REGISTRATION NO. 333-__________
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
MILA MORTGAGE ACCEPTANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
84-1682706
(I.R.S. Employer Identification Number)
6021 -244th Street SW
Mountlake Terrace, WA 98043
(800) 332-6452
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
Doug Schwed
MILA Mortgage Acceptance, Inc.
6021 -244th Street SW
Mountlake Terrace, WA 98043
(800) 332-6452
(Name, address, including zip code, and telephone
number, including area code, of agent for service
with respect to the Registrant)
------------
Copies to:
Richard D. Simonds Jr., Esq.
Thacher Proffitt & Wood LLP
Two World Financial Center
New York, New York 10281
(212) 912-7472
================================================================================
Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement, as
determined by market conditions and pursuant to Rule 415.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -------------------------------- ------------------ --------------------- ------------------------ -----------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
PROPOSED TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT (1) PRICE (1) FEE
- -------------------------------- ------------------ --------------------- ------------------------ -----------------
Mortgage Pass-Through $1,000,000 100% $1,000,000 $107.00
Certificates and
Mortgage-Backed Notes
(Issuable in Series)
- -------------------------------- ------------------ --------------------- ------------------------ -----------------
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
----------------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement includes (i) a base prospectus (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes ("Version 1") and (iii) an illustrative form of prospectus supplement
for use in an offering of Mortgage-Backed Notes ("Version 2").
- --------------------------------------------------------------------------------
The information contained in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting of an offer to buy these
securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 8, 2006
MILA MORTGAGE ACCEPTANCE, INC.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS IN THE PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
THE OFFERED SECURITIES
The depositor proposes to establish one or more trusts to issue and sell from
time to time one or more classes of offered securities, which shall be mortgage
pass-through certificates or mortgage-backed notes.
THE TRUST FUND
Each series of securities will be secured by a trust fund consisting primarily
of a segregated pool of mortgage loans, including:
o mortgage loans secured by first and junior liens on the related
mortgage property;
o home equity revolving lines of credit; o mortgage loans where the
borrower has little or no equity in the related mortgaged property;
o mortgage loans secured by one-to-four-family residential properties;
o mortgage loans secured by multifamily properties, commercial properties
and mixed residential and commercial properties, provided that the
concentration of these properties is less than 10% of the pool;
o manufactured housing conditional sales contracts and installment loan
agreements or interests therein; and
o mortgage securities issued or guaranteed by Ginnie Mae, Fannie Mae,
Freddie Mac or other government agencies or government-sponsored
agencies or privately issued mortgage securities;
in each case acquired by the depositor from one or more affiliated or
unaffiliated institutions.
CREDIT ENHANCEMENT
If so specified in the related prospectus supplement, the trust for a series of
securities may include any one or any combination of a financial guaranty
insurance policy, mortgage pool insurance policy, letter of credit, special
hazard insurance policy or reserve fund, currency or interest rate exchange
agreements or other type of credit enhancement. In addition to or in lieu of the
foregoing, credit enhancement may be provided by means of subordination of one
or more classes of securities, by cross-collateralization or by
overcollateralization.
The securities of each series will represent interests or obligations of the
issuing entity, and will not represent interests in or obligations of the
sponsor, depositor, or any of their affiliates.
The offered securities may be offered to the public through different methods as
described in "Methods of Distribution" in this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED HEREBY OR
DETERMINED THAT THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is [___________ __], 2006.
TABLE OF CONTENTS
INTRODUCTION......................................
General........................................
THE MORTGAGE POOLS................................
General........................................
The Mortgage Loans.............................
Underwriting Standards.........................
FICO Scores....................................
Qualifications of Originators and Sellers......
Representations by Sellers.....................
Optional Purchase of Defaulted Mortgage Loans..
STATIC POOL INFORMATION...........................
SERVICING OF MORTGAGE LOANS.......................
General........................................
The Master Servicer............................
The Servicers..................................
Collection and Other Servicing Procedures;
Mortgage Loan Modifications..................
Special Servicers..............................
Realization Upon or Sale of Defaulted Mortgage
Loans........................................
Servicing and Other Compensation and Payment of
Expenses; Retained Interest..................
Evidence as to Compliance......................
DESCRIPTION OF THE SECURITIES.....................
General........................................
Form of Securities.............................
Global Securities..............................
Assignment of Trust Fund Assets................
Distribution Account...........................
Distributions..................................
Distributions of Interest and Principal on the
Securities...................................
Pre-Funding Account............................
Distributions on the Securities in Respect of
Prepayment Premiums..........................
Allocation of Losses and Shortfalls............
Advances.......................................
Modifications..................................
Reports to Securityholders.....................
DESCRIPTION OF CREDIT ENHANCEMENT.................
General........................................
Subordinate Securities.........................
Cross-Collateralization........................
Overcollateralization..........................
Financial Guaranty Insurance Policy............
Mortgage Pool Insurance Policies...............
Letter of Credit...............................
Special Hazard Insurance Policies..............
Reserve Funds..................................
Cash Flow Agreements...........................
Maintenance of Credit Enhancement..............
Reduction or Substitution of Credit Enhancement
OTHER FINANCIAL OBLIGATIONS RELATED TO THE
SECURITIES........................................
Derivatives....................................
DESCRIPTION OF PRIMARY MORTGAGE INSURANCE, HAZARD
INSURANCE; CLAIMS THEREUNDER......................
General........................................
Primary Mortgage Insurance Policies............
Hazard Insurance Policies......................
FHA Mortgage Insurance.........................
VA Mortgage Guaranty...........................
THE sponsor.......................................
THE DEPOSITOR.....................................
THE AGREEMENTS....................................
General........................................
Certain Matters Regarding the Master Servicer
and the Depositor............................
Events of Default and Rights Upon Event of
Default......................................
Amendment......................................
Termination; Retirement of Securities..........
The Trustee....................................
Duties of the Trustee..........................
Some Matters Regarding the Trustee.............
Resignation and Removal of the Trustee.........
YIELD CONSIDERATIONS..............................
MATURITY AND PREPAYMENT CONSIDERATIONS............
LEGAL ASPECTS OF MORTGAGE
LOANS.............................................
Mortgages......................................
Cooperative Mortgage Loans.....................
Tax Aspects of Cooperative Ownership
Leases and Rents...............................
Contracts......................................
Foreclosure on Mortgages and Some Contracts....
Foreclosure on Shares of Cooperatives..........
Repossession with respect to Contracts.........
Rights of Redemption...........................
Anti-Deficiency Legislation and Other
Limitations on Lenders.......................
Environmental Legislation......................
Consumer Protection Laws.......................
Homeownership Act and Similar State
Laws...........................................
Additional Consumer Protections Laws with
Respect to Contracts.........................
Enforceability of Certain Provisions...........
Subordinate Financing..........................
Installment Contracts..........................
Applicability of Usury Laws....................
Alternative Mortgage Instruments...............
Formaldehyde Litigation with Respect to
Contracts....................................
Servicemembers Relief Act......................
Forfeitures in Drug and RICO Proceedings.......
Junior Mortgages...............................
Negative Amortization Loans....................
FEDERAL INCOME TAX
CONSEQUENCES......................................
General........................................
REMICS.........................................
Notes..........................................
Grantor Trust Funds............................
Callable Classes...............................
PENALTY AVOIDANCE.................................
STATE AND OTHER TAX
CONSEQUENCES......................................
ERISA CONSIDERATIONS..............................
Class Exemptions...............................
Underwriter Exemption..........................
Other Exemptions...............................
ERISA Considerations Relating to
Notes..........................................
Callable Securities............................
Tax Exempt Investors...........................
Consultation with Counsel......................
LEGAL INVESTMENT MATTERS..........................
USE OF PROCEEDS...................................
METHODS OF DISTRIBUTION...........................
FINANCIAL INFORMATION.............................
RATING............................................
AVAILABLE INFORMATION.............................
REPORTS TO SECURITYHOLDERS........................
INCORPORATION OF INFORMATION BY REFERENCE.........
GLOSSARY..........................................
INTRODUCTION
ALL CAPITALIZED TERMS IN THIS PROSPECTUS ARE DEFINED
IN THE GLOSSARY AT THE END.
GENERAL
The mortgage pass-through certificates or mortgage-backed notes offered
by this prospectus and the related prospectus supplement will be offered from
time to time in series. The securities of each series will consist of the
offered securities of the series, together with any other mortgage pass-through
certificates or mortgage-backed notes of the series.
Each series of certificates will represent in the aggregate the entire
beneficial ownership interest in, and each series of notes will represent
indebtedness of, a trust fund to be established by the depositor. Each trust
fund will consist primarily of a pool of mortgage loans or interests therein,
which may include mortgage securities, acquired or purchased by the depositor
from one or more affiliated or unaffiliated sellers. See "The Depositor" and
"The Mortgage Pools." The mortgage loans will include sub-prime loans. The trust
fund assets, may also include, if applicable, reinvestment income, reserve
funds, cash accounts, swaps and other derivatives and various forms of credit
enhancement as described in this prospectus and will be held in trust for the
benefit of the related securityholders pursuant to: (1) with respect to each
series of certificates, a pooling and servicing agreement or other agreement, or
(2) with respect to each series of notes, an indenture, in each case as more
fully described in this prospectus and in the related prospectus supplement.
Information regarding the offered securities of a series, and the general
characteristics of the mortgage loans and other trust fund assets in the related
trust fund, will be set forth in the related prospectus supplement.
Each series of securities will include one or more classes. Each class
of securities of any series will represent the right, which right may be senior
or subordinate to the rights of one or more of the other classes of the
securities, to receive a specified portion of payments of principal or interest
or both on the mortgage loans and the other trust fund assets in the related
trust fund in the manner described in this prospectus under "Description of the
Securities" and in the related prospectus supplement. A series may include one
or more classes of securities entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. A
series may include two or more classes of securities which differ as to the
timing, sequential order, priority of payment, pass-through rate or amount of
distributions of principal or interest or both.
The depositor's only obligations with respect to a series of securities
will be pursuant to representations and warranties made by the depositor, except
as provided in the related prospectus supplement. The master servicer and each
principal servicer for any series of securities will be named in the related
prospectus supplement. The principal obligations of the master servicer will be
pursuant to its contractual servicing obligations, which include its limited
obligation to make advances in the event of delinquencies in payments on the
related mortgage loans if the servicer of a mortgage loan fails to make such
advance. See "Description of the Securities."
If so specified in the related prospectus supplement, the trust fund
for a series of securities may include any one or any combination of a financial
guaranty insurance policy, mortgage pool insurance policy, letter of credit,
special hazard insurance policy, reserve fund, currency or interest rate
exchange agreements or any other type of credit enhancement specified in the
related prospectus supplement. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination of one or more
classes of securities, by cross-collateralization or by overcollateralization.
