prepayment Assumption. The
adjusted issue price of a REMIC Regular Certificate at the beginning
of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue
discount that accrued with respect to such Certificate in prior
accrual periods, and reduced by the amount of any distributions made
on such REMIC Regular Certificate in prior accrual periods of
amounts included in its stated redemption price. The original issue
discount accruing during any accrual period, computed as described
above, will be allocated ratably to each day during the accrual
period to determine the daily portion of original issue discount for
such day.
The OID Regulations suggest that original issue discount with
respect to securities that represent multiple uncertificated REMIC
regular interests, in which ownership interests will be issued
simultaneously to the same buyer and which may be required under the
related Pooling and Servicing Agreement to be transferred together,
should be computed on an aggregate method. In the absence of further
guidance from the IRS, original issue of multiple uncertificated
REMIC regular interests will be reported to the IRS and the
Certificateholders on an aggregate method based on a single overall
constant yield and the prepayment assumption stated in the related
Prospectus Supplement, treating all such uncertificated regular
interests as a single debt instrument as set forth in the OID
Regulations, so long as the Pooling and Servicing Agreement requires
that such uncertificated regular interests be transferred together.
A subsequent purchaser of a REMIC Regular Certificate that
purchases such Certificate at a cost (excluding any portion of such
cost attributable to accrued qualified stated interest) less than
its remaining stated redemption price will also be required to
include in gross income the daily portions of any original issue
discount with respect to such Certificate. However, each such daily
portion will be reduced, if such cost is in excess of its "adjusted
issue price," in proportion to the ratio such excess bears to the
aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC
Regular Certificate on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period,
the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of
original issue discount for all days during such accrual period
prior to such day.
Market Discount. A Certificateholder that purchases a REMIC
Regular Certificate at a market discount, that is, in the case of a
REMIC Regular Certificate issued without original issue discount, at
a purchase price less than its remaining stated principal amount, or
in the case of a REMIC Regular Certificate issued with original
issue discount, at a purchase price less than its adjusted issue
price will recognize income upon receipt of each distribution
representing stated redemption price. In particular, under Section
1276 of the Code such a Certificateholder generally will be required
to allocate the portion of each such distribution representing
stated redemption price first to accrued market discount not
previously included in income, and to recognize ordinary income to
that extent. A Certificateholder may elect to include market
discount in income currently as it accrues rather than including it
on a deferred basis in accordance with the foregoing. If made, such
election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable
year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to a REMIC
Regular Certificate with market discount, the Certificateholder
would be deemed to have made an election to include currently market
discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the
taxable year of the election or thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made this
election for a Certificate that is acquired at a premium would be
deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that
such Certificateholder owns or acquires. See " Premium." Each of
these elections to accrue interest, discount and premium with
respect to a Certificate on a constant yield method or as interest
would be irrevocable.
However, market discount with respect to a REMIC Regular
Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if such market discount is less than 0.25%
of the remaining stated redemption price of such REMIC Regular
Certificate multiplied by the number of complete years to maturity
remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable
in installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into
account the Prepayment Assumption. If market discount is treated as
de minimis under this rule, it appears that the actual discount
would be treated in a manner similar to original issue discount of
a de minimis amount. See " Original Issue Discount." Such treatment
would result in discount being included in income at a slower rate
than discount would be required to be included in income using the
method described above.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal of
which is payable in more than one installment. Until regulations are
issued by the Treasury Department, certain rules described in the
Committee Report apply. The Committee Report indicates that in each
accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a
constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as
the stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in
the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount accrued in
the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is to be used in
calculating the accrual of market discount. Because the regulations
referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the
tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly
or other periodic distributions throughout their term, the effect of
these rules may be to require market discount to be includible in
income at a rate that is not significantly slower than the rate at
which such discount would accrue if it were original issue discount.
Moreover, in any event a holder of a REMIC Regular Certificate
generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the
extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount
previously reported as ordinary income.
In addition, under Section 1277 of the Code, a holder of a REMIC
Regular Certificate may be required to defer a portion of its
interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry a REMIC
Regular Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a
deduction not later than the year in which such market discount is
includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not
apply.
Premium. A REMIC Regular Certificate purchased at a cost
(excluding any portion of such cost attributable to accrued
qualified stated interest) greater than its remaining stated
redemption price will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant
yield method over the life of the Certificate. If made, such an
election will apply to all debt instruments having amortizable bond
premium that the holder owns or subsequently acquires. Amortizable
premium will be treated as an offset to interest income on the
related REMIC Regular Certificate, rather than as a separate
interest deduction. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and
premium in income based on a constant yield method, further treating
the Certificateholder as having made the election to amortize
premium generally. See " Market Discount." The Committee Report
states that the same rules that apply to accrual of market discount
(which rules will require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have original issue discount)
will also apply in amortizing bond premium under Section 171 of the
Code.
Realized Losses. Under Section 166 of the Code, both corporate
holders of the REMIC Regular Certificates and noncorporate holders
of the REMIC Regular Certificates that acquire such Certificates in
connection with a trade or business should be allowed to deduct, as
ordinary losses, any losses sustained during a taxable year in which
their Certificates become wholly or partially worthless as the
result of one or more Realized Losses on the Mortgage Collateral.
However, it appears that a noncorporate holder that does not acquire
a REMIC Regular Certificate in connection with a trade or business
will not be entitled to deduct a loss under Section 166 of the Code
until such holder's Certificate becomes wholly worthless (i.e.,
until its outstanding principal balance has been reduced to zero)
and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to
accrue interest and original issue discount with respect to such
Certificate, without giving effect to any reductions in
distributions attributable to defaults or delinquencies on the
Mortgage Collateral or the Agency Certificates until it can be
established that any such reduction ultimately will not be
recoverable. As a result, the amount of taxable income reported in
any period by the holder of a REMIC Regular Certificate could exceed
the amount of economic income actually realized by the holder in
such period. Although the holder of a REMIC Regular Certificate
eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a
realized loss, ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or reduction
in income.
Taxation of Owners of REMIC Residual Certificates
General. As residual interests, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those
that would apply if the REMIC Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the
Mortgage Collateral or as debt instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be
required to report its daily portion of the taxable income or,
subject to the limitations noted in this discussion, the net loss of
the REMIC for each day during a calendar quarter that such holder
owned such REMIC Residual Certificate. For this purpose, the taxable
income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in
the related Prospectus Supplement. The daily amounts will then be
allocated among the REMIC Residual Certificateholders in proportion
to their respective ownership interests on such day. Any amount
included in the gross income or allowed as a loss of any REMIC
Residual Certificateholder by virtue of this allocation will be
treated as ordinary income or loss. The taxable income of the REMIC
will be determined under the rules described below in
" Taxable Income of the REMIC" and will be taxable to the REMIC
Residual Certificateholders without regard to the timing or amount
of cash distributions by the REMIC. Ordinary income derived from
REMIC Residual Certificates will be "portfolio income" for purposes
of the taxation of taxpayers subject to limitations under Section
469 of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be
required to report on its federal income tax return amounts
representing its daily portion of the taxable income (or net loss)
of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the amounts
of taxable income or net loss determined as described above. The
Committee Report indicates that certain modifications of the general
rules may be made, by regulations, legislation or otherwise, to
reduce (or increase) the income or loss of a holder of a REMIC
Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price
greater than (or less than) the adjusted basis (as defined herein)
such REMIC Residual Certificate would have had in the hands of an
original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate
in connection with the acquisition of such REMIC Residual
Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears
likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization
schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of
REMIC Residual Certificates should consult their tax advisors
concerning the treatment of such payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be
required to report (or the tax liability associated with such
income) may exceed the amount of cash distributions received from
the REMIC for the corresponding period. Consequently, REMIC Residual
Certificateholders should have other sources of funds sufficient to
pay any federal income taxes due as a result of their ownership of
REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess
inclusions," residual interests without "significant value" and
"noneconomic" residual interests discussed below. The fact that the
tax liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by
such REMIC Residual Certificateholders for the corresponding period
may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC
will equal the income from the Mortgage Collateral and other assets
of the REMIC plus any cancellation of indebtedness income due to the
allocation of realized losses to REMIC Regular Certificates, less
the deductions allowed to the REMIC for interest (including original
issue discount and reduced by the amortization of any premium
received on issuance) on the REMIC Regular Certificates (and any
other class of REMIC Certificates constituting "regular interests"
in the REMIC not offered hereby), amortization of any premium on the
Mortgage Collateral, bad debt deductions with respect to the
Mortgage Collateral and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will
have an initial aggregate basis in its assets equal to their fair
market value immediately after their transfer to the REMIC. For this
purpose, the Master Servicer or the Certificate Administrator, as
applicable, intends to treat the fair market value of the Mortgage
Collateral as being equal to the aggregate issue prices of the REMIC
Regular Certificates and REMIC Residual Certificates. Such aggregate
basis will be allocated among the Mortgage Collateral collectively
and the other assets of the REMIC in proportion to their respective
fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above
under " Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount." Accordingly, if one or more classes of REMIC
Certificates are retained initially rather than sold, the Master
Servicer or the Certificate Administrator, as applicable, may be
required to estimate the fair market value of such interests in
order to determine the basis of the REMIC in the Mortgage Collateral
and other property held by the REMIC.
Subject to the possible application of the de minimis rules, the
method of accrual by the REMIC of original issue discount income and
market discount income with respect to Mortgage Collateral that it
holds will be equivalent to the method of accruing original issue
discount income for REMIC Regular Certificateholders (that is, under
the constant yield method taking into account the Prepayment
Assumption). However, a REMIC that acquires Mortgage Collateral at
a market discount must include such discount in income currently, as
it accrues, on a constant interest basis. See " Taxation of Owners
of REMIC Regular Certificates" above, which describes a method of
accruing discount income that is analogous to that required to be
used by a REMIC as to Mortgage Collateral with market discount that
it holds.
An item of Mortgage Collateral will be deemed to have been
acquired with discount (or premium) to the extent that the REMIC's
basis therein, determined as described in the preceding paragraph,
is less than (or greater than) its stated redemption price. Any such
discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for
accruing original issue discount on the REMIC Regular Certificates.
It is anticipated that each REMIC will elect under Section 171 of
the Code to amortize any premium on the Mortgage Collateral. Premium
on any item of Mortgage Collateral to which such election applies
may be amortized under a constant yield method, presumably taking
into account a Prepayment Assumption.
The REMIC will be allowed deductions for interest (including
original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) equal to the
deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were
indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under
" Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount," except that the de minimis rule and the adjustments for
subsequent holders of REMIC Regular Certificates (including any
other class of Certificates constituting "regular interests" in the
REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in
excess of the stated redemption price of such class (such excess,
"Issue Premium"), the net amount of interest deductions that are
allowed the REMIC in each taxable year with respect to the REMIC
Regular Certificates of such class will be reduced by an amount
equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized
under a constant yield method in a manner analogous to the method of
accruing original issue discount described above under " Taxation of
Owners of REMIC Regular Certificates Original Issue Discount."
As a general rule, the taxable income of the REMIC will be
determined in the same manner as if the REMIC were an individual
having the calendar year as its taxable year and using the accrual
method of accounting. However, no item of income, gain, loss or
deduction allocable to a prohibited transaction will be taken into
account. See " Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized
deductions imposed on individuals by Section 67 of the Code (which
allows such deductions only to the extent they exceed in the
aggregate two percent of the taxpayer's adjusted gross income) will
not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will
be allocated as a separate item to the holders of REMIC
Certificates, subject to the limitation of Section 67 of the Code.
See " Possible Pass-Through of Miscellaneous Itemized Deductions"
below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for
the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis
of a REMIC Residual Certificate will be equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in
the income of the related Certificateholder and decreased (but not
below zero) by distributions made, and by net losses allocated, to
such Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into
account any net loss for any calendar quarter to the extent such net
loss exceeds such REMIC Residual Certificateholder's adjusted basis
in its REMIC Residual Certificate as of the close of such calendar
quarter (determined without regard to such net loss). Any loss that
is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income
from the REMIC Residual Certificate. The ability of holders of REMIC
Residual Certificates to deduct net losses may be subject to
additional limitations under the Code, as to which such
Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated
as a non-taxable return of capital to the extent it does not exceed
the holder's adjusted basis in such REMIC Residual Certificate. To
the extent a distribution on a REMIC Residual Certificate exceeds
such adjusted basis, it will be treated as gain from the sale of
such REMIC Residual Certificate. Holders of certain REMIC Residual
Certificates may be entitled to distributions early in the term of
the related REMIC under circumstances in which their bases in such
REMIC Residual Certificates will not be sufficiently large that such
distributions will be treated as nontaxable returns of capital.
Their bases in such REMIC Residual Certificates will initially equal
the amount paid for such REMIC Residual Certificates and will be
increased by their allocable shares of taxable income of the Trust
Fund. However, such basis increases may not occur until the end of
the calendar quarter, or perhaps the end of the calendar year, with
respect to which such REMIC taxable income is allocated to the
holders of REMIC Residual Certificates. To the extent such
Certificateholders' initial bases are less than the distributions to
such REMIC Residual Certificateholders, and increases in such
initial bases either occur after such distributions or (together
with their initial bases) are less than the amount of such
distributions, gain will be recognized to such Certificateholders on
such distributions and will be treated as gain from the sale of
their REMIC Residual Certificates.
The effect of these rules is that a Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of
its share of any net losses of the REMIC or upon the sale of its
REMIC Residual Certificate. See " Sales of REMIC Certificates"
below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to
reflect any difference between the cost of such REMIC Residual
Certificate to such holder and the adjusted basis such REMIC
Residual Certificate would have had in the hands of the original
holder, see " General" above.
Excess Inclusions. Any "excess inclusions" with respect to a
REMIC Residual Certificate will, with an exception discussed below
for certain REMIC Residual Certificates held by thrift institutions,
be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC
Residual Certificate for any calendar quarter will be the excess, if
any, of (i) the sum of the daily portions of REMIC taxable income
allocable to such REMIC Residual Certificate over (ii) the sum of
the "daily accruals" (as defined herein) for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC
Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day
during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term federal
rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC
Residual Certificate, increased by the sum of the daily accruals for
all prior quarters and decreased (but not below zero) by any
distributions made with respect to such REMIC Residual Certificate
before the beginning of such quarter. The issue price of a REMIC
Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of
the REMIC Residual Certificates were sold. The "long-term federal
rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published
monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i)
will not be permitted to be offset by deductions, losses or loss
carryovers from other activities, (ii) will be treated as "unrelated
business taxable income" to an otherwise tax-exempt organization and
(iii) will not be eligible for any rate reduction or exemption under
any applicable tax treaty with respect to the 30% United States
withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however,
" Foreign Investors in REMIC Certificates" below.
As an exception to the general rules described above, thrift
institutions are allowed to offset their excess inclusions with
unrelated deductions, losses or loss carryovers, but only if the
REMIC Residual Certificates are considered to have "significant
value." The REMIC Regulations provide that in order to be treated as
having significant value, the REMIC Residual Certificates must have
an aggregate issue price at least equal to two percent of the
aggregate issue prices of all of the related REMIC's Regular and
Residual Certificates. In addition, based on the Prepayment
Assumption, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20% of the anticipated
weighted average life of the REMIC and on any required or permitted
clean up calls or required qualified liquidation provided for in the
REMIC's organizational documents. Although it has not done so, the
Treasury also has authority to issue regulations that would treat
the entire amount of income accruing on a REMIC Residual Certificate
as an excess inclusion if the REMIC Residual Certificates are
considered not to have "significant value." The related Prospectus
Supplement will disclose whether offered REMIC Residual Certificates
may be considered to have "significant value" under the REMIC
Regulations; except that any disclosure that a REMIC Residual
Certificate will have "significant value" will be based upon certain
assumptions, and the Company will make no representation that a
REMIC Residual Certificate will have "significant value" for
purposes of the above-described rules. The above-described exception
for thrift institutions applies only to those residual interests
held directly by, and deductions, losses and loss carryovers
incurred by, such institutions (and not by other members of an
affiliated group of corporations filing a consolidated income tax
return) or by certain wholly-owned direct subsidiaries of such
institutions formed or operated exclusively in connection with the
organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real
estate investment trust, the aggregate excess inclusions with
respect to such REMIC Residual Certificates, reduced (but not below
zero) by the real estate investment trust taxable income (within the
meaning of Section 857(b)(2) of the Code, excluding any net capital
gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such
trust, and any amount so allocated will be treated as an excess
inclusion with respect to a REMIC Residual Certificate as if held
directly by such shareholder. Treasury regulations yet to be issued
could apply a similar rule to regulated investment companies, common
trust funds and certain cooperatives; the REMIC Regulations
currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC
Regulations, transfers of "noneconomic" REMIC Residual Certificates
will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to
impede the assessment or collection of tax." If such transfer is
disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic"
REMIC Residual Certificate. The REMIC Regulations provide that a
REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up
calls, or required qualified liquidation provided for in the REMIC's
organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable federal rate"
for obligations whose term ends on the close of the last quarter in
which excess inclusions are expected to accrue with respect to the
REMIC Residual Certificate, which rate is computed and published
monthly by the IRS) on the REMIC Residual Certificate equals at
least the present value of the expected tax on the anticipated
excess inclusions, and (2) the transferor reasonably expects that
the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. Accordingly, all transfers of REMIC Residual
Certificates that may constitute noneconomic residual interests will
be subject to certain restrictions under the terms of the related
Pooling and Servicing Agreement or Trust Agreement that are intended
to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide
an affidavit that no purpose of such transfer is to impede the
assessment or collection of tax, including certain representations
as to the financial condition of the prospective transferee, as to
which the transferor also is required to make a reasonable
investigation to determine such transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in
the future. Prior to purchasing a REMIC Residual Certificate,
prospective purchasers should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a
purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which would
result in the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered
REMIC Residual Certificates may be considered "noneconomic" residual
interests under the REMIC Regulations. Any such disclosure that a
REMIC Residual Certificate will not be considered "noneconomic" will
be based upon certain assumptions, and the Company will make no
representation that a REMIC Residual Certificate will not be
considered "noneconomic" for purposes of the above-described rules.
See " Foreign Investors in REMIC Certificates" below for additional
restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On December 28, 1993, the IRS released
temporary 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 owned by 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" REMIC
Residual Certificate is not treated as a security and thus generally
may not be marked to market. This exclusion from the mark-to-market
requirement is expanded to include all REMIC Residual Certificates
under proposed Treasury regulations published January 4, 1995 which
provide that any REMIC Residual Certificate issued after January 4,
1995 will not be treated as a security and therefore generally may
not be marked to market. Prospective purchasers of a REMIC Residual
Certificate should consult their tax advisors regarding the possible
application of the mark-to-market requirement to REMIC Residual
Certificates.