See "Description of Credit Enhancement."
The rate of payment of principal of each class of securities entitled
to a portion of principal payments on the mortgage loans in the related mortgage
pool and the trust fund assets will depend on the priority of payment of the
class and the rate and timing of principal payments on the mortgage loans and
other trust fund assets, including by reason of prepayments, defaults,
liquidations and repurchases of mortgage loans. A rate of principal payments
lower or faster than that anticipated may affect the yield on a class of
securities in the manner described in this prospectus and in the related
prospectus supplement. See "Yield Considerations."
With respect to each series of securities, one or more separate
elections may be made to treat the related trust fund or a designated portion
thereof as a REMIC for federal income tax purposes. If applicable, the
prospectus supplement for a series of securities will specify which class or
classes of the securities will be considered to be regular interests in the
related REMIC and which class of securities or other interests will be
designated as the residual interest in the related REMIC. See "Federal Income
Tax Consequences" in this prospectus.
The offered securities may be offered through one or more different
methods, including offerings through underwriters, as more fully described under
"Methods of Distribution" and in the related prospectus supplement.
There will be no secondary market for the offered securities of any
series prior to the offering thereof. There can be no assurance that a secondary
market for any of the offered securities will develop or, if it does develop,
that it will continue. The offered securities will not be listed on any
securities exchange, unless so specified in the related prospectus supplement.
THE MORTGAGE POOLS
GENERAL
Each mortgage pool will consist primarily of mortgage loans. The
mortgage loans may consist of single family loans, multifamily loans, commercial
loans, mixed-use loans and Contracts, each as described below.
The single family loans will be evidenced by mortgage notes and secured
by mortgages that, in each case, create a first or junior lien on the related
mortgagor's fee or leasehold interest in the related mortgaged property. The
related mortgaged property for a single family loan may be owner-occupied or may
be a vacation, second or non-owner-occupied home.
If specified in the related prospectus supplement relating to a series
of securities, the single family loans may include cooperative apartment loans
evidenced by a mortgage note secured by security interests in the related
mortgaged property including shares issued by cooperatives and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the related buildings.
The multifamily loans will be evidenced by mortgage notes and secured
by mortgages that create a first or junior lien on residential properties
consisting of five or more dwelling units in high-rise, mid- rise or garden
apartment structures or projects.
The commercial loans will be evidenced by mortgage notes and secured
mortgages that create a first or junior lien on commercial properties including
office building, retail building and a variety of other commercial properties as
may be described in the related prospectus supplement.
The mixed-use loans will be evidenced by mortgage loans and secured by
mortgages that create a first or junior lien on properties consisting of mixed
residential and commercial structures.
The aggregate concentration by original principal balance of
commercial, multifamily and mixed-use loans in any mortgage pool will be less
than 10% of the original principal balance of the mortgage pool.
Mortgaged properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The mortgage loans will not be guaranteed or insured by the depositor
or any of its affiliates. However, if so specified in the related prospectus
supplement, mortgage loans may be insured by the FHA or guaranteed by the VA.
See "Description of Primary Insurance Policies--FHA Insurance" and "--VA
Mortgage Guaranty."
A mortgage pool may include mortgage loans that are delinquent as of
the date the related series of securities is issued. In that case, the related
prospectus supplement will set forth, as to each mortgage loan, available
information as to the period of delinquency and any other information relevant
for a prospective investor to make an investment decision. No mortgage loan in a
mortgage pool shall be non-performing. Mortgage loans which are more than 30
days delinquent included in any mortgage pool will have delinquency data
relating to them included in the related prospectus supplement. No mortgage pool
will include a concentration of mortgage loans which is more than 30 days
delinquent of 20% or more.
A mortgage pool may contain more than one mortgage loan made to the
same borrower with respect to a single mortgaged property, and may contain
multiple mortgage loans made to the same borrower on several mortgaged
properties.
The mortgage loans may include "sub-prime" mortgage loans. "Sub-prime"
mortgage loans will be underwritten in accordance with underwriting standards
which are less stringent than guidelines for "A" quality borrowers. Mortgagors
may have a record of outstanding judgments, prior bankruptcies and other credit
items that do not satisfy the guidelines for "A" quality borrowers. They may
have had past debts written off by past lenders.
A mortgage pool may include mortgage loans that do not meet the
purchase requirements of Fannie Mae and Freddie Mac. These mortgage loans are
known as nonconforming loans. The mortgage loans may be nonconforming because
they exceed the maximum principal balance of mortgage loans purchased by Fannie
Mae and Freddie Mac, known as jumbo loans, because the mortgage loan may have
been originated with limited or no documentation, because they are sub-prime
loans, or because of some other failure to meet the purchase criteria of Fannie
Mae and Freddie Mac for these programs. The related prospectus supplement will
detail to what extent the mortgage loans are nonconforming mortgage loans.
Each mortgage loan will be selected by the depositor or its affiliates
for inclusion in a mortgage pool from among those purchased by the depositor,
either directly or through its affiliates, from Unaffiliated Sellers or
Affiliated Sellers. As to each series of securities, the mortgage loans will be
selected for inclusion in the mortgage pool based on rating agency criteria,
compliance with representations and warranties, and conformity to criteria
relating to the characterization of securities for tax, ERISA, SMMEA, Form S-3
eligibility and other legal purposes. If a mortgage pool is composed of mortgage
loans acquired by the depositor 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. Other mortgage loans available for purchase by the
depositor may have characteristics which would make them eligible for inclusion
in a mortgage pool but were not selected for inclusion in the mortgage pool.
The mortgage loans may be delivered to the trust fund pursuant to a
Designated Seller Transaction, concurrently with the issuance of the related
series of securities. These securities may be sold in whole or in part to the
Seller in exchange for the related mortgage loans, or may be offered under any
of the other methods described in this prospectus under "Methods of
Distribution." The related prospectus supplement for a mortgage pool composed of
mortgage loans acquired by the depositor pursuant to a Designated Seller
Transaction will generally include information, provided by the related Seller,
about the Seller, the mortgage loans and the underwriting standards applicable
to the mortgage loans.
If specified in the related prospectus supplement, the trust fund for a
series of securities may include mortgage securities (including participations
in mortgage loans), as described in this prospectus. The mortgage securities may
have been issued previously by the depositor or an affiliate thereof, a
financial institution or other entity engaged generally in the business of
mortgage lending or a limited purpose corporation organized for the purpose of,
among other things, acquiring and depositing mortgage loans into trusts, and
selling beneficial interests in trusts. In addition the mortgage securities may
have been issued or guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac or other
government agencies or government-sponsored agencies, as specified in the
related prospectus supplement. The mortgage securities will be generally similar
to securities offered under this prospectus. In any securitization where
mortgage securities are included in a trust fund, unless the mortgage securities
are exempt from registration under the Securities Act, the offering of the
mortgage securities will be registered if required in accordance with Rule 190
under the Securities Act. As to any series of mortgage securities, the related
prospectus supplement will include a description of (1) the mortgage securities
and any related credit enhancement, and (2) the mortgage loans underlying the
mortgage securities.
In addition, if specified in the related prospectus supplement United
States Treasury securities and other securities issued by the U.S. Government,
any of its agencies or other issuers established by federal statute may be
included in the trust fund. Such securities will be backed by the full faith and
credit of the United States or will represent the obligations of the U.S.
Government or such agency or such other issuer or obligations payable from the
proceeds of U.S. Government Securities, as specified in the related prospectus
supplement.
THE MORTGAGE LOANS
Each of the mortgage loans will be a type of mortgage loan described or
referred to below:
o Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans
or otherwise modified) providing for level monthly payments of
principal and interest and terms at origination or
modification of not more than approximately 40 years;
o Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans
or otherwise modified) providing for level monthly payments of
principal and interest and terms at origination or
modification of more than 15 years, but not more than
approximately 40 years;
o Fully-amortizing ARM Loans having an original or modified term
to maturity of not more than approximately 40 years with a
related mortgage rate which generally adjusts initially either
three months, six months or one, two, three, five, seven or
ten years or other intervals subsequent to the initial payment
date, and thereafter at either three- month, six-month,
one-year or other intervals (with corresponding adjustments in
the amount of monthly payments) over the term of the mortgage
loan to equal the sum of the related Note Margin and the Note
Index. The related prospectus supplement will set forth the
relevant Index and the highest, lowest and weighted average
Note Margin with respect to the ARM Loans in the related
mortgage pool. The related prospectus supplement will also
indicate any periodic or lifetime limitations on changes in
any per annum mortgage rate at the time of any adjustment. If
specified in the related prospectus supplement, an ARM Loan
may include a provision that allows the mortgagor to convert
the adjustable mortgage rate to a fixed rate at some point
during the term of the ARM Loan generally not later than six
to ten years subsequent to the initial payment date;
o Negatively-amortizing ARM Loans having original or modified
terms to maturity of not more than approximately 40 years with
mortgage rates which generally adjust initially on the payment
date referred to in the related prospectus supplement, and on
each of specified periodic payment dates thereafter, to equal
the sum of the Note Margin and the Index. The scheduled
monthly payment will be adjusted as and when described in the
related prospectus supplement to an amount that would fully
amortize the mortgage loan over its remaining term on a level
debt service basis; provided that increases in the scheduled
monthly payment may be subject to limitations as specified in
the related prospectus supplement. Any Deferred Interest will
be added to the principal balance of the mortgage loan;
o Fixed-rate, graduated payment mortgage loans having original
or modified terms to maturity of not more than approximately
40 years with monthly payments during the first year
calculated on the basis of an assumed interest rate which is a
specified percentage below the mortgage rate on the mortgage
loan. Monthly payments on these mortgage loans increase at the
beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year
thereafter to the extent necessary to amortize the mortgage
loan over the remainder of its approximately 40-year term.
Deferred Interest, if any, will be added to the principal
balance of these mortgage loans;
o Fixed-rate, graduated payment mortgage loans having original
or modified terms to maturity of not more than approximately
40 years with monthly payments during the first year
calculated on the basis of an assumed interest rate which is a
specified percentage below the mortgage rate on the mortgage
loan. Monthly payments on these mortgage loans increase at the
beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year
thereafter to the extent necessary to fully amortize the
mortgage loan over the remainder of its approximately 40-year
term. Deferred Interest, if any, will be added to the
principal balance of these mortgage loans;
o Balloon loans having payment terms similar to those described
in one of the preceding paragraphs, calculated on the basis of
an assumed amortization term, but providing for a balloon
payment of all outstanding principal and interest to be made
at the end of a specified term that is shorter than the
assumed amortization term.
o Mortgage loans that provide for a line of credit pursuant to
which amounts may be advanced to the borrower from time to
time;
o Mortgage loans that require that each monthly payment consist
of an installment of interest which is calculated according to
the simple interest method. This method calculates interest
using the outstanding principal balance of the mortgage loan
multiplied by the loan rate and further multiplied by a
fraction, the numerator of which is the number of days in the
period elapsed since the preceding payment of interest was
made and the denominator of which is the number of days in the
annual period for which interest accrues on the mortgage loan.