Possible Pass-Through of Miscellaneous Itemized Deductions.
Fees and expenses of a REMIC generally will be allocated to the
holders of the related REMIC Residual Certificates. The applicable
Treasury regulations indicate, however, that in the case of a REMIC
that is similar to a single class grantor trust, all or a portion of
such fees and expenses should be allocated to the holders of the
related REMIC Regular Certificates. Unless otherwise stated in the
related Prospectus Supplement, such fees and expenses will be
allocated to holders of the related REMIC Residual Certificates in
their entirety and not to the holders of the related REMIC Regular
Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and
expenses in accordance with the preceding discussion, if any holder
thereof is an individual, estate or trust, or a "pass-through
entity" beneficially owned by one or more individuals, estates or
trusts, (i) an amount equal to such individual's, estate's or
trust's share of such fees and expenses will be added to the gross
income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a
miscellaneous itemized deduction allowable subject to the limitation
of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's
adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount
will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or (ii) 80% of
the amount of itemized deductions otherwise allowable for the
taxable year. The amount of additional taxable income reportable by
REMIC Certificateholders that are subject to the limitations of
either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual,
estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, no deduction will be
allowed for such holder's allocable portion of servicing fees and
other miscellaneous itemized deductions of the REMIC, even though an
amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC
Certificates may not be appropriate investments for individuals,
estates, or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective
investors should consult with their tax advisors prior to making an
investment in such Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder
will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate
generally will equal the cost of such REMIC Regular Certificate to
such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate
(including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular
Certificate received by such Certificateholder and by any amortized
premium. The adjusted basis of a REMIC Residual Certificate will be
determined as described under " Taxation of Owners of REMIC Residual
Certificates Basis Rules, Net Losses and Distributions" above.
Except as described below, any such gain or loss generally will be
capital gain or loss. The Code as of the date of this Prospectus
provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of
28%. No such rate differential exists for corporations. In addition,
the distinction between a capital gain or loss and ordinary income
or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the
extent such gain does not exceed the excess, if any, of (i) the
amount that would have been includible in the seller's income with
respect to such REMIC Regular Certificate had income accrued thereon
at a rate equal to 110% of the "applicable federal rate" (generally,
a rate based on an average of current yields on Treasury securities
having a maturity comparable to that of the Certificate, which rate
is computed and published monthly by the IRS), determined as of the
date of purchase of such REMIC Regular Certificate, over (ii) the
amount of ordinary income actually includible in the seller's income
prior to such sale. In addition, gain recognized on the sale of a
REMIC Regular Certificate by a seller who purchased such REMIC
Regular Certificate at a market discount will be taxable as ordinary
income to the extent of any accrued and previously unrecognized
market discount that accrued during the period the Certificate was
held. See " Taxation of Owners of REMIC Regular Certificates Market
Discount" above.
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss
recognized from the sale of a REMIC Certificate by a bank or thrift
institution to which such section applies will be ordinary income or
loss.
A portion of any gain from the sale of a REMIC Regular
Certificate that might otherwise be capital gain may be treated as
ordinary income to the extent that such Certificate is held as part
of a "conversion transaction" within the meaning of Section 1258 of
the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all
of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in such transaction. The amount of gain so
realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest
that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable federal rate" (which rate is computed
and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction
for prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to
include such net capital gain in total net investment income for the
taxable year, for purposes of the limitation on the deduction of
interest on indebtedness incurred to purchase or carry property held
for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires the
Certificate, any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i)
of the Code) within six months of the date of such sale, the sale
will be subject to the "wash sale" rules of Section 1091 of the
Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but instead
will be added to such REMIC Residual Certificateholder's adjusted
basis in the newly-acquired asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions
Tax"). In general, subject to certain specified exceptions a
prohibited transaction means the disposition of an item of Mortgage
Collateral, the receipt of income from a source other than an item
of Mortgage Collateral 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 Collateral
for temporary investment pending distribution on the REMIC
Certificates. It is not anticipated that any REMIC will engage in
any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a REMIC made after the day
on which the REMIC issues all of its interests could result in the
imposition of a tax on the REMIC equal to 100% of the value of the
contributed property (the "Contributions Tax"). Each Pooling and
Servicing Agreement or Trust Agreement will include provisions
designed to prevent the acceptance of any contributions that would
be subject to such tax.
REMICs also are subject to federal income tax at the highest
corporate rate on "net income from foreclosure property," determined
by reference to the rules applicable to real estate investment
trusts. "Net income from foreclosure property" generally means gain
from the sale of a foreclosure property that is inventory property
and gross income from foreclosure property other than qualifying
rents and other qualifying income for a real estate investment
trust. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize "net
income from foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement,
it is not anticipated that any material state or local income or
franchise tax will be imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and
to the extent permitted by then applicable laws, any Prohibited
Transactions Tax, Contributions Tax, tax on "net income from
foreclosure property" or state or local income or franchise tax that
may be imposed on the REMIC will be borne by the related Master
Servicer, the Certificate Administrator or the Trustee in either
case out of its own funds, provided that the Master Servicer, the
Certificate Administrator or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax
arises out of a breach of the Master Servicer's, the Certificate
Administrator's or the Trustee's obligations, as the case may be,
under the related Pooling and Servicing Agreement or Trust Agreement
and in respect of compliance with applicable laws and regulations.
Any such tax not borne by the Master Servicer, the Certificate
Administrator or the Trustee will be payable out of the related
Trust Fund resulting in a reduction in amounts payable to holders of
the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates
to Certain Organizations
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product
of (i) the present value (discounted using the "applicable federal
rate" for obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue with
respect to the Certificate, which rate is computed and published
monthly by the IRS) of the total anticipated excess inclusions with
respect to such REMIC Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions must
be determined as of the date that the REMIC Residual Certificate is
transferred and must be based on events that have occurred up to the
time of such transfer, the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. Such a tax generally would be
imposed on the transferor of the REMIC Residual Certificate, except
that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent.
However, a transferor of a REMIC Residual Certificate would in no
event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of
the transfer, the transferor does not have actual knowledge that
such affidavit is false. Moreover, an entity will not qualify as a
REMIC unless there are reasonable arrangements designed to ensure
that (i) residual interests in such entity are not held by
disqualified organizations and (ii) information necessary for the
application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement
will be included in the Pooling and Servicing Agreement or Trust
Agreement, including provisions (a) requiring any transferee of a
REMIC Residual Certificate to provide an affidavit representing that
it is not a "disqualified organization" and is not acquiring the
REMIC Residual Certificate on behalf of a "disqualified
organization," undertaking to maintain such status and agreeing to
obtain a similar affidavit from any person to whom it shall transfer
the REMIC Residual Certificate, (b) providing that any transfer of
a REMIC Residual Certificate to a "disqualified person" shall be
null and void and (c) granting to the Master Servicer or the
Certificate Administrator, as applicable, the right, without notice
to the holder or any prior holder, to sell to a purchaser of its
choice any REMIC Residual Certificate that shall become owned by a
"disqualified organization" despite (a) and (b) above.
In addition, if a "pass-through entity" (as defined below)
includes in income excess inclusions with respect to a REMIC
Residual Certificate, and a disqualified organization is the record
holder of an interest in such entity, then a tax will be imposed on
such entity equal to the product of (i) the amount of excess
inclusions on the REMIC Residual Certificate that are allocable to
the interest in the pass-through entity held by such disqualified
organization and (ii) the highest marginal federal income tax rate
imposed on corporations. A pass-through entity will not be subject
to this tax for any period, however, if each record holder of an
interest in such pass-through entity furnishes to such pass-through
entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that
of the record holder or (ii) a statement under penalties of perjury
that such record holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the
United States, any State or political subdivision thereof, any
foreign government, any international organization, or any agency or
instrumentality of the foregoing (but would not include
instrumentalities described in Section 168(h)(2)(D) of the Code or
Freddie Mac), (ii) any organization (other than a cooperative
described in Section 521 of the Code) that is exempt from federal
income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section
1381(a)(2)(C) of the Code. For these purposes, a "pass-through
entity" means any regulated investment company, real estate
investment trust, trust, partnership or certain other entities
described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for
another person will, with respect to such interest, be treated as a
pass-through entity.
Termination
A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of
the Mortgage Collateral or upon a sale of the REMIC's assets
following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a REMIC Regular Certificate
will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution
on such REMIC Residual Certificate is less than the
Certificateholder's adjusted basis in such Certificate, such
Certificateholder should be treated as realizing a loss equal to the
amount of such difference, and such loss may be treated as a capital
loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code,
the REMIC will be treated as a partnership and holders of REMIC
Residual Certificates will be treated as partners. Unless otherwise
stated in the related Prospectus Supplement, the Master Servicer or
the Certificate Administrator, as applicable, will file REMIC
federal income tax returns on behalf of the related REMIC and will
be designated as and will act as the "tax matters person" for the
REMIC in all respects, and may hold a nominal amount of REMIC
Residual Certificates.