As payments are received on simple interest mortgage loans,
the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the
unpaid principal balance of the mortgage loan; or
o Mortgage loans which provide for an interest only period and
do not provide for the payment of principal for the number of
years specified in the related prospectus supplement.
The mortgage pool may contain mortgage loans secured by junior liens.
The related senior lien, which may have been made at the same time as the first
lien, may or may not be included in the mortgage pool as well. The primary risk
to holders of mortgage loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related senior liens to satisfy fully both the senior liens and the mortgage
loan secured by a junior lien. In the event that a holder of a senior lien
forecloses on a mortgaged property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the senior liens. The claims of the holders
of the senior liens will be satisfied in full out of proceeds of the liquidation
of the related mortgaged property, if the proceeds are sufficient, before the
trust fund as holder of the junior lien receives any payments in respect of the
mortgage loan. If the master servicer or a servicer were to foreclose on a
mortgage loan secured by a junior lien, it would do so subject to any related
senior liens. In order for the debt related to the mortgage loan to be paid in
full at the sale, a bidder at the foreclosure sale of the mortgage loan would
have to bid an amount sufficient to pay off all sums due under the mortgage loan
and the senior liens or purchase the mortgaged property subject to the senior
liens. In the event that the proceeds from a foreclosure or similar sale of the
related mortgaged property are insufficient to satisfy all senior liens and the
mortgage loan in the aggregate, the trust fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the securities of the
related series bear (1) the risk of delay in distributions while a deficiency
judgment against the borrower is sought and (2) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments may not
be available in some jurisdictions or the mortgage loan may be nonrecourse. In
addition, a junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages.
A mortgage loan may require payment of a prepayment charge or penalty,
the terms of which will be more fully described in the prospectus supplement.
Prepayment penalties may apply if the borrower makes a substantial prepayment,
or may apply only if the borrower refinances the mortgage loans. A multifamily,
commercial or mixed-use loan may also contain a prohibition on prepayment or
lock-out period.
A multifamily, commercial or mixed-use loan may contain a provision
that entitles the lender to a share of profits realized from the operation or
disposition of the related mortgaged property. If the holders of any class or
classes of offered securities of a series will be entitled to all or a portion
of this type of equity participation, the related prospectus supplement will
describe the equity participation and the method or methods by which
distributions in respect thereof will be made to such holders.
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 which have been consolidated and/or have had various terms
changed, mortgage loans which have been converted from adjustable rate mortgage
loans to fixed rate mortgage loans, or construction loans which have been
converted to permanent mortgage loans. In addition, a mortgaged property may be
subject to secondary financing at the time of origination of the mortgage loan
or thereafter. In addition, some or all of the single family loans secured by
junior liens may be High LTV Loans.
If provided for in the related prospectus supplement, a mortgage pool
may contain convertible mortgage loans which allow the mortgagors to convert the
interest rates on these mortgage loans from a fixed rate to an adjustable rate,
or an adjustable rate to a fixed rate, at some point during the life of these
mortgage loans. In addition, if provided for in the related prospectus
supplement, a mortgage pool may contain mortgage loans which may provide for
modification to other fixed rate or adjustable rate programs offered by the
Seller. If specified in the related prospectus supplement, upon any conversion
or modification, the depositor, the related master servicer, the related
servicer, the applicable Seller or a third party will repurchase the converted
or modified mortgage loan as and to the extent set forth in the related
prospectus supplement. Upon the failure of any party so obligated to repurchase
any converted or modified mortgage loan, it will remain in the mortgage pool.
If provided for in the related prospectus supplement, the mortgage
loans may include buydown mortgage loans. Under the terms of a buydown mortgage
loan, 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. The resulting difference will be made up from:
o funds contributed by the seller of the mortgaged property or
another source and placed in a custodial account,
o if funds contributed by the seller are contributed on a
present value basis, investment earnings on these funds, or
o additional funds to be contributed over time by the
mortgagor's employer or another source.
See "Description of the Securities--Payments on Mortgage Loans; Deposits to
Distribution Account."
Generally, the mortgagor under each buydown mortgage loan will be
qualified at the applicable lower monthly payment. Accordingly, the repayment of
a buydown mortgage loan is dependent on the ability of the mortgagor to make
larger level monthly payments after the Buydown Funds have been depleted and,
for some buydown mortgage loans, during the Buydown Period.
The prospectus supplement for each series of securities will contain
information as to the type of mortgage loans that will be included in the
related mortgage pool. Each prospectus supplement applicable to a series of
securities will include information, generally as of the cut-off date and to the
extent then available to the depositor, on an approximate basis, as to the
following:
o the aggregate principal balance of the mortgage loans,
o the type of property securing the mortgage loans,
o the original or modified terms to maturity of the mortgage
loans,
o the range of principal balances of the mortgage loans at
origination or modification,
o the earliest origination or modification date and latest
maturity date of the mortgage loans,
o the Loan-to-Value Ratios of the mortgage loans,
o the mortgage rate or range of mortgage rates borne by the
mortgage loans,
o if any of the mortgage loans are ARM Loans, the applicable
Index, the range of Note Margins and the weighted average Note
Margin,
o the geographical distribution of the mortgage loans,
o the percentage of buydown mortgage loans, if applicable, and
o the percent of ARM Loans which are convertible to fixed-rate
mortgage loans, if applicable.
A Current Report on Form 8-K will be sent, upon request, to holders of the
related series of securities and will be filed, together with the related
pooling and servicing agreement, with respect to each series of certificates, or
the related servicing agreement, owner trust agreement and indenture, with
respect to each series of notes, with the Commission after the initial issuance
of the securities. In the event that mortgage loans are added to or deleted from
the trust fund after the date of the related prospectus supplement but on or
before the date of issuance of the securities if any material pool
characteristic differs by 5% or more from the description in the prospectus
supplement, revised disclosure will be provided either in a supplement or in a
Current Report on Form 8-K.
The depositor will cause the mortgage loans included in each mortgage
pool, or mortgage securities evidencing interests therein, to be assigned,
without recourse, to the trustee named in the related prospectus supplement, for
the benefit of the holders of the securities of a series. Except to the extent
that servicing of any mortgage loan is to be transferred to a special servicer,
the master servicer named in the related prospectus supplement will service the
mortgage loans, directly or through servicers, pursuant to a pooling and
servicing agreement, with respect to each series of certificates, or a servicing
agreement, with respect to each series of notes, and will receive a fee for
these services. See "Servicing of Mortgage Loans," "Description of the
Securities" and "The Agreements." The master servicer's obligations with respect
to the mortgage loans will consist principally of its contractual servicing
obligations under the related pooling and servicing agreement or servicing
agreement (including its obligation to supervise, monitor and oversee the
obligations of the servicers to service and administer their respective mortgage
loans in accordance with the terms of the applicable servicing agreements), as
more fully described in this prospectus under "Servicing of Mortgage
Loans--Servicers," and, if and to the extent set forth in the related prospectus
supplement, its obligation to make cash advances in the event of delinquencies
in payments on or with respect to the mortgage loans as described in this
prospectus under "Description of the Securities--Advances") or pursuant to the
terms of any mortgage securities. The obligations of a master servicer to make
advances may be subject to limitations, to the extent this prospectus and the
related prospectus supplement so provides.
UNDERWRITING STANDARDS
Mortgage loans to be included in a mortgage pool will be purchased on
the closing date by the depositor either directly or indirectly from Affiliated
Sellers or Unaffiliated Sellers. The depositor will acquire mortgage loans
utilizing re-underwriting criteria which it believes are appropriate, depending
to some extent on the depositor's or its affiliates' prior experience with the
Seller and the servicer, as well as the depositor's prior experience with a
particular type of mortgage loan or with mortgage loans relating to mortgaged
properties in a particular geographical region. A standard approach to
re-underwriting is to compare loan file information and information that is
represented to the depositor on a tape with respect to a percentage of the
mortgage loans the depositor deems appropriate in the circumstances. The
depositor will not undertake any independent investigations of the
creditworthiness of particular obligors.
The mortgage loans, as well as mortgage loans underlying mortgage
securities will have been originated in accordance with underwriting standards
described below.
The underwriting standards to be used in originating the mortgage loans
are primarily intended to assess the creditworthiness of the mortgagor, the
value of the mortgaged property and the adequacy of the property as collateral
for the mortgage loan.
The mortgage loans will be originated under "full/alternative", "stated
income/verified assets", "stated income/stated assets", "no documentation" or
"no ratio" programs. The "full/alternative" documentation programs generally
verify income and assets in accordance with Fannie Mae/Freddie Mac automated
underwriting requirements. The stated income/verified assets, stated
income/stated assets, no documentation or no ratio programs generally require
less documentation and verification than do full documentation programs which
generally require standard Fannie Mae/Freddie Mac approved forms for
verification of income/employment, assets and certain payment histories.
Generally, under both "full/alternative" documentation programs, at least one
month of income documentation is provided. This documentation is also required
to include year-to-date income or prior year income in case the former is not
sufficient to establish consistent income. Generally under a "stated income
verified assets" program no verification of a mortgagor's income is undertaken
by the origination however, verification of the mortgagor's assets is obtained.
Under a "stated income/stated assets" program, no verification of either a
mortgagor's income or a mortgagor's assets is undertaken by the originator
although both income and assets are stated on the loan application and a
"reasonableness test" is applied. Generally, under a "no documentation" program,
the mortgagor is not required to state his or her income or assets and
therefore, no verification of such mortgagor's income or assets is undertaken by
the originator. The underwriting for such mortgage loans may be based primarily
or entirely on the estimated value of the mortgaged property and the LTV ratio
at origination as well as on the payment history and credit score. Generally,
under a "no ratio" program, the mortgagor is not required to disclose their
income although the nature of employment is disclosed. Additionally, on a "no
ratio" program assets are verified.
The primary considerations in underwriting a mortgage loan are the
mortgagor's employment stability and whether the mortgagor has sufficient
monthly income available (1) to meet the mortgagor's monthly obligations on the
proposed mortgage loan (generally determined on the basis of the monthly
payments due in the year of origination) and other expenses related to the home
(including property taxes and hazard insurance) and (2) to meet monthly housing
expenses and other financial obligations and monthly living expenses. However,
the Loan-to-Value Ratio of the mortgage loan is another critical factor. In
addition, a mortgagor's credit history and repayment ability, as well as the
type and use of the mortgaged property, are also considerations.
High LTV Loans are underwritten with an emphasis on the
creditworthiness of the related mortgagor. High LTV Loans are underwritten with
a limited expectation of recovering any amounts from the foreclosure of the
related mortgaged property.
In the case of the multifamily loans, commercial loans or mixed-use
loans, lenders typically look to the debt service coverage ratio of a loan as an
important measure of the risk of default on that loan. Unless otherwise defined
in the related prospectus supplement, the debt service coverage ratio of a
multifamily loan, commercial loan or mixed-use loan at any given time is the
ratio of (1) the net operating income of the related mortgaged property for a
twelve-month period to (2) the annualized scheduled payments on the mortgage
loan and on any other loan that is secured by a lien on the mortgaged property
prior to the lien of the related mortgage. The net operating income of a
mortgaged property is the total operating revenues derived from a multifamily,
commercial or mixed-use property, as applicable, during that period, minus the
total operating expenses incurred in respect of that property during that period
other than (a) non-cash items such as depreciation and amortization, (b) capital
expenditures and (c) debt service on loans (including the related mortgage loan)
secured by liens on that property. The net operating income of a multifamily,
commercial or mixed-use property, as applicable, will fluctuate over time and
may or may not be sufficient to cover debt service on the related mortgage loan
at any given time. As the primary source of the operating revenues of a
multifamily, commercial or mixed-use property, as applicable, rental income (and
maintenance payments from tenant-stockholders of a cooperatively owned
multifamily property) may be affected by the condition of the applicable real
estate market and/or area economy. Increases in operating expenses due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate tax rates, energy
costs, labor costs and other operating expenses, and/or to changes in
governmental rules, regulations and fiscal policies, may also affect the risk of
default on a multifamily, commercial or mixed-use loan. Lenders also look to the
Loan-to-Value Ratio of a multifamily, commercial or mixed-use loan as a measure
of risk of loss if a property must be liquidated following a default.
Each prospective mortgagor will generally complete a mortgage loan
application that includes information on the applicant's liabilities, income,
credit history, employment history and personal information. One or more credit
reports on each applicant from national credit reporting companies generally
will be required. The report typically contains information relating to credit
history with local and national merchants and lenders, installment debt payments
and any record of defaults, bankruptcies, repossessions, or judgments. In the
case of a multifamily loan, commercial loan or mixed-use loan, the mortgagor
will also be required to provide certain information regarding the related
mortgaged property, including a current rent roll and operating income
statements (which may be pro forma and unaudited). In addition, the originator
will generally also consider the location of the mortgaged property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market area, the overall economy and demographic
features of the geographic area and the mortgagor's prior experience in owning
and operating properties similar to the multifamily properties or commercial
properties, as the case may be.
Mortgaged properties generally will be appraised by licensed appraisers
or through an automated valuation system. A licensed appraiser will generally
address neighborhood conditions, site and zoning status and condition and
valuation of improvements. In the case of mortgaged properties secured by single
family loans, the appraisal report will generally include a reproduction cost
analysis (when appropriate) based on the current cost of constructing a similar
home and a market value analysis based on recent sales of comparable homes in
the area. With respect to multifamily properties, commercial properties and
mixed-use properties, the appraisal must specify whether an income analysis, a
market analysis or a cost analysis was used. An appraisal employing the income
approach to value analyzes a property's projected net cash flow, capitalization
and other operational information in determining the property's value. The
market approach to value analyzes the prices paid for the purchase of similar
properties in the property's area, with adjustments made for variations between
those other properties and the property being appraised. The cost approach to
value requires the appraiser to make an estimate of land value and then
determine the current cost of reproducing the improvements less any accrued
depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must support, and support in the future, the
outstanding loan balance. All appraisals by licensed appraisers are required to
be on forms acceptable to Fannie Mae or Freddie Mac. Automated valuation systems
generally rely on publicly available information regarding property values and
will be described more fully in the related prospectus supplement. An appraisal
for purposes of determining the Value of a mortgaged property may include an
automated valuation.
Notwithstanding the foregoing, Loan-to-Value Ratios will not
necessarily provide an accurate measure of the risk of liquidation loss in a
pool of mortgage loans. For example, the value of a mortgaged property as of the
date of initial issuance of the related series of securities may be less than
the Value determined at loan origination, and will likely continue to fluctuate
from time to time based upon changes in economic conditions and the real estate
market. Mortgage loans which are subject to negative amortization will have
Loan-to-Value Ratios which will increase after origination as a result of
negative amortization. Also, even when current, an appraisal is not necessarily
a reliable estimate of value for a multifamily property or commercial property.
As stated above, appraised values of multifamily, commercial and mixed-use
properties are generally based on the market analysis, the cost analysis, the
income analysis, or upon a selection from or interpolation of the values derived
from those approaches. Each of these appraisal methods can present analytical
difficulties. It is often difficult to find truly comparable properties that
have recently been sold; the replacement cost of a property may have little to
do with its current market value; and income capitalization is inherently based
on inexact projections of income and expenses and the selection of an
appropriate capitalization rate. Where more than one of these appraisal methods
are used and provide significantly different results, an accurate determination
of value and, correspondingly, a reliable analysis of default and loss risks, is
even more difficult.
If so specified in the related prospectus supplement, the underwriting
of a multifamily loan, commercial loan or mixed-use loan may also include
environmental testing. Under the laws of some states, contamination of real
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, this type of lien has priority over an existing mortgage lien
on that property. In addition, under the laws of some states and under CERCLA, a
lender may be liable, as an "owner" or "operator", for costs of addressing
releases or threatened releases of hazardous substances at a property, if agents
or employees of the lender have become sufficiently involved in the operations
of the borrower, regardless of whether or not the environmental damage or threat
was caused by the borrower or a prior owner. A lender also risks such liability
on foreclosure of the mortgage as described under "Legal Aspects of Mortgage
Loans--Environmental Legislation" in this prospectus.
With respect to any FHA loan or VA loans the mortgage loan Seller will
be required to represent that it has complied with the applicable underwriting
policies of the FHA or VA, respectively. See "Description of Primary Insurance
Policies--FHA Insurance" and "--VA Insurance" in this prospectus.
FICO SCORES
The FICO Score is a statistical ranking of likely future credit
performance developed by Fair, Isaac & Company ("Fair, Isaac") and the three
national credit repositories-Equifax, Trans Union and First American (formerly
Experian which was formerly TRW). The FICO Scores available from the three
national credit repositories are calculated by the assignment of weightings to
the most predictive data collected by the credit repositories and range from the
300's to the 900's. Although the FICO Scores are based solely on the information
at the particular credit repository, such FICO Scores have been calibrated to
indicate the same level of credit risk regardless of which credit repository is
used. The FICO Scores is used along with, but not limited to, mortgage payment
history, seasoning on bankruptcy and/or foreclosure, and is not a substitute for
the underwriter's judgment.
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Each mortgage loan generally will be originated, directly or through
mortgage brokers and correspondents, by a savings and loan association, savings
bank, commercial bank, credit union, insurance company, or similar institution
which is supervised and examined by a federal or state authority, or by a
mortgagee approved by the Secretary of Housing and Urban Development pursuant to
sections 203 and 211 of the Housing Act, unless otherwise provided in the
related prospectus supplement.
REPRESENTATIONS BY SELLERS
Each Seller will have made representations and warranties in respect of
the mortgage loans and/or mortgage securities sold by the Seller and evidenced
by a series of securities. In the case of mortgage loans, representations and
warranties will generally include, among other things, that as to each mortgage
loan:
o with respect to each mortgage loan other than a Contract or a
cooperative mortgage loan, if required, (A) a title insurance
policy, binder, or other assurance of title customary in the
relevant jurisdiction insuring (subject only to permissible
title insurance exceptions) the lien status of the mortgage
was effective at the origination of the mortgage loan and the
policy remained in effect on the date of purchase of the
mortgage loan from the Seller by the depositor, (B) if the
mortgaged property securing the mortgage loan is located in an
area where these policies are generally not available, there
is in the related mortgage file an attorney's certificate of
title indicating (subject to permissible exceptions set forth
therein) the lien status of the mortgage or (C) with respect
to a mortgage loan which is a refinanced mortgage loan, a
title search was done by the Seller or some other type of
"short-form" title insurance was obtained;
o the Seller has good title to the mortgage loan and the
mortgage loan was subject to no offsets, defenses or
counterclaims except as may be provided under the Relief Act
and except to the extent that any buydown agreement exists for
a buydown mortgage loan;
o there are no mechanics' liens or claims for work, labor or
material affecting the related mortgaged property which are,
or may be a lien prior to, or equal with, the lien of the
related mortgage (subject only to permissible title insurance
exceptions);
o the mortgage loan constituted a valid first or other
applicable lien on, or a perfected security interest with
respect to, the mortgaged property (subject only to
permissible title insurance exceptions, if applicable, and
certain other exceptions described in the Agreement) and the
related mortgaged property is free from damage and in good
repair;
o there are no delinquent tax or assessment liens against the
related mortgaged property;
o the mortgage loan is not more than 90 days delinquent as to
any scheduled payment of principal and/or interest; and
o to the best of the Seller's knowledge, each mortgage loan at
the time it was made complied in all material respects with
applicable federal, state and local laws, including, without
limitation, usury, equal credit opportunity, disclosure and
recording laws; and, to the best of the Seller's knowledge,
each mortgage loan has been serviced in all material respects
in accordance with applicable federal, state and local laws,
including, without limitation, usury, equal credit
opportunity, disclosure and recording laws and the terms of
the related mortgage note, the mortgage and other loan
documents.
If the mortgage loans include cooperative mortgage loans, representations and
warranties with respect to title insurance or hazard insurance may not be given.
Generally, the cooperative itself is responsible for the maintenance of hazard
insurance for property owned by the cooperative, and the borrowers
(tenant-stockholders) of the cooperative do not maintain hazard insurance on
their individual dwelling units. In the case of mortgage securities,
representations and warranties will generally include, among other things, that
as to each mortgage security, the Seller has good title to the mortgage security
free of any liens. In the event of a breach of a Seller's representation or
warranty that materially adversely affects the interests of the securityholders
in a mortgage loan or mortgage security, the related Seller will be obligated to
cure the breach or repurchase or, if permitted, replace the mortgage loan or
mortgage security as described below. However, there can be no assurance that a
Seller will honor its obligation to repurchase or, if permitted, replace any
mortgage loan or mortgage security as to which a breach of a representation or
warranty arises.