As the tax matters person, the Master Servicer or the Certificate
Administrator, as applicable, subject to certain notice requirements
and various restrictions and limitations, generally will have the
authority to act on behalf of the REMIC and the holders of REMIC
Residual Certificates in connection with the administrative and
judicial review of items of income, deduction, gain or loss of the
REMIC, as well as the REMIC's classification. Holders of REMIC
Residual Certificates generally will be required to report such
REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement
agreement between the Master Servicer or the Certificate
Administrator, as applicable, as tax matters person, and the IRS
concerning any such REMIC item. Adjustments made to the REMIC tax
return may require a holder of a REMIC Residual Certificate to make
corresponding adjustments on its return, and an audit of the REMIC's
tax return, or the adjustments resulting from such an audit, could
result in an audit of such Certificateholder's return. No REMIC will
be registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss
for any of the first five taxable years of its existence. Any person
that holds a REMIC Residual Certificate as a nominee for another
person may be required to furnish to the related REMIC, in a manner
to be provided in Treasury regulations, the name and address of such
person and other information.
Reporting of interest income, including any original issue
discount, with respect to REMIC Regular Certificates is required
annually, and may be required more frequently under Treasury
regulations. These information reports generally are required to be
sent to individual holders of REMIC Regular Interests and the IRS;
holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be
provided interest and original issue discount income information and
the information set forth in the following paragraph upon request in
accordance with the requirements of the applicable regulations. The
information must be provided by the later of 30 days after the end
of the quarter for which the information was requested, or two weeks
after the receipt of the request. The REMIC must also comply with
rules requiring a REMIC Regular Certificate issued with original
issue discount to disclose on its face certain information including
the amount of original issue discount and the issue date, and
requiring such information to be reported to the IRS. Reporting with
respect to the REMIC Residual Certificates, including income, excess
inclusions, investment expenses and relevant information regarding
qualification of the REMIC's assets will be made as required under
the Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports
will include a statement of the adjusted issue price of the REMIC
Regular Certificate at the beginning of each accrual period. In
addition, the reports will include information required by
regulations with respect to computing the accrual of any market
discount. Because exact computation of the accrual of market
discount on a constant yield method requires information relating to
the holder's purchase price that the Master Servicer or the
Certificate Administrator will not have, such regulations only
require that information pertaining to the appropriate proportionate
method of accruing market discount be provided. See " Taxation of
Owners of REMIC Regular Certificates Market Discount."
The responsibility for complying with the foregoing reporting
rules will be borne by the Master Servicer or the Certificate
Administrator. Certificateholders may request any information with
respect to the returns described in Section 1.6049-7(e)(2) of the
Treasury regulations. Such request should be directed to the Master
Servicer or the Certificate Administrator, as applicable, at
Residential Funding Corporation, 8400 Normandale Lake Boulevard,
Suite 600, Minneapolis, Minnesota 55437.
Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal, as well as payments of
proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Section 3406 of the Code at a rate of
31% if recipients of such payments fail to furnish to the payor
certain information, including their taxpayer identification
numbers, or otherwise fail to establish an exemption from such tax.
Any amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a
recipient of payments that is required to supply information but
that does not do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United States
person" and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to
its ownership of a REMIC Regular Certificate will not be subject to
United States federal income or withholding tax in respect of a
distribution on a REMIC Regular Certificate, provided that the
holder complies to the extent necessary with certain identification
requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the
name and address of such Certificateholder). For these purposes,
"United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate or trust whose income
from sources without the United States is includible in gross income
for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United
States. It is possible that the IRS may assert that the foregoing
tax exemption should not apply with respect to a REMIC Regular
Certificate held by a Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a
United States shareholder of a controlled foreign corporation from
taxation on such United States shareholder's allocable portion of
the interest income received by such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not
be included in the estate of a non-resident alien individual and
would not be subject to United States estate taxes. However,
Certificateholders who are
non-resident alien individuals should consult their tax advisors
concerning this question.
Unless otherwise stated in the related Prospectus Supplement,
transfers of REMIC Residual Certificates to investors that are not
United States persons will be prohibited under the related Pooling
and Servicing Agreement or Trust Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors
should consider the state and local tax consequences of the
acquisition, ownership, and disposition of the Certificates offered.
State tax law may differ substantially from the corresponding
federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their
tax advisors with respect to the various tax consequences of
investments in the Certificates offered hereby.
ERISA CONSIDERATIONS
ERISA imposes certain fiduciary and prohibited transaction
restrictions on employee pension and welfare benefit plans subject
to ERISA ("ERISA Plans"). Section 4975 of the Code imposes similar
prohibited transaction restrictions on tax-qualified retirement
plans described in Section 401(a) of the Code ("Qualified Retirement
Plans") and on individual retirement accounts and annuities ("IRAs")
described in Section 408 of the Code (collectively, "Tax-Favored
Plans").
Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA), are not subject to the ERISA
requirements discussed herein. Accordingly, assets of such plans may
be invested in Certificates without regard to the ERISA
considerations described below, subject to the provisions of
applicable federal and state law. Any such plan that is a Qualified
Retirement Plan and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
In addition to imposing general fiduciary requirements, including
those of investment prudence and diversification and the requirement
that a Plan's investment be made in accordance with the documents
governing the Plan, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving "plan assets"
of ERISA Plans and Tax-Favored Plans (collectively, "Plans") and
persons ("Parties in Interest" under ERISA or "Disqualified Persons"
under the Code) who have certain specified relationships to the
Plans, unless a statutory or administrative exemption is available.
Certain Parties in Interest (or Disqualified Persons) that
participate in a prohibited transaction may be subject to a penalty
(or an excise tax) imposed pursuant to Section 502(i) of ERISA or
Section 4975 of the Code, unless a statutory or administrative
exemption is available.
Plan Asset Regulations
An investment of Plan Assets in Certificates may cause the
underlying Mortgage Loans, Contracts or Agency Securities included
in a Trust Fund to be deemed "plan assets" of such Plan. The U.S.
Department of Labor (the "DOL") has promulgated regulations at 29
C.F.R. 2510.3-101 (the "DOL Regulations") concerning whether or
not a Plan's assets would be deemed to include an interest in the
underlying assets of an entity (such as a Trust Fund), for purposes
of applying the general fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and Section 4975
the Code, when a Plan acquires an "equity interest" (such as a
Certificate) in such entity. Because of the factual nature of
certain of the rules set forth in the DOL Regulations, Plan Assets
either may be deemed to include an interest in the assets of an
entity (such as a Trust Fund) or may be deemed merely to include a
Plan's interest in the instrument evidencing such equity interest
(such as a Certificate). Therefore, neither Plans nor such entities
should acquire or hold Certificates in reliance upon the
availability of any exception under the DOL Regulations. For
purposes of this section, the term "plan assets" ("Plan Assets") or
"assets of a Plan" has the meaning specified in the DOL Regulations
and includes an undivided interest in the underlying assets of
certain entities in which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code may apply to a Trust Fund and cause the
Company, the Master Servicer, the Certificate Administrator, any
Servicer, any Sub-Servicer, the Trustee, the obligor under any
credit enhancement mechanism or certain affiliates thereof to be
considered or become Parties in Interest (or Disqualified Persons)
with respect to an investing Plan (or of a Plan holding an interest
in such an entity). If so, the acquisition or holding of
Certificates by or on behalf of the investing Plan could also give
rise to a prohibited transaction under ERISA and/or Section 4975 of
the Code, unless some statutory or administrative exemption is
available. Certificates acquired by a Plan would be assets of that
Plan. Under the DOL Regulations, the Trust Fund, including the
Mortgage Loans, Contracts or Agency Securities and the other assets
held in the Trust Fund, may also be deemed to be assets of each Plan
that acquires Certificates. Special caution should be exercised
before Plan Assets are used to acquire a Certificate in such
circumstances, especially if, with respect to such Plan Assets, the
Company, the Master Servicer, the Certificate Administrator, any
Servicer, any Sub-Servicer, the Trustee, the obligor under any
credit enhancement mechanism or an affiliate thereof either (i) has
investment discretion with respect to the investment of Plan Assets;
or (ii) has authority or responsibility to give (or regularly gives)
investment advice with respect to Plan Assets for a fee pursuant to
an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such Plan
Assets.
Any person who has discretionary authority or control respecting
the management or disposition of Plan Assets, and any person who
provides investment advice with respect to such Plan Assets for a
fee (in the manner described above), is a fiduciary of the investing
Plan. If the Mortgage Loans, Contracts or Agency Securities were to
constitute Plan Assets, then any party exercising management or
discretionary control regarding those Plan Assets may be deemed to
be a Plan "fiduciary," and thus subject to the fiduciary
requirements of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to any investing
Plan. In addition, if the Mortgage Loans, Contracts or Agency
Securities were to constitute Plan Assets, then the acquisition or
holding of Certificates by, on behalf of or with Plan Assets, as
well as the operation of the Trust Fund, may constitute or result in
a prohibited transaction under ERISA and the Code.
Prohibited Transaction Exemption
On March 29, 1994, the DOL issued (with an effective date of June
9, 1992) an individual exemption (the "Exemption") to Residential
Funding and certain of its affiliates, which generally exempts from
the application of the prohibited transaction provisions of Section
406 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and
operation of pools of certain secured obligations such as Mortgage
Loans, Contracts or Agency Securities which are held in a trust and
the purchase, sale and holding of pass-through certificates issued
by such a trust as to which (i) the Company or any of its affiliates
is the sponsor if any entity which has received from the DOL an
individual prohibited transaction exemption which is similar to the
Exemption is the sole underwriter, or manager or co-manager of the
underwriting syndicate or a seller or placement agent, or (ii) the
Company or an affiliate is the underwriter or placement agent,
provided that certain conditions set forth in the Exemption are
satisfied. For purposes of this section, the term "Underwriter"
shall include (a) the Company and certain of its affiliates, (b) any
person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Company
and certain of its affiliates, (c) any member of the underwriting
syndicate or selling group of which a person described in (a) or (b)
is a manager or co-manager with respect to a class of Certificates,
or (d) any entity which has received an exemption from the DOL
relating to Certificates which is similar to the Exemption.
The Exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and holding
of Certificates to be eligible for exemptive relief thereunder.
First, the acquisition of Certificates by a Plan or with Plan Assets
must be on terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party.
Second, the Exemption only applies to Certificates evidencing rights
and interests that are not subordinated to the rights and interests
evidenced by the other Certificates of the same trust. Third, the
Certificates at the time of acquisition by a Plan or with Plan
Assets must be rated in one of the three highest generic rating
categories by Standard & Poor's Ratings Services, Moody's Investors
Service, Inc., Duff & Phelps, Inc. or Fitch Investors Service, L.P.
Fourth, the Trustee cannot be an affiliate of any other member of
the "Restricted Group" which consists of any Underwriter, the
Company, the Master Servicer, the Certificate Administrator, any
Servicer, any Sub-Servicer, the Trustee and any mortgagor with
respect to assets of a Trust Fund constituting more than 5% of the
aggregate unamortized principal balance of the assets in the related
Trust Fund as of the date of initial issuance of the Certificates.
Fifth, the sum of all payments made to and retained by the
Underwriters must represent not more than reasonable compensation
for underwriting the Certificates; the sum of all payments made to
and retained by the Company pursuant to the assignment of the assets
to the related Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made
to and retained by the Master Servicer, the Certificate
Administrator, any Servicer or any Sub-Servicer must represent not
more than reasonable compensation for such person's services under
the related Pooling and Servicing Agreement or Trust Agreement and
reimbursement of such person's reasonable expenses in connection
therewith. Sixth, the Exemption states that the investing Plan or
Plan Asset investor must be an accredited investor as defined in
Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act of 1933, as amended.
A fiduciary of or other investor of Plan Assets contemplating
purchasing a Certificate must make its own determination that the
general conditions set forth above will be satisfied with respect to
such Certificate.
If the general conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407 of ERISA, and the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Sections
4975(c)(1)(A) through (D) of the Code, in connection with the direct
or indirect sale, exchange, transfer, holding or the direct or
indirect acquisition or disposition in the secondary market of
Certificates by a Plan or with Plan Assets. However, no exemption is
provided from the restrictions of Sections 406(a)(1)(E) and
406(a)(2) of ERISA for the acquisition or holding of a Certificate
by a Plan or with Plan Assets of an Excluded Plan by any person who
has discretionary authority or renders investment advice with
respect to Plan Assets of such Excluded Plan. For purposes of the
Certificates, an "Excluded Plan" is a Plan sponsored by any member
of the Restricted Group.
If certain specific conditions of the Exemption are also
satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA, and
the excise taxes imposed by Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or
transfer of Certificates in the initial issuance of Certificates
between the Company or an Underwriter and a Plan when the person who
has discretionary authority or renders investment advice with
respect to the investment of the relevant Plan Assets in the
Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the assets of a Trust Fund or (b) an affiliate
of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Certificates by a Plan or
with Plan Assets and (3) the holding of Certificates by a Plan or
with Plan Assets.
Additionally, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407 of ERISA,
and the excise taxes imposed by Sections 4975(a) and (b) of the Code
by reason of Section 4975(c) of the Code, for transactions in
connection with the servicing, management and operation of the
Mortgage Pools and Contract Pools. The Company expects that the
specific conditions of the Exemption required for this purpose will
be satisfied with respect to the Certificates so that the Exemption
would provide an exemption from the restrictions imposed by Sections
406(a) and (b) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the
Code, for transactions in connection with the servicing, management
and operation of the Mortgage Pools and Contract Pools, provided
that the general conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the excise taxes
imposed by Section 4975(a) and (b) of the Code by reason of Sections
4975(c)(1)(A) through (D) of the Code, if such restrictions are
deemed to otherwise apply merely because a person is deemed to be a
Party in Interest (or a Disqualified Person) with respect to an
investing Plan (or Plans holding interests in the investing entity
holding Plan Assets) by virtue of providing services to the Plan or
such Plan Assets (or by virtue of having certain specified
relationships to such a person) solely as a result of the ownership
of Certificates by a Plan or such Plan Asset investor.
Before purchasing a Certificate, a fiduciary or other investor
of Plan Assets should itself confirm that (a) the Certificates
constitute "certificates" for purposes of the Exemption and (b) the
specific and general conditions set forth in the Exemption and the
other requirements set forth in the Exemption would be satisfied. In
addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the fiduciary or
other investor of Plan Assets should consider its general fiduciary
obligations under ERISA in determining whether to purchase any
Certificates with Plan Assets.
Any fiduciary or other investor of Plan Assets that proposes to
purchase Certificates on behalf of or with Plan Assets should
consult with its counsel with respect to the potential applicability
of ERISA and the Code to such investment and the availability of the
Exemption or any other prohibited transaction exemption in
connection therewith. In particular, in connection with a
contemplated purchase of Certificates representing a beneficial
ownership interest in a pool of single-family residential first
Mortgage Loans or Agency Certificates, such fiduciary or other Plan
investor should consider the availability of the Exemption or
Prohibited Transaction Class Exemption ("PTCE") 83-1 ("PTCE 83-1")
for certain transactions involving mortgage pool investment trusts.
However, PTCE 83-1 does not provide exemptive relief with respect to
Certificates evidencing interests in Trust Funds that include
Cooperative Loans. In addition, such fiduciary or other Plan Asset
investor should consider the availability of PTCE 95-60, regarding
investments by insurance company general accounts, PTCE 90-1,
regarding investments by insurance company pooled separate accounts,
PTCE 96-23, regarding transactions effected by "in-house asset
managers," PTCE 91-38, regarding investments by bank collective
investment funds, and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers." The Prospectus Supplement
with respect to a series of Certificates may contain additional
information regarding the application of the Exemption, PTCE 83-1 or
any other exemption with respect to the Certificates offered
thereby. There can be no assurance that any of these exemptions will
apply with respect to any particular Plan's or other Plan Asset
investor's investment in the Certificates or, even if an exemption
were deemed to apply, that any exemption would apply to all
prohibited transactions that may occur in connection with such an
investment.
Tax-Exempt Investors
A Plan that is exempt from federal income taxation pursuant to
Section 501 of the Code (a "Tax-Exempt Investor") nonetheless will
be subject to federal income taxation to the extent that its income
is "unrelated business taxable income" ("UBTI") within the meaning
of Section 512 of the Code. All "excess inclusions" of a REMIC
allocated to a REMIC Residual Certificate held by a Tax-Exempt
Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences Taxation of
Owners of REMIC Residual Certificates Excess Inclusions."
Consultation with Counsel
Any fiduciary or other investor of Plan Assets that proposes to
acquire or hold Certificates on behalf of or with Plan Assets of any
Plan should consult with its counsel with respect to the potential
applicability of the fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and the Code to
the proposed investment and the Exemption, the availability of PTCE
83-1 or any other prohibited transaction exemption.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related
Prospectus Supplement will be rated at the date of issuance in one
of the four highest rating categories by at least one Rating Agency.
Unless otherwise specified in the related Prospectus Supplement,
each such class that is, and continues to be, rated in one of the
two highest rating categories by at least one nationally recognized
statistical rating organization will constitute "mortgage related
securities" for purposes of SMMEA, and, as such, will be legal
investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds)
created pursuant to or existing under the laws of the United States
or of any State whose authorized investments are subject to state
regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by
the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Under SMMEA, if a
State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such
securities will constitute legal investments for entities subject to
such legislation only to the extent provided therein. Certain States
enacted legislation which overrides the preemption provisions of
SMMEA. SMMEA provides, however, that in no event will the enactment
of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of such
securities, so long as such contractual commitment was made or such
securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository
institutions as follows: federal savings and
loan associations and federal savings banks may invest in, sell or
otherwise deal with "mortgage related securities" without limitation
as to the percentage of their assets represented thereby, federal
credit unions may invest in such securities, and national banks may
purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth
in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may
prescribe.
The Federal Financial Institutions Examination Council has issued
a supervisory policy statement (the "Policy Statement") applicable
to all depository institutions, setting forth guidelines for and
significant restrictions on investments in "high-risk mortgage
securities." The Policy Statement has been adopted by the Federal
Reserve Board, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision (the "OTS") with an
effective date of February 10, 1992. The Policy Statement generally
indicates that a mortgage derivative product will be deemed to be
high risk if it exhibits greater price volatility than a standard
fixed-rate thirty-year mortgage security. According to the Policy
Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it
is considering acquiring is high-risk and, if so, that the proposed
acquisition would reduce the institution's overall interest rate
risk. Reliance on analysis and documentation obtained from a
securities dealer or other outside party without internal analysis
by the institution would be unacceptable. There can be no assurance
as to which classes of Certificates will be treated as high-risk
under the Policy Statement.
The predecessor to the OTS issued a bulletin, entitled "Mortgage
Derivative Products and Mortgage Swaps," which is applicable to
thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain
"high-risk" mortgage derivative securities and limitations on the
use of such securities by insolvent, undercapitalized or otherwise
"troubled" institutions. According to the bulletin, such "high-risk"
mortgage derivative securities include securities having certain
specified characteristics, which may include certain classes of
Certificates. In addition, the National Credit Union Administration
has issued regulations governing federal credit union investments
which prohibit investment in certain specified types of securities,
which may include certain classes of Certificates. Similar policy
statements have been issued by regulators having jurisdiction over
other types of depository institutions.