All of the representations and warranties of a Seller in respect of a
mortgage loan or mortgage security will have been made as of the date on which
the mortgage loan or mortgage security was purchased from the Seller by or on
behalf of the depositor, unless a specific representation or warranty relates to
an earlier date, in which case such representation or warranty shall be made as
of such earlier date. As a result, the date as of which the representations and
warranties were made may be a date prior to the date of initial issuance of the
related series of securities or, in the case of a Designated Seller Transaction,
will be the date of closing of the related sale by the applicable Seller. A
substantial period of time may have elapsed between the date as of which the
representations and warranties were made and the later date of initial issuance
of the related series of securities. Accordingly, the Seller's repurchase
obligation (or, if specified in the related prospectus supplement, limited
replacement option) described below will not arise if, during the period
commencing on the date of sale of a mortgage loan or mortgage security by the
Seller, an event occurs that would have given rise to a repurchase obligation
had the event occurred prior to sale of the affected mortgage loan or mortgage
security, as the case may be. The only representations and warranties to be made
for the benefit of holders of securities in respect of any related mortgage loan
or mortgage security relating to the period commencing on the date of sale of
the mortgage loan or mortgage security by the Seller to or on behalf of the
depositor will be the limited corporate representations of the depositor and the
master servicer described under "Description of the Securities--Assignment of
Trust Fund Assets" below.
The depositor will assign to the trustee for the benefit of the holders
of the related series of securities all of its right, title and interest in each
purchase agreement by which it purchased a mortgage loan or mortgage security
from a Seller insofar as the purchase agreement relates to the representations
and warranties made by the Seller in respect of the mortgage loan or mortgage
security and any remedies provided for with respect to any breach of
representations and warranties with respect to the mortgage loan or mortgage
security. If a Seller cannot cure a breach of any representation or warranty
made by it in respect of a mortgage loan or mortgage security which materially
and adversely affects the interests of the securityholders therein within a
specified period after having discovered or received notice of a breach, then,
the Seller will be obligated to repurchase the mortgage loan or mortgage
security at a purchase price set forth in the related pooling and servicing
agreement or other agreement which purchase price generally will be equal to the
principal balance thereof as of the date of repurchase plus accrued and unpaid
interest through or about the date of repurchase at the related mortgage rate or
pass-through rate, as applicable (net of any portion of this interest payable to
the Seller in respect of master servicing compensation, special servicing
compensation or servicing compensation, as applicable, and any interest retained
by the depositor).
As to any mortgage loan required to be repurchased by a Seller as
provided above, rather than repurchase the mortgage loan, the Seller, if so
specified in the related prospectus supplement, will be entitled, at its sole
option, to remove the Deleted Mortgage Loan from the trust fund and substitute
in its place a Qualified Substitute Mortgage Loan; however, with respect to a
series of certificates for which no REMIC election is to be made, the
substitution must be effected within 120 days of the date of the initial
issuance of the related series of certificates. With respect to a trust fund for
which a REMIC election is to be made, the substitution of a defective mortgage
loan must be effected within two years of the date of the initial issuance of
the related series of certificates, and may not be made if the substitution
would cause the trust fund, or any portion thereof, to fail to qualify as a
REMIC or result in a Prohibited Transaction Tax under the Code. Any Qualified
Substitute Mortgage Loan generally will, on the date of substitution:
o have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of
substitution, not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any
shortfall to be deposited in the Distribution Account by the
related Seller or the master servicer in the month of
substitution for distribution to the securityholders),
o have a mortgage rate and a Net Mortgage Rate not less than
(and not materially greater than) the mortgage rate and Net
Mortgage Rate, respectively, of the Deleted Mortgage Loan as
of the date of substitution,
o have a Loan-to-Value Ratio at the time of substitution no
higher than that of the Deleted Mortgage Loan at the time of
substitution,
o have a remaining term to maturity not materially earlier or
later than (and not later than the latest maturity date of any
mortgage loan) that of the Deleted Mortgage Loan, and
o comply with all of the representations and warranties made by
the Seller as of the date of substitution.
The related mortgage loan purchase agreement may include additional
requirements relating to ARM Loans or other specific types of mortgage loans, or
additional provisions relating to meeting the foregoing requirements on an
aggregate basis where a number of substitutions occur contemporaneously. A
Seller will have an option to substitute for a mortgage security that it is
obligated to repurchase in connection with a breach of a representation and
warranty only if it satisfies the criteria set forth in the related prospectus
supplement.
The master servicer or the trustee will be required under the
applicable pooling and servicing agreement or servicing agreement to use
reasonable efforts to enforce this repurchase or substitution obligation for the
benefit of the trustee and the securityholders, following those 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
repurchase or substitution obligation will not become an obligation of the
master servicer in the event the applicable Seller fails to honor the
obligation. In instances where a Seller is unable, or disputes its obligation,
to repurchase affected mortgage loans and/or mortgage securities, the master
servicer or the trustee, employing the standards set forth in the preceding
sentence, may negotiate and enter into one or more settlement agreements with
the related Seller that could provide for the repurchase of only a portion of
the affected mortgage loans and/or mortgage securities. Any settlement could
lead to losses on the mortgage loans and/or mortgage securities which would be
borne by the related securities. In accordance with the above described
practices, the master servicer or trustee will not be required to enforce any
repurchase obligation of a Seller arising from any misrepresentation by the
Seller, if the master servicer determines in the reasonable exercise of its
business judgment that the matters related to the misrepresentation did not
directly cause or are not likely to directly cause a loss on the related
mortgage loan or mortgage security. If the Seller fails to repurchase and no
breach of any other party's representations has occurred, the Seller's
repurchase obligation will not become an obligation of the depositor or any
other party. In the case of a Designated Seller Transaction where the Seller
fails to repurchase a mortgage loan or mortgage security and neither the
depositor nor any other entity has assumed the representations and warranties,
the repurchase obligation of the Seller will not become an obligation of the
depositor or any other party. The foregoing obligations will constitute the sole
remedies available to securityholders or the trustee for a breach of any
representation by a Seller or for any other event giving rise to the obligations
as described above.
Neither the depositor nor the master servicer will be obligated to
repurchase a mortgage loan or mortgage security if a Seller defaults on its
obligation to do so, and no assurance can be given that the Sellers will
carryout their repurchase obligations. A default by a Seller is not a default by
the depositor or by the master servicer. However, to the extent that a breach of
the representations and warranties of a Seller also constitutes a breach of a
representation made by the depositor or the master servicer, as described below
under "Description of the Securities--Assignment of Trust Fund Assets," the
depositor or the master servicer may have a repurchase or substitution
obligation. Any mortgage loan or mortgage security not so repurchased or
substituted for shall remain in the related trust fund and any losses related
thereto shall be allocated to the related credit enhancement, to the extent
available, and otherwise to one or more classes of the related series of
securities.
If a person other than a Seller makes the representations and
warranties referred to in the first paragraph of this "--Representations by
Sellers" section, or a person other than a Seller is responsible for
repurchasing or replacing any mortgage loan or mortgage security for a breach of
those representations and warranties, the identity of that person will be
specified in the related prospectus supplement. The master servicer's
responsibilities for enforcing these representations and warranties will be as
provided in the second preceding paragraph.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
If the related prospectus supplement so specifies, the master servicer
or another entity identified in such prospectus supplement may, at its option,
purchase from the trust fund any mortgage loan which is delinquent in payment by
90 days or more or is an REO Mortgage Loan as the date of such purchase. Any
such purchase shall be at the price described in the related prospectus
supplement.
STATIC POOL INFORMATION
For each mortgage pool discussed above, the issuer will provide static
pool information to the extent available with respect to the experience of the
sponsor, or other appropriate entity, in securitizing asset pools of the same
type to the extent material.
With respect to each series of securities, if available, the
information referred to in this section will be provided through an internet web
site at the address disclosed in the related prospectus supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The mortgage loans and mortgage securities included in each mortgage
pool will be serviced and administered pursuant to either a pooling and
servicing agreement or a servicing agreement. A form of pooling and servicing
agreement and a form of servicing agreement have each been filed as an exhibit
to the registration statement of which this prospectus is a part. However, the
provisions of each pooling and servicing agreement or servicing agreement will
vary depending upon the nature of the related mortgage pool. The following
summaries describe the material servicing-related provisions that may appear in
a pooling and servicing agreement or servicing agreement for a mortgage pool
that includes mortgage loans. The related prospectus supplement will describe
any servicing-related provision of its related pooling and servicing agreement
or servicing agreement that materially differs from the description thereof
contained in this prospectus. If the related mortgage pool includes mortgage
securities, the related prospectus supplement will summarize the material
provisions of the related pooling and servicing agreement and identify the
responsibilities of the parties to that pooling and servicing agreement.
With respect to any series of securities as to which the related
mortgage pool includes mortgage securities, the servicing and administration of
the mortgage loans underlying any mortgage securities will be pursuant to the
terms of those mortgage securities. Mortgage loans underlying mortgage
securities in a mortgage pool will be serviced and administered generally in the
same manner as mortgage loans included in a mortgage pool, however, there can be
no assurance that this will be the case, particularly if the mortgage securities
are issued by an entity other than the depositor or any of its affiliates.
THE MASTER SERVICER
The master servicer, if any, for a series of securities will be named
in the related prospectus supplement and may be an affiliate of the depositor.
The master servicer is required to maintain a fidelity bond and errors and
omissions policy with respect to its officers and employees and other persons
acting on behalf of the master servicer in connection with its activities under
a pooling and servicing agreement or a servicing agreement.
The master servicer shall supervise, monitor and oversee the obligation
of the servicers to service and administer their respective mortgage loans in
accordance with the terms of the applicable servicing agreements and shall have
full power and authority to do any and all things which it may deem necessary or
desirable in connection with such master servicing and administration. In
addition, the Master Servicer shall oversee and consult with each servicer as
necessary from time-to-time to carry out the master servicer's obligations under
the pooling and servicing agreement or servicing agreement, shall receive,
review and evaluate all reports, information and other data provided to the
master servicer by each servicer and shall cause each servicer to perform and
observe the covenants, obligations and conditions to be performed or observed by
such servicer under its applicable servicing agreement. Each pooling and
servicing agreement or servicing agreement, as applicable, for a series of
securities, will provide that in the event a servicer fails to perform its
obligations in accordance with its servicing agreement, the master servicer
shall terminate such servicer and act as servicer of the related mortgage loans
or cause the trustee to enter into a new servicing agreement with a successor
servicer selected by the master servicer.
THE SERVICERS
Each of the servicers, if any, for a series of securities will be named
in the related prospectus supplement and may be an affiliate of the depositor or
the Seller of the mortgage loans for which it is acting as servicer. Each
servicer will service the mortgage loans pursuant to a servicing agreement
between the master servicer and the related servicer, which servicing agreement
will not contain any terms which are inconsistent with the related pooling and
servicing agreement or other agreement that governs the servicing
responsibilities of the master servicer, as specified in the related prospectus
supplement. Each servicer is required to maintain a fidelity bond and errors and
omissions policy with respect to its officers and employees and other persons
acting on behalf of the servicer in connection with its activities under a
servicing agreement.
COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
The master servicer for any mortgage pool will be obligated under the
pooling and servicing agreement or servicing agreement to supervise, monitor and
oversee the obligations of the servicers to service and administer their
respective mortgage loans in the mortgage pool for the benefit of the related
securityholders, in accordance with applicable law, the terms of the pooling and
servicing agreement or servicing agreement, the mortgage loans and any
instrument of credit enhancement included in the related trust fund, and, to the
extent consistent with the foregoing, the customs and standards of prudent
institutional mortgage lenders servicing comparable mortgage loans for their own
account in the jurisdictions where the related mortgaged properties are located.
Subject to the foregoing, the master servicer will have full power and authority
to do any and all things in connection with servicing and administration that it
may deem necessary and desirable.
As part of its servicing duties, the master servicer will be required
to, and to cause each of the servicers to, make reasonable efforts to collect
all payments called for under the terms and provisions of the mortgage loans
that it services. The master servicer and each servicer will be obligated to
follow the same collection procedures as it would follow for comparable mortgage
loans held for its own account, so long as these procedures are consistent with
the servicing standard of and the terms of the related pooling and servicing
agreement or servicing agreement and the servicing standard generally described
in the preceding paragraph, and do not impair recovery under any instrument of
credit enhancement included in the related trust fund. Consistent with the
foregoing, the master servicer or any servicer will be permitted, in its
discretion, to waive any prepayment premium, late payment charge or other charge
in connection with any mortgage loan. In any event, no waiver of a prepayment
premium, late payment charge or other charge in connection with any mortgage
loan shall effect the potential cash flow from the pool assets.
Under a pooling and servicing agreement or a servicing agreement, a
master servicer and each servicer will be granted discretion to extend relief to
mortgagors whose payments become delinquent. In the case of single family loans
and Contracts, a master servicer or servicer may, for example, grant a period of
temporary indulgence to a mortgagor or may enter into a liquidating plan
providing for repayment of delinquent amounts within a specified period from the
date of execution of the plan. However, the master servicer or servicer must
first determine that any waiver or extension will not impair the coverage of any
related insurance policy or materially adversely affect the security for the
mortgage loan. In addition, unless otherwise specified in the related prospectus
supplement, if a material default occurs or a payment default is reasonably
foreseeable with respect to a multifamily loan, commercial loan or mixed-use
loan, the master servicer or servicer will be permitted, subject to any specific
limitations set forth in the related pooling and servicing agreement or
servicing agreement and described in the related prospectus supplement, to
modify, waive or amend any term of such mortgage loan, including deferring
payments, extending the stated maturity date or otherwise adjusting the payment
schedule, provided that the modification, waiver or amendment (1) is reasonably
likely to produce a greater recovery with respect to that mortgage loan on a
present value basis than would liquidation and (2) will not adversely affect the
coverage under any applicable instrument of credit enhancement.
In the case of multifamily loans, commercial loans and mixed-use loans,
a mortgagor's failure to make required mortgage loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor under a multifamily, commercial or mixed-use loan that is
unable to make mortgage loan payments may also be unable to make timely payment
of taxes and otherwise to maintain and insure the related mortgaged property.
Generally, the related master servicer or servicer will be required to monitor
any multifamily loan or commercial loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property, initiate
corrective action in cooperation with the mortgagor if cure is likely, inspect
the related mortgaged property and take any other actions as are consistent with
the servicing standard described above and in the pooling and servicing
agreement or servicing agreement. A significant period of time may elapse before
the master servicer or servicer is able to assess the success of any such
corrective action or the need for additional initiatives. The time within which
the master servicer or servicer can make the initial determination of
appropriate action, evaluate the success of corrective action, develop
additional initiatives, institute foreclosure proceedings and actually foreclose
(or accept a deed to a mortgaged property in lieu of foreclosure) on behalf of
the securityholders of the related series may vary considerably depending on the
particular multifamily, commercial or mixed-use loan, the mortgaged property,
the mortgagor, the presence of an acceptable party to assume that loan and the
laws of the jurisdiction in which the mortgaged property is located. If a
mortgagor files a bankruptcy petition, the master servicer or servicer may not
be permitted to accelerate the maturity of the related multifamily, commercial
or mixed-use loan or to foreclose on the mortgaged property for a considerable
period of time. See "Legal Aspects of Mortgage Loans."
Some or all of the mortgage loans in a mortgage pool may contain a
due-on-sale clause that entitles the lender to accelerate payment of the
mortgage loan upon any sale or other transfer of the related mortgaged property
made without the lender's consent. In any case in which a mortgaged property is
being conveyed by the mortgagor, the master servicer will in general be
obligated, to the extent it has knowledge of the conveyance, to exercise its
rights, or cause the servicer of the mortgage loan to exercise its rights, to
accelerate the maturity of the related mortgage loan under any due-on-sale
clause applicable thereto, but only if the exercise of these rights is permitted
by applicable law and only to the extent it would not adversely affect or
jeopardize coverage under any Primary Insurance Policy or applicable credit
enhancement arrangements. If applicable law prevents the master servicer or
servicer from enforcing a due-on-sale or due-on-encumbrance clause or if the
master servicer or servicer determines that it is reasonably likely that the
related mortgagor would institute a legal action to avoid enforcement of a
due-on-sale or due-on-encumbrance clause, the master servicer or servicer may
enter into (1) an assumption and modification agreement with the person to whom
the property has been or is about to be conveyed, pursuant to which this person
becomes liable under the mortgage note subject to specified conditions and the
mortgagor, to the extent permitted by applicable law, remains liable thereon or
(2) a substitution of liability agreement pursuant to which the original
mortgagor is released from liability and the person to whom the property has
been or is about to be conveyed is substituted for the original mortgagor and
becomes liable under the mortgage note, subject to specified conditions. The
original mortgagor may be released from liability on a single family loan if the
master servicer or servicer shall have determined in good faith that the release
will not adversely affect the collectability of the mortgage loan. The master
servicer or servicer will determine whether to exercise any right the trustee
may have under any due-on-sale or due-on-encumbrance provision in a multifamily
loan, commercial loan or mixed-use loan in a manner consistent with the
servicing standard. The master servicer or servicer generally will be entitled
to retain as additional servicing compensation any fee collected in connection
with the permitted transfer of a mortgaged property. See "Legal Aspects of
Mortgage Loans--Enforceability of Certain Provisions." FHA loans do not contain
due-on-sale or due-on-encumbrance clauses and may be assumed by the purchaser of
the mortgaged property.
Mortgagors may, from time to time, request partial releases of the
mortgaged properties, easements, consents to alteration or demolition and other
similar matters. The master servicer or the servicer may approve a request if it
has determined, exercising its good faith business judgment in the same manner
as it would if it were the owner of the related mortgage loan, that approval
will not adversely affect the security for, or the timely and full
collectability of, the related mortgage loan. Any fee collected by the master
servicer or servicer for processing these requests will be retained by the
master servicer or servicer, as the case may be, as additional servicing
compensation.
In the case of mortgage loans secured by junior liens on the related
mortgaged properties, the master servicer will be required to file, or cause the
servicer of the mortgage loans to file, of record a request for notice of any
action by a superior lienholder under the senior lien for the protection of the
related trustee's interest, where permitted by local law and whenever applicable
state law does not require that a junior lienholder be named as a party
defendant in foreclosure proceedings in order to foreclose the junior
lienholder's equity of redemption. The master servicer also will be required to
notify, or cause the servicer of the mortgage loan to notify, any superior
lienholder in writing of the existence of the mortgage loan and request
notification of any action (as described below) to be taken against the
mortgagor or the mortgaged property by the superior lienholder. If the master
servicer or a servicer is notified that any superior lienholder has accelerated
or intends to accelerate the obligations secured by the related senior lien, or
has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the related mortgaged property sold or foreclosed, then, the master
servicer will be required to take, or cause the servicer of the related
mortgaged property to take, on behalf of the related trust fund, whatever
actions are necessary to protect the interests of the related securityholders,
and/or to preserve the security of the related mortgage loan, subject to the
REMIC Provisions, if applicable. The master servicer will be required to
advance, or cause the servicer of the mortgage loan to advance, the necessary
funds to cure the default or reinstate the superior lien, if the advance is in
the best interests of the related securityholders and the master servicer or the
servicer, as the case may be, determines the advances are recoverable out of
payments on or proceeds of the related mortgage loan.
The master servicer for any mortgage pool will also be required to
perform, or cause the servicers of the mortgage loans in the mortgage pool to
perform, other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts for payment of taxes, insurance premiums
and similar items, or otherwise monitoring the timely payment of those items;
adjusting mortgage rates on ARM Loans; maintaining Buydown Accounts; supervising
foreclosures and similar proceedings; managing REO properties; and maintaining
servicing records relating to the mortgage loans in the mortgage pool. The
master servicer will be responsible for filing and settling claims in respect of
particular mortgage loans under any applicable instrument of credit enhancement.
See "Description of Credit Enhancement."
SPECIAL SERVICERS
If and to the extent specified in the related prospectus supplement, a
special servicer may be a party to the related pooling and servicing agreement
or servicing agreement or may be appointed by the master servicer or another
specified party to perform specified duties in respect of servicing the related
mortgage loans that would otherwise be performed by the master servicer (for
example, the workout and/or foreclosure of defaulted mortgage loans). The rights
and obligations of any special servicer will be specified in the related
prospectus supplement, and the master servicer will be liable for the
performance of a special servicer only if, and to the extent, set forth in that
prospectus supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below, the master servicer will be required, in a
manner consistent with the servicing standard, to, or to cause the servicers of
the mortgage loans to, foreclose upon or otherwise comparably convert the
ownership of properties securing any mortgage loans in the related mortgage pool
that come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. Generally, the
foreclosure process will commence no later than 90 days after delinquency of the
related mortgage loan. The master servicer and each servicer will be authorized
to institute foreclosure proceedings, exercise any power of sale contained in
the related mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire
title to the related mortgaged property, by operation of law or otherwise, if
the action is consistent with the servicing standard. The master servicer's or
applicable servicer's actions in this regard must be conducted, however, in a
manner that will permit recovery under any instrument of credit enhancement
included in the related trust fund. In addition, neither the master servicer nor
any other servicer will be required to expend its own funds in connection with
any foreclosure or to restore any damaged property unless it shall determine
that (1) the foreclosure and/or restoration will increase the proceeds of
liquidation of the mortgage loan to the related securityholders after
reimbursement to itself for these expenses and (2) these expenses will be
recoverable to it from related Insurance Proceeds, Liquidation Proceeds or
amounts drawn out of any fund or under any instrument constituting credit
enhancement (respecting which it shall have priority for purposes of withdrawal
from the Distribution Account in accordance with the pooling and servicing
agreement or servicing agreement).