Certain classes of Certificates offered hereby, including any
class that is not rated in one of the two highest rating categories
by at least one nationally recognized statistical rating
organization, will not constitute "mortgage related securities" for
purposes of SMMEA. Any such class of Certificates will be identified
in the related Prospectus Supplement. Prospective investors in such
classes of Certificates, in particular, should consider the matters
discussed in the following paragraph.
There may be other restrictions on the ability of certain
investors either to purchase certain classes of Certificates or to
purchase any class of Certificates representing more than a
specified percentage of the investors' assets. The Company will make
no representations as to the proper characterization of any class of
Certificates for legal investment or other purposes, or as to the
ability of particular investors to purchase any class of
Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of
Certificates. Accordingly, all investors whose investment activities
are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to
what extent the Certificates of any class constitute legal
investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been overridden
in any jurisdiction relevant to such investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale
of Certificates will be applied by the Company to finance the
purchase of, or to repay short-term loans incurred to finance the
purchase of, the Mortgage Collateral underlying the Certificates or
will be used by the Company for general corporate purposes. The
Company expects that it will make additional sales of securities
similar to the Certificates from time to time, but the timing and
amount of any such additional offerings will be dependent upon a
number of factors, including the volume of mortgage loans, contracts
or mortgage securities purchased by the Company, prevailing interest
rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the
methods described below. The Prospectus Supplement prepared for each
series will describe the method of offering being utilized for that
series and will state the net proceeds to the Company from such
sale.
The Company intends that Certificates will be offered through the
following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an
offering of a particular series of Certificates may be made through
a combination of two or more of these methods. Such methods are as
follows:
1. by negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. by placements by the Company with institutional investors
through dealers; and
3. by direct placements by the Company with institutional
investors.
In addition, if specified in the related Prospectus Supplement,
a series of Certificates may be offered in whole or in part to the
Seller of the related Mortgage Collateral that would comprise the
Trust Fund for such Certificates.
If underwriters are used in a sale of any Certificates (other
than in connection with an underwriting on a best efforts basis),
such Certificates will be acquired by the underwriters for their own
account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public
offering prices or at varying prices to be determined at the time of
sale or at the time of commitment therefor. Such underwriters may be
broker-dealers affiliated with the Company whose identities and
relationships to the Company will be as set forth in the related
Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of a particular series of Certificates
will be set forth on the cover of the Prospectus Supplement relating
to such series and the members of the underwriting syndicate, if
any, will be named in such Prospectus Supplement.
In connection with the sale of the Certificates, underwriters may
receive compensation from the Company or from purchasers of the
Certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the distribution of the
Certificates may be deemed to be underwriters in connection with
such Certificates, and any discounts or commissions received by them
from the Company and any profit on the resale of Certificates by
them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to
the sale of any series of Certificates will provide that the
obligations of the underwriters will be subject to certain
conditions precedent, that the underwriters will be obligated to
purchase all such Certificates if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that,
in limited circumstances, the Company will indemnify the several
underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the
nature of such offering and any agreements to be entered into
between the Company and purchasers of Certificates of such series.
The Company anticipates that the Certificates offered hereby will
be sold primarily to institutional investors or sophisticated non-institutional
investors. Purchasers
of Certificates, including
dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended, in connection with reoffers and
sales by them of Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any such
reoffer or sale.
LEGAL MATTERS
Certain legal matters, including certain federal income tax
matters, will be passed upon for the Company by Orrick, Herrington
& Sutcliffe, New York, New York, or by Thacher Proffitt & Wood, New
York, New York, as specified in the Prospectus Supplement.
FINANCIAL INFORMATION
The Company has determined that its financial statements are not
material to the offering made hereby. The Certificates do not
represent an interest in or an obligation of the Company. The
Company's only obligations with respect to a series of Certificates
will be to repurchase certain items of Mortgage Collateral upon any
breach of certain limited representations and warranties made by the
Company, or as otherwise provided in the applicable Prospectus
Supplement.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page
Accrual Certificates 5
Additional Collateral 15
Additional Collateral Loans 15
Advance 37
Affiliated Seller 23
Agency Securities 8
Agency Securities Pool 14
Appraised Value 16
ARM Loans 17
Balloon Amount 15
Balloon Loans 15
Bankruptcy Amount 45
Bankruptcy Losses 46
Beneficial Owner 27
Bi-Weekly Loans 15
Book-Entry Certificates 27
Buy-Down Funds 18
Buy-Down Loans 15
Buy-Down Period 18
CEDEL 27
CEDEL Participants 28
Certificate Account 14
Certificate Administrator 1
Certificate Insurance Policy 51
Certificate Registrar 27
Certificateholders 27
Certificates 1
Clearance Cooperative 29
Closing Date 79
Code 9
Commission 14
Committee Report 79
Company 1
Compensating Interest 38
Contract Pool 7
Contract Pool Insurance Policy 49
Contracts 1
Contributions Tax 90
Conventional Loans 15
Convertible Mortgage Loan 17
Cooperative 66
Cooperative Dwellings 15
Cooperative Loans 7
Cooperative Note 66
Cooperatives 15
Crime Control Act 76
Custodial Account 14
Custodian 14
Cut-off Date 14
Debt Service Reduction 50
Page
Defaulted Mortgage Losses 46
Deferred Interest 17
Deficient Valuation 50
Depositaries 27
Determination Date 35
Disqualified Organization 91
Disqualified Persons 94
Distribution Amount 35
Distribution Date 6
DOL 94
DOL Regulations 94
DTC 27
DTC Participants 27
Due Date 36
Eligible Account 32
ERISA 10
ERISA Plans 94
Escrow Account. 40
Euroclear 27
Euroclear Operator. 28
Euroclear Participants. 28
Excess Spread 31
Exchange Act. 2
Excluded Plan. 96
Excluded Spread 31
Exemption. 95
Extraordinary Losses. 47
Fannie Mae. 14
Fannie Mae Securities .14
FDIC. 23
FHA. 15
FHA Contracts. 20
FHA Loans. 15
Form 8-K. 14
Fraud Losses. 46
Fraud Loss Amount. 45
Freddie Mac. 14
Freddie Mac Act .22
Freddie Mac Securities. 14
Garn-St Germain Act. 71
Ginnie Mae. 14
Ginnie Mae Securities 14
GMAC MORTGAGE. 1
GPM Loans. 15
Gross Margin. 17
High Cost Loans. 71
Housing Act 21
HUD 15
Index. 17
Indirect Participants. 27
Insurance Proceeds 32
International Borrowers. 7
IRAs. 94
IRS. 80
Issue Premium. 85
Page
Letter of Credit. 47
Letter of Credit Bank. 47
Liquidated Contract. 43
Liquidated Mortgage Loan 43
Liquidation Proceeds 32
Loan-to-Value Ratio. 16
Manufactured Home. 8
Mark-to-Market Regulations. 88
Master Commitments. 20
Master Servicer. 1
Maximum Mortgage Rate. 17
Mezzanine Certificates. 5
Minimum Mortgage Rate 17
Modified Mortgage Loan. 15
Mortgage Collateral. 1
Mortgage Collateral Seller 7
Mortgage Loans. 1
Mortgage Note. 29
Mortgage Pool. 7
Mortgage Pool Insurance Policy 47
Mortgage Rates. 15
Mortgaged Property. 7
Mortgages 15
Mortgagors. 7
Neg-Am ARM Loans. 17
Net Mortgage Rate 61
Nonrecoverable Advance. 34
OID Regulations 77
OTS 98
Overcollateralization 47
Participants. 27
Parties in Interest. 94
Pass-Through Rate. 4
Paying Agent. 34
Percentage Interest. 34
Periodic Cap. 17
Permitted Investments 32
Plan Assets. 94
Plans. 94
Policy Statement. 98
Pool Insurer. 47
Pooling and Servicing Agreement. 1
Prepayment Interest Shortfall. 38
Primary Insurance Policy. 53
Primary Insurer. 53
Principal Prepayments. 36
Program Loans 15
Program 15
Program Seller 23
Program Seller Guide 20
Prohibited Transactions Tax. 90
PTCE. 97
PTCE 83-1. 97
Purchase Price. 24
Qualified Insurer. 51
Qualified Retirement Plans. 94
Qualified Substitute Contract. 25
Qualified Substitute Mortgage Loan. 25
Page
Rating Agency
9
Realized Loss
45
Record Date
34
Registration Statement
2
REMIC
1
REMIC Certificates
77
REMIC Provisions
77
REMIC Regular Certificates
78
REMIC Regulations
77
REMIC Residual Certificates
78
REO Contract
43
REO Mortgage Loan
43
Repurchased Contract
25
Repurchased Mortgage Loan
25
Reserve Fund
50
Residential Funding
4
Restricted Group
95
RICO
76
Senior Certificates
5
Senior Percentage
46
Senior/Subordinate Series
26
Servicer
1
Servicing Advances
34
Servicing Fee
40
Single Certificate
39
SMMEA
9
Special Hazard Amount
45
Special Hazard Insurance Policy
49
Special Hazard Insurer
49
Special Hazard Losses
46
Special Servicer
42
Stated Principal Balance
46
Strip Certificate
5
Sub-Servicer
39
Sub-Servicing Agreement
39
Subordinate Certificates
5
Surety Bond
51
Tax-Exempt Investor
97
Tax-Favored Plans
94
Terms and Conditions
29
Tiered REMICs
79
Title V
72
Title VIII
72
Trust Agreement
1
Trust Fund
1
Trustee
14
UBTI
97
UCC
69
Unaffiliated Seller
23
United States Person
93
VA
15
VA Contracts
20
VA Loans
. 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution (Item 14 of Form S-3).