However, unless otherwise specified in the related prospectus
supplement, neither the master servicer nor any other servicer may acquire title
to any multifamily property or commercial property securing a mortgage loan or
take any other action that would cause the related trustee, for the benefit of
securityholders of the related series, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such mortgaged property within the meaning of
federal environmental laws, unless the master servicer or the servicer of the
mortgage loan has previously determined, based on a report prepared by a person
who regularly conducts environmental audits (which report will be an expense of
the trust fund), that either:
(1) the mortgaged property is in compliance with applicable environmental
laws and regulations or, if not, that taking actions as are necessary
to bring the mortgaged property into compliance with these laws is
reasonably likely to produce a greater recovery on a present value
basis than not taking those actions; and
(2) there are no circumstances or conditions present at the mortgaged
property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations or, if those circumstances or conditions are present
for which any such action could be required, taking those actions with
respect to the mortgaged property is reasonably likely to produce a
greater recovery on a present value basis than not taking those
actions. See "Legal Aspects of Mortgage Loans--Environmental
Legislation."
Neither the master servicer nor any other servicer will be obligated to
foreclose upon or otherwise convert the ownership of any mortgaged property
securing a single family loan if it has received notice or has actual knowledge
that the property may be contaminated with or affected by hazardous wastes or
hazardous substances; however, environmental testing will not be required. The
master servicer or servicer, as applicable, will not be liable to the
securityholders of the related series if, based on its belief that no such
contamination or effect exists, the master servicer or such servicer forecloses
on a mortgaged property and takes title to the mortgaged property, and
thereafter the mortgaged property is determined to be so contaminated or
affected.
With respect to a mortgage loan in default, the master servicer or
servicer of the mortgage loan may pursue foreclosure (or similar remedies)
concurrently with pursuing any remedy for a breach of a representation and
warranty. However, neither the master servicer nor the servicer of the mortgage
loan is required to continue to pursue both remedies if it determines that one
remedy is more likely than the other to result in a greater recovery. Upon the
first to occur of final liquidation (by foreclosure or otherwise) or a
repurchase or substitution pursuant to a breach of a representation and
warranty, the mortgage loan will be removed from the related trust fund if it
has not been removed previously. The master servicer or servicer may elect to
treat a defaulted mortgage loan as having been finally liquidated if a
substantial portion or all of the amounts expected to be received from that
mortgage loan have been received. Any additional liquidation expenses relating
to the mortgage loan thereafter incurred will be reimbursable to the master
servicer or servicer, as applicable, from any amounts otherwise distributable to
holders of securities of the related series, or may be offset by any subsequent
recovery related to the mortgage loan. Alternatively, for purposes of
determining the amount of related Liquidation Proceeds to be distributed to
securityholders, the amount of any Realized Loss or the amount required to be
drawn under any applicable form of credit support, the master servicer and
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 the defaulted mortgage loan.
As provided above, the master servicer or a servicer may pass through
less than the full amount it expects to receive from the related mortgage loan;
however, the master servicer or servicer may only do this if the master servicer
or servicer reasonably believes it will maximize the proceeds to the
securityholders in the aggregate. To the extent the master servicer or servicer
receives additional recoveries following liquidation, the amount of the Realized
Loss will be restated, and the additional recoveries will be passed through the
trust as Liquidation Proceeds. In the event the amount of the Realized Loss is
restated, the amount of overcollateralization or the principal balance of the
most subordinate class of securities in the trust may be increased. However, the
holders of any securities whose principal balance is increased will not be
reimbursed interest for the period during which the principal balance of their
securities was lower.
With respect to a series of securities, if so provided in the related
prospectus supplement, the applicable form of credit enhancement may provide, to
the extent of coverage, that a defaulted mortgage loan will be removed from the
trust fund prior to the final liquidation thereof. In addition, a pooling and
servicing agreement or servicing agreement may grant to the depositor, an
affiliate of the depositor, the master servicer, a special servicer, a provider
of credit enhancement and/or the holder or holders of specified classes of
securities of the related series a right of first refusal to purchase from the
trust fund, at a predetermined purchase price, any mortgage loan as to which a
specified number of scheduled payments are delinquent. If the purchase price is
insufficient to fully fund the entitlements of securityholders to principal and
interest, it will be specified in the related prospectus supplement.
Furthermore, a pooling and servicing agreement or a servicing agreement may
authorize the master servicer or servicer of the mortgage loan to sell any
defaulted mortgage loan if and when the master servicer or servicer determines,
consistent with the servicing standard, that the sale would produce a greater
recovery to securityholders on a present value basis than would liquidation of
the related mortgaged property.
In the event that title to any mortgaged property is acquired by
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
will be issued to the trustee or to its nominee on behalf of securityholders of
the related series. Notwithstanding any acquisition of title and cancellation of
the related mortgage loan, the REO Mortgage Loan will be considered for most
purposes to be an outstanding mortgage loan held in the trust fund until the
mortgaged property is sold and all recoverable Liquidation Proceeds and
Insurance Proceeds have been received with respect to the defaulted mortgage
loan. For purposes of calculations of amounts distributable to securityholders
in respect of an REO Mortgage Loan, the amortization schedule in effect at the
time of any 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, the amortization schedule will be deemed to have adjusted in
accordance with any interest rate changes occurring on any adjustment date
therefor) so long as the REO Mortgage Loan is considered to remain in the trust
fund.
If title to any mortgaged property is acquired by a trust fund as to
which a REMIC election has been made, the master servicer, on behalf of the
trust fund, will be required to sell, or cause the servicer of the mortgage loan
to sell, the mortgaged property within three years of acquisition, unless (1)
the IRS grants an extension of time to sell the property or (2) the trustee
receives an opinion of independent counsel to the effect that the holding of the
property by the trust fund for more than three years after its acquisition will
not result in the imposition of a tax on the trust fund or cause the trust fund
to fail to qualify as a REMIC under the Code at any time that any certificate is
outstanding. Subject to the foregoing and any other tax-related constraints, the
master servicer generally will be required to solicit bids, or to cause a
servicer to solicit bids, for any mortgaged property so acquired in a manner as
will be reasonably likely to realize a fair price for the property. If title to
any mortgaged property is acquired by a trust fund as to which a REMIC election
has been made, the master servicer will also be required to ensure that the
mortgaged property is administered so that it constitutes "foreclosure property"
within the meaning of Section 860G(a)(8) of the Code at all times, that the sale
of the property does not result in the receipt by the trust fund of any income
from non-permitted assets as described in Section 860F(a)(2)(B) of the Code, and
that the trust fund does not derive any "net income from foreclosure property"
within the meaning of Section 860G(c)(2) of the Code with respect to the
property.
If Liquidation Proceeds collected with respect to a defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan plus accrued interest plus the aggregate amount of reimbursable expenses
incurred by the master servicer or the servicer, as applicable, with respect to
the mortgage loan, and the shortfall is not covered under any applicable
instrument or fund constituting credit enhancement, the trust fund will realize
a loss in the amount of the difference. The master servicer or servicer, as
applicable, will be entitled to reimburse itself from the Liquidation Proceeds
recovered on any defaulted mortgage loan, prior to the distribution of
Liquidation Proceeds to securityholders, amounts that represent unpaid servicing
compensation in respect of the mortgage loan, unreimbursed servicing expenses
incurred with respect to the mortgage loan and any unreimbursed advances of
delinquent payments made with respect to the mortgage loan. If so provided in
the related prospectus supplement, the applicable form of credit enhancement may
provide for reinstatement subject to specified conditions in the event that,
following the final liquidation of a mortgage loan and a draw under the credit
enhancement, subsequent recoveries are received. In addition, if a gain results
from the final liquidation of a defaulted mortgage loan or an REO Mortgage Loan
which is not required by law to be remitted to the related mortgagor, the master
servicer or servicer, as applicable, will be entitled to retain the gain as
additional servicing compensation unless the related prospectus supplement
provides otherwise. For a description of the master servicer's (or other
specified person's) obligations to maintain and make claims under applicable
forms of credit enhancement and insurance relating to the mortgage loans, see
"Description of Credit Enhancement" and "Description of Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; RETAINED INTEREST
The principal servicing compensation to be paid to the master servicer
in respect of its master servicing activities for a series of securities will be
equal to the percentage or range of percentages per annum described in the
related prospectus supplement of the outstanding principal balance of each
mortgage loan, and this compensation will be retained by it on a monthly or
other periodic basis from collections of interest on each mortgage loan in the
related trust fund at the time the collections are deposited into the applicable
Distribution Account. This portion of the servicing fee will be calculated with
respect to each mortgage loan by multiplying the fee by the principal balance of
the mortgage loan. In addition, to the extent not permitted to be retained by
the servicer of the mortgage loan, the master servicer may retain all prepayment
premiums, assumption fees and late payment charges, to the extent collected from
mortgagors, and any benefit which may accrue as a result of the investment of
funds in the applicable Distribution Account. Any additional servicing
compensation will be described in the related prospectus supplement.
The principal servicing compensation to be paid to each servicer in
respect of its servicing activities for a series of securities will be equal to
the percentage or range of percentages per annum described in the related
prospectus supplement of the outstanding principal balance of each mortgage loan
serviced by such servicer, and this compensation will be retained by it on a
monthly or other periodic basis from collections of interest on each mortgage
loan in the related trust fund at the time the collections are deposited into
such servicer's Protected Account. This portion of the servicing fee will be
calculated with respect to each mortgage loan serviced by a servicer by
multiplying the fee by the principal balance of the mortgage loan. In addition,
each servicer may retain all prepayment premiums, assumption fees and late
payment charges, to the extent collected from mortgagors, and any benefit which
may accrue as a result of the investment of funds in its Protected Account. Any
additional servicing compensation will be described in the related prospectus
supplement.
The master servicer will pay or cause to be paid some of the ongoing
expenses associated with each trust fund and incurred by it in connection with
its responsibilities under the pooling and servicing agreement or servicing
agreement, including, if so specified in the related prospectus supplement,
payment of any fee or other amount payable in respect of any alternative credit
enhancement arrangements, payment of the fees and disbursements of the trustee,
any custodian appointed by the trustee and the security registrar, and payment
of expenses incurred in enforcing the obligations of the servicers and the
Sellers. The master servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of the servicers and the Sellers under
limited circumstances. In addition, the master servicer and each servicer will
be entitled to reimbursements for some of its expenses incurred in connection
with liquidated mortgage loans and in connection with the restoration of
mortgaged properties, this right of reimbursement being prior to the rights of
securityholders to receive any related Liquidation Proceeds or Insurance
Proceeds. If and to the extent so provided in the related prospectus supplement,
the master servicer and each servicer will be entitled to receive interest on
amounts advanced to cover reimbursable expenses for the period that the advances
are outstanding at the rate specified in the prospectus supplement, and the
master servicer and each servicer will be entitled to payment of the interest
periodically from general collections on the mortgage loans in the related trust
fund prior to any payment to securityholders or as otherwise provided in the
related pooling and servicing agreement or servicing agreement and described in
the prospectus supplement.