The expenses expected to be incurred in connection with the
issuance and distribution of the Certificates being registered,
other than underwriting compensation, are as set forth below. All
such expenses, except for the filing fee, are estimated.
Filing Fee for Registration Statement. . . . . . . . .$ 689,655
Legal Fees and Expenses. . . . . . . . . . . . . . . . 400,000
Accounting Fees and Expenses . . . . . . . . . . . . . 300,000
Trustee's Fees and Expenses
(including counsel fees). . . . . . . . . . . . . . 56,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . 30,000
Printing and Engraving Expenses. . . . . . . . . . . . 210,000
Rating Agency Fees . . . . . . . . . . . . . . . . . . 1,000,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 65,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,750,655
Indemnification of Directors and Officers (Item 15 of Form S-3).
The Pooling and Servicing Agreements will provide that no
director, officer, employee or agent of the Registrant is liable
to the Trust Fund or the Certificateholders, except for such
person's own willful misfeasance, bad faith, gross negligence in
the performance of duties or reckless disregard of obligations and
duties. The Pooling and Servicing Agreements will further provide
that, with the exceptions stated above, a director, officer,
employee or agent of the Registrant is entitled to be indemnified
against any loss, liability or expense incurred in connection with
legal action relating to such Pooling and Servicing Agreements and
related Certificates other than such expenses related to
particular Mortgage Loans.
Any underwriters who execute an Underwriting Agreement in
the form filed as Exhibit 1.1 to this Registration Statement will
agree to indemnify the Registrant's directors and its officers who
signed this Registration Statement against certain liabilities
which might arise under the Securities Act of 1933 from certain
information furnished to the Registrant by or on behalf of such
indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law
of Delaware empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of
the fact that he is or was a director, employee or agent of the
corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to
believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that such person acted in any
of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation
and except that no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such
action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in
the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification or advancement
of expenses provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may
be entitled; and empowers the corporation to purchase and maintain
insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status
as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
The By-Laws of the Registrant provide, in effect, that to
the extent and under the circumstances permitted by subsections
(a) and (b) of Section 145 of the General Corporation Law of the
State of Delaware, the Registrant (i) shall indemnify and hold
harmless each person who was or is a party or is threatened to be
made a party to any action, suit or proceeding described in
subsections (a) and (b) by reason of the fact that he is or was a
director or officer, or his testator or intestate is or was a
director or officer of the Registrant, against expenses,
judgments, fines and amounts paid in settlement, and (ii) shall
indemnify and hold harmless each person who was or is a party or
is threatened to be made a party to any such action, suit or
proceeding if such person is or was serving at the request of the
Registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
Certain controlling persons of the Registrant may also be
entitled to indemnification from General Motors Acceptance
Corporation, an indirect parent of the Registrant. Under sections
7015 and 7018-7023 of the New York Banking Law, General Motors
Acceptance Corporation may or shall, subject to various exceptions
and limitation, indemnify its directors or officers and may
purchase and maintain insurance as follows:
(a) If the director is made or threatened to be made
a party to an action by or in the right of General Motors
Acceptance Corporation to procure a judgment in its favor,
by reason of the fact that such person is or was a director
or officer of General Motors Acceptance Corporation or is or
was servicing at the request of General Motors Acceptance
Corporation as a director or officer of some other
enterprise, General Motors Acceptance Corporation may
indemnify such person against amounts paid in settlement of
such action or an appeal therein, if such director or
officer acted, in good faith, for a purpose which such
person reasonably believed to be in (or, in the case of
service for any other enterprise, not opposed to) the best
interests of general Motors Acceptance Corporation, except
that no indemnification is available under such statutory
provisions in respect of a threatened action or a pending
action which is settled or otherwise disposed of, or any
claim or issue or matter as to which such person is found
liable to General Motors Acceptance Corporation, unless in
each such case a court determined that such person is fairly
and reasonably entitled to indemnity for such amount as the
court deems proper.
(b) With respect to any action or proceeding other
than one by or in the right of General Motors Acceptance
Corporation to procure a judgment in its favor, if a
director or officer is made or threatened to be made a party
by reason of the fact that such person was a director or
officer of General Motors Acceptance Corporation, or served
some other enterprise at the request of General Motors
Acceptance Corporation, General Motors Acceptance
Corporation may indemnify such person against judgments,
fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred as a result of such
action or proceeding or an appeal therein, if such person
acted in good faith for a purpose which such person
reasonably believed to be in (or, in the case of service for
any other enterprise, not opposed to) the best interests of
General Motors Acceptance Corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause
to believe that such person's conduct was unlawful.
(c) A director or officer who has been wholly
successful, on the merits or otherwise, in the defense of a
civil or criminal action or proceeding of the character
described in paragraphs (a) or (b) above, shall be entitled
to indemnification as authorized in such paragraphs.
(d) General Motors Acceptance Corporation may
purchase and maintain insurance to indemnify directors and
officers in instances in which they may not otherwise be
indemnified by General Motors Acceptance Corporation under
the provisions of the New York Banking Law, provided that
the contract of insurance provides for a retention amount
and for co-insurance, except that no such insurance may
provide for any payment, other than cost of defense, to or
on behalf of any director or officer if a judgment or other
final adjudication adverse to such director or officer
establishes that such person's acts of active and deliberate
dishonesty were material to the cause of action so
adjudicated or that such person personally gained in fact a
financial profit or other advantage to which such person was
not legally entitled.
The foregoing statement is subject to the detailed
provisions of sections 7015 and 7018-7023 of the New York Banking
Law.
As a subsidiary of General Motors Corporation, General
Motors Acceptance Corporation is insured against liabilities which
it may incur by reason of the foregoing provisions of the New York
Banking Law and directors and officers of General Motors
Acceptance Corporation are insured against some liabilities which
might arise out of their employment and not be subject to
indemnification under said Banking Law.
Pursuant to resolutions adopted by the Board of Directors of
General Motors Corporation, that company to the fullest extent
permissible under law will indemnify, and has purchased insurance
on behalf of, directors or officers of the company, or any of
them, who incur or are threatened with personal liability,
including expenses, under Employee Retirement Income Security Act
of 1974 or any amendatory or comparable legislation or regulation
thereunder.
Exhibits (Item 16 of Form S-3).
*1.1 Form of Underwriting Agreement (Incorporated by
reference to Exhibit 1 to Registration Statement
No. 33-95932).
*3.1 Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to Registration
Statement No. 33-95932).
*3.2 By-Laws (Incorporated by reference to Exhibit
3.2 to Registration Statement No. 33-95932).
*4.1 Form of Pooling and Servicing Agreement
(Incorporated by reference to Exhibit 4.1 to
Registration Statement No. 33-95932).
*4.2 Form of Trust Agreement (Incorporated by
reference to Exhibit 4.2 to Registration
Statement No. 33-95932).
5.1 Opinion of Orrick, Herrington & Sutcliffe with
respect to legality.
5.2 Opinion of Thacher Proffitt & Wood with respect
to legality.
8.1 Opinion of Orrick, Herrington & Sutcliffe with
respect to certain tax matters.
8.2 Opinion of Thacher Proffitt & Wood with respect
to certain tax matters (included as part of
Exhibit 5.1).
23.1 Consent of Orrick, Herrington & Sutcliffe
(included as part of Exhibit 5.2 and Exhibit
8.2).
23.2 Consent of Thacher Proffitt & Wood (included as
part of Exhibit 5.1).
24.1 Power of Attorney.
24.2 Certified Copy of the Resolutions of the Board
of Directors of the Registrant.
_______________
* Not filed herewith.
Undertakings (Item 17 of Form S-3).
The Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement;
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment
thereof) which,
individually or in
the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any material information with
respect to the plan of distribution not previously
disclosed in this Registration Statement or any
material change to such information in this
Registration Statement;
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be
deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the
securities being registered
which remain unsold at the termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for
filing on Form S-3, reasonably believes that the security rating
requirement referred to in Transaction Requirement B.2 or B.5 of
Form S-3 will be met by the time of sale of the securities
registered hereby, and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on
July 24, 1996.
RESIDENTIAL ACCREDIT LOANS,
INC.
By:
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
Signature Title Date
President and Chief July 24, 1996
Christopher J. Nordeen Executive Officer
(Principal Executive
Officer)
Davee L. Olson Director,Treasurer and Chief July 24, 1996
Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer)
Director July 24, 1996
Bruce J. Paradis
Director July 24, 1996
Dennis W. Sheehan, Jr.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Residential Accredit Loans, Inc.
(Exact name of issuer as specified in its charter)
EXHIBIT INDEX
Exhibits
5.1 - Opinion of Orrick, Herrington & Sutcliffe with respect to
legality.
5.2 - Opinion of Thacher Proffitt & Wood with respect to
legality.
8.1 - Opinion of Orrick, Herrington & Sutcliffe with respect to
certain tax matters.
8.2 - Opinion of Thacher Proffitt & Wood with respect to
certain tax matters (included as part of Exhibit 5.1).
23.1 - Consent of Orrick, Herrington & Sutcliffe (included as
part of Exhibit 5.2 and Exhibit 8.2).
23.2 - Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1).
24.1 - Power of Attorney.
24.2 - Certified Resolutions of the Board of Directors of the
Registrant.
Exhibit 5.1
July 24, 1996
Residential Accredit Loans, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Ladies and Gentlemen:
At your request, we have examined the Registration Statement
on Form S-3, to be filed by Residential Accredit Loans, Inc., a
Delaware corporation (the "Registrant"), with the Securities and
Exchange Commission on July 24, 1996 (the "Registration
Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act") of Mortgage and
Manufactured Housing Contract Pass-Through Certificates (the
"Certificates"). The Certificates are issuable in series (each, a
"Series") under either a separate Pooling and Servicing Agreement
(each such agreement, a "Pooling and Servicing Agreement") by and
among the Registrant, the Master Servicer or Servicer named
therein and the Trustee named therein or a Trust Agreement (each
such agreement, a "Trust Agreement") by an among the Registrant,
the Trustee named therein and the Certificate Administrator named
therein. The Certificates of each Series are to be sold as set
forth in the Registration Statement, any amendment thereto, and
the prospectus and prospectus supplement relating to such Series.
We have examined such instruments, documents and records as
we deemed relevant and necessary as a basis of our opinion
hereinafter expressed. In such examination, we have assumed the
following: (a) the authenticity of original documents and the
genuineness of all signatures; (b) the conformity to the originals
of all documents submitted to us as copies; and (c) the truth,
accuracy and completeness of the information, representations and
warranties contained in the records, documents, instruments and
certificates we have reviewed.
Based on such examination, we are of the opinion that when
the issuance of each Series of Certificates has been duly
authorized by appropriate corporate action and the Certificates of
such Series have been duly executed, authenticated and delivered
in accordance with the Pooling and Servicing Agreement or the
Trust Agreement relating to such Series and sold, the Certificates
will be legally issued, fully paid, binding obligations of the
trust created by the Pooling and Servicing Agreement or the Trust
Agreement, and the holders of the Certificates will be entitled to
the benefits of the Pooling and Servicing Agreement or the Trust
Agreement, except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement,
fraudulent conveyance, moratorium, or other laws relating to or
affecting the rights of creditors generally and general principles
of equity, including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief,
regardless of whether such enforceability is considered in a
proceeding in equity or at law.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name
wherever appearing in the Registration Statement and the
prospectus contained therein. In giving such consent, we do not
consider that we are "experts," within the meaning of the term as
used in the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the Registration
Statement, including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ Orrick, Herrington &
Sutcliffe
ORRICK, HERRINGTON &
SUTCLIFFE
July 24, 1996
Residential Accredit Loans, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Re: Residential Accredit Loans, Inc.
Mortgage and Manufactured Housing Contract
Pass-Through Certificates;
Registration Statement on Form S-3
Dear Sirs:
We are counsel to Residential Accredit Loans, Inc., a
Delaware corporation (the "Registrant") in connection with the
registration under the Securities Act of 1933, as amended (the
"Act"), of Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates"), and the related preparation and
filing of a Registration Statement on Form S-3 (the "Registration
Statement"). The Certificates are issuable in series under separate
pooling and servicing agreements (each such agreement, a "Pooling
and Servicing Agreement") or trust agreements (each such agreement,
a "Trust Agreement"), among the Registrant, a master servicer,
servicer or certificate administrator to be identified in the
prospectus supplement for such series of Certificates and a trustee
to be identified in the prospectus supplement for such series of
Certificates. Each Pooling and Servicing Agreement or Trust
Agreement will be substantially in the respective form filed as an
Exhibit to the Registration Statement.
In connection with rendering this opinion letter, we
have examined the forms of the Pooling and Servicing Agreement and
Trust Agreement contained as Exhibits in the Registration Statement,
the Registration Statement and such records and other documents as
we have deemed necessary. As to matters of fact, we have examined
and relied upon representations or certifications of officers of the
Registrant or public officials. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all
signatures, the legal capacity of natural persons and the conformity
to the originals of all documents. We have assumed that all
parties, other than the Registrant, had the corporate power and
authority to enter into and perform all obligations thereunder, and,
as to such parties, we also have assumed the due authorization by
all requisite corporate action, the due execution and delivery and
the enforceability of such documents.
In rendering this opinion letter, we express no opinion
as to the laws of any jurisdiction other than the laws of the State
of New York and the corporate laws of the State of Delaware, nor do
we express any opinion, either implicitly or otherwise, on any issue
not expressly addressed below. In rendering this opinion letter, we
have not passed upon and do not pass upon the application of "doing
business" or the securities laws of any jurisdiction. This opinion
letter is further subject to the qualification that enforceability
may be limited by (i) bankruptcy, insolvency, liquidation,
receivership, moratorium, reorganization or other laws affecting the
enforcement of the rights of creditors generally and (ii) general
principles of equity, whether enforcement is sought in a proceeding
in equity or at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement or Trust
Agreement for a series of Certificates has been duly authorized by
all necessary action and duly executed and delivered by the parties
thereto, such Pooling and Servicing Agreement or Trust Agreement
will be a legal and valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement or Trust
Agreement for a series of Certificates has been duly authorized by
all necessary action and duly executed and delivered by the parties
thereto, and when the Certificates of such series have been duly
executed and authenticated in accordance with the provisions of that
Pooling and Servicing Agreement or Trust Agreement, and issued and
sold as contemplated in the Registration Statement and the
prospectus and prospectus supplement delivered in connection
therewith, such Certificates will be legally and validly issued and
outstanding, fully paid and non-assessable, and the holders of such
Certificates will be entitled to the benefits of that Pooling and
Servicing Agreement or Trust Agreement.
3. The description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax
Consequences" in the prospectus contained in the Registration
Statement, while not purporting to discuss all possible federal
income tax consequences of an investment in Certificates, is
accurate with respect to those tax consequences which are discussed.
We hereby consent to the filing of this opinion letter
as an Exhibit to the Registration Statement, and to the use of our
name in the prospectus and prospectus supplement included in the
Registration Statement under the heading "Legal Matters", and in the
prospectus included in the Registration Statement under the heading
"Certain Federal Income Tax Consequences", without admitting that we
are "experts" within the meaning of the Act, and the rules and
regulations thereunder, with respect to any part of the Registration
Statement, including this Exhibit.
Very truly yours,
Thacher Proffitt & Wood
By
/s/ Thacher Proffitt & Wood
Exhibit 8.1
July 24, 1996
Residential Accredit Loans, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Ladies and Gentlemen:
We have advised Residential Accredit Loans, Inc. (the
"Registrant") with respect to certain federal income tax aspects
of the issuance by the Registrant of its Mortgage and Manufactured
Housing Contract Pass-Through Certificates, issuable in series
(the "Certificates"). Such advice conforms to the description of
selected federal income tax consequences to holders of the
Certificates that appears under the heading "Certain Federal
Income Tax Consequences" in the prospectus (the "Prospectus")
forming a part of the Registration Statement on Form S-3 as
prepared for filing by the Registrant with the Securities and
Exchange Commission under the Securities Act of 1933, as amended
(the "Act") on July 24, 1996 (the "Registration Statement"). Such
description does not purport to discuss all possible income tax
ramifications of the proposed issuance, but with respect to those
tax consequences which are discussed, in our opinion the
description is accurate in all material respects.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name
wherever appearing in the Registration Statement and the
Prospectus contained therein. In giving such consent, we do not
consider that we are "experts," within the meaning of the term as
used in the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the Registration
Statement, including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ Orrick, Herrington &
Sutcliffe
ORRICK, HERRINGTON &
SUTCLIFFE
EXHIBIT 24.1
RESIDENTIAL ACCREDIT LOANS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Christopher J.
Nordeen and Teresa R. Farley, his true and lawful attorneys-in-fact
and agents, with full power
of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities (including his capacity as director and/or
officer of Residential Accredit Loans, Inc. (the "Company")) to
sign any or all amendments (including post-effective amendments)
to the Registration Statement on Form S-3, as filed by the Company
on or about July 24, 1996, and other documents in connection
therewith, and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully and to all intents and
purposes as might or could be done in person, hereby ratifying and
confirming said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/ Chistopher J. Nordeen President and Chief July 22, 1996
Christopher J. Nordeen Executive Officer
(Principal Executive
Officer)
/s/ Davee L. Olson Director, Treasurer July 22, 1996
Davee L. Olson and Chief Financial
Officer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Bruce J. Paradis Director July 22, 1996
Bruce J. Paradis
/s/ Dennis W. Sheehan, Jr. Director July 22, 1996
Dennis W. Sheehan, Jr.
Exhibit 24.2
Certificate of Secretary
I, Lorna P. Gleason, Secretary of Residential Accredit
Loans, Inc. ("RALI"), organized under the laws of the State of
Delaware, hereby certify that the resolutions approved and adopted
by the Board of Directors of RALI pursuant to a Unanimous Written
Consent of Directors in Lieu of Meeting of Board of Directors
dated July 22, 1996, have not been revoked and are in full force
and effect.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th
day of July, 1996.
[seal - RALI] /s/ Lorna P. Gleason
Lorna P. Gleason
Secretary
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
signed before me this 24th
day of July, 1996
/s/ Debra M. O'Brien
Notary Public