If and to the extent provided in the related prospectus supplement, the
master servicer and the servicers may be required to apply a portion of the
servicing compensation otherwise payable to it in respect of any period to any
Prepayment Interest Shortfalls resulting from mortgagor prepayments during that
period. See "Yield Considerations."
EVIDENCE AS TO COMPLIANCE
Each pooling and servicing agreement and servicing agreement will
provide that on or before a specified date in March of each year, beginning with
the first year after the year in which the cut-off date occurs, each party
responsible for the servicing function will provide to the depositor and the
trustee a report on an assessment of compliance with the minimum servicing
criteria established in Item 1122(a) of Regulation AB (the "AB Servicing
Criteria"). The AB Servicing Criteria include specific criteria relating to the
following areas: general servicing considerations, cash collection and
administration, investor remittances and reporting, and pool asset
administration. Such report will indicate that the AB Servicing Criteria were
used to test compliance on a platform level basis and will set out any material
instances of noncompliance.
Each pooling and servicing agreement and servicing agreement will also
provide that each party responsible for the servicing function will deliver
along with its report on assessment of compliance, an attestation report from a
firm of independent public accountants on the assessment of compliance with the
AB Servicing Criteria.
Each pooling and servicing agreement and servicing agreement will also
provide for delivery to the trustee, on or before a specified date in March of
each year, of a separate annual statement of compliance from each entity
responsible for the servicing function to the effect that, to the best knowledge
of the signing officer, the servicer has fulfilled in all material respects its
obligations under the pooling and servicing agreement or servicing agreement
throughout the preceding year or, if there has been a material failure in the
fulfillment of any obligation, the statement shall specify such failure and the
nature and status thereof. This statement may be provided as a single form
making the required statements as to more than one pooling and servicing
agreement or servicing agreement.
Copies of the annual reports of assessment of compliance, attestation
reports, and statements of compliance may be obtained by securityholders without
charge upon written request to the master servicer or trustee. These items will
be filed with the issuing entity's annual report on Form 10-K, to the extent
required under Regulation AB.
DESCRIPTION OF THE SECURITIES
GENERAL
The securities will be issued in series. Each series of certificates
(or, in some instances, two or more series of certificates) will be issued
pursuant to a pooling and servicing 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 will be filed with the Commission as an
exhibit to a Current Report on Form 8-K. Each series of notes (or, in some
instances, two or more series of notes) will be issued pursuant to an indenture
between the related Issuer and the trustee, similar to the form filed as an
exhibit to the registration statement of which this prospectus is a part. The
trust fund will be created pursuant to an owner trust agreement between the
depositor and the owner trustee. Each indenture, along with the related
servicing agreement and owner trust agreement, will be filed with the Commission
as an exhibit to a Current Report on Form 8-K. Qualified counsel will render an
opinion to the effect that the trust fund's assets will not be considered assets
of the Seller or the depositor in the event of the bankruptcy of the Seller or
the depositor. The following summaries (together with additional summaries under
"The Agreements" below) describe the material provisions relating to the
securities common to each Agreement.
Certificates of each series covered by a particular pooling and
servicing agreement will evidence specified beneficial ownership interests in a
separate trust fund created pursuant to the pooling and servicing agreement.
Each series of notes covered by a particular indenture will evidence
indebtedness of a separate trust fund created pursuant to the related owner
trust agreement. A trust fund will consist of, to the extent provided in the
pooling and servicing agreement or owner trust agreement:
o the mortgage loans (and the related mortgage documents) or
interests therein (including any mortgage securities)
underlying a particular series of securities as from time to
time are subject to the pooling and servicing agreement or
servicing agreement, exclusive of, if specified in the related
prospectus supplement, any interest retained by the depositor
or any of its affiliates with respect to each mortgage loan;
o all payments and collections in respect of the mortgage loans
or mortgage securities due after the related cut-off date, as
from time to time are identified as deposited in respect
thereof in the related Protected Account, Distribution Account
or any other account established pursuant to the Agreement as
described below;
o any property acquired in respect of mortgage loans in the
trust fund, whether through foreclosure of a mortgage loan or
by deed in lieu of foreclosure;
o hazard insurance policies, Primary Insurance Policies, FHA
insurance policies and VA guarantees, if any, maintained in
respect of mortgage loans in the trust fund and the proceeds
of these policies;
o U.S. Government Securities;
o the rights of the depositor under any mortgage loan purchase
agreement, including in respect of any representations and
warranties therein; and
o any combination, as and to the extent specified in the related
prospectus supplement, of a financial guaranty insurance
policy, mortgage pool insurance policy, letter of credit,
special hazard insurance policy, or currency or interest rate
exchange agreements as described under "Description of Credit
Enhancement".
If provided in the related prospectus supplement, the original
principal amount of a series of securities may exceed the principal balance of
the mortgage loans or mortgage securities initially being delivered to the
trustee. Cash in an amount equal to this difference will be deposited into a
pre-funding account maintained with the trustee. During the period set forth in
the related prospectus supplement, amounts on deposit in the pre-funding account
may be used to purchase additional mortgage loans or mortgage securities for the
related trust fund. Any amounts remaining in the pre-funding account at the end
of the period will be distributed as a principal prepayment to the holders of
the related series of securities at the time and in the manner set forth in the
related prospectus supplement.
Each series of securities may consist of any one or a combination of
the following types of classes:
Accretion Directed A class of securities designated to receive
principal payments primarily from the
interest that accrues on specified Accrual
Classes.
Accrual A class of securities where the accrued
interest otherwise payable to such
certificates is allocated to specified
classes of certificates as principal
payments in reduction of their certificate
principal balance. The certificate principal
balance of the Accrual Class will be
increased to the extent such accrued
interest is so allocated.
Companion A class that receives principal payments on
any distribution date only if scheduled
payments have been made on specified planned
principal classes, targeted principal
classes or scheduled principal classes.
Component A class consisting of "components." The
components of a class of component
securities may have different principal
and/or interest payment characteristics but
together constitute a single class. Each
component of a class of component securities
may be identified as falling into one or
more of the categories in this list.
Fixed Rate A class with an interest rate that is fixed
throughout the life of the class. Floating
Rate A class that receives interest payments
based on an interest rate that fluctuates
each payment period based on a designated
index plus a specified margin.
Interest Only or IO A class of securities with no principal
balance and which is not entitled to
principal payments. Interest usually accrues
based on a specified notional amount.
Inverse Floating Rate A class of securities where the pass-through
rate adjusts based on the excess between a
specified rate and LIBOR or another index.
Lock Out A class of securities which is "locked out"
of certain payments, usually principal, for
a specified period of time.
Partial Accrual A class that accretes a portion of the
amount of accrued interest thereon, which
amount will be added to the principal
balance of such class on each applicable
distribution date, with the remainder of
such accrued interest to be distributed
currently as interest on such class. Such
accretion may continue until a specified
event has occurred or until such Partial
Accrual class is retired.
Principal Only A class of securities which is not entitled
to interest payments.
Planned Amortization Class or PAC A class of securities with a principal
balance that is reduced based on a schedule
of principal balances, assuming a certain
range of prepayment rates on the underlying
assets.
Scheduled Principal A class that is designed to receive
principal payments using a predetermined
principal balance schedule but is not
designated as a Planned Principal Class or
Targeted Principal Class. In many cases, the
schedule is derived by assuming two constant
prepayment rates for the underlying assets.
These two rates are the endpoints for the
"structuring range" for the scheduled
principal class.
Senior Support A class that absorbs the realized losses
other than excess losses that would
otherwise be allocated to a Super Senior
Class after the related classes of
subordinated securities are no longer
outstanding.
Sequential Pay Classes that receive principal payments in a
prescribed sequence, that do not have
predetermined principal balance schedules
and that under all circumstances receive
payments of principal continuously from the
first distribution date on which they
receive principal until they are retired. A
single class that receives principal
payments before or after all other classes
in the same series of securities may be
identified as a sequential pay class.
Super Senior A class that will not bear its proportionate
share of realized losses (other than excess
losses) as its share is directed to another
class, referred to as the "support class"
until the class principal balance of the
support class is reduced to zero.
Target Amortization or TAC. A class of securities with a principal
balance that is reduced based on a scheduled
of principal balances, assuming a certain
targeted rate of prepayments on the related
collateral.
Variable Rate A class with an interest rate that resets
periodically and is calculated by reference
to the rate or rates of interest applicable
to specified assets or instruments (e.g.,
the Loan Rates borne by the underlying
loans).
With respect to any series of notes, the related Equity Certificates, insofar as
they represent the beneficial ownership interest in the Issuer, will be
subordinate to the related notes. As to each series, the offered securities will
be rated in one of the four highest rating categories by one or more Rating
Agencies. Credit support for the offered securities of each series may be
provided by a financial guaranty insurance policy, mortgage pool insurance
policy, letter of credit, reserve fund, currency or interest rate exchange
agreement, overcollateralization, cross-collateralization or by the
subordination of one or more other classes of securities, each, as described
under "Description of Credit Enhancement," or by any combination of the
foregoing.
If so specified in the prospectus supplement relating to a series of
certificates, one or more elections may be made to treat the related trust fund,
or a designated portion thereof, as a REMIC. If an election is made with respect
to a series of certificates, one of the classes of certificates in the series
will be designated as evidencing the sole class of "residual interests" in each
related REMIC, as defined in the Code; alternatively, a separate class of
ownership interests will evidence the residual interests. All other classes of
certificates in the series will constitute "regular interests" in the related
REMIC, as defined in the Code. As to each series of certificates as to which a
REMIC election is to be made, the master servicer, trustee or other specified
person will be obligated to take specified actions required in order to comply
with applicable laws and regulations.
FORM OF SECURITIES
Except as described below, the offered securities of each series will
be issued as physical certificates or notes in fully registered form only in the
denominations specified in the related prospectus supplement, and will be
transferrable and exchangeable at the corporate trust office of the registrar
named in the related prospectus supplement. No service charge will be made for
any registration of exchange or transfer of offered securities, but the trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge. A "securityholder" or "holder" is the entity whose name appears on the
records of the registrar (consisting of or including the security register) as
the registered holder of a security.
If so specified in the related prospectus supplement, specified classes
of a series of securities will be initially issued through the book-entry
facilities of DTC. As to any class of DTC Registered Securities, the
recordholder of the securities will be DTC's nominee. DTC is a limited-purpose
trust company organized under the laws of the State of New York, which holds
securities for its participants and facilitates the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in the accounts of participants. Intermediaries have indirect access to
DTC's clearance system.
If securities are issued as DTC Registered Securities, no Beneficial
Owner will be entitled to receive a security representing its interest in
registered, certificated form, unless either (1) DTC ceases to act as depository
in respect thereof and a successor depository is not obtained, or (2) the
depositor elects in its sole discretion to discontinue the registration of the
securities through DTC. Prior to one of these events, Beneficial Owners will not
be recognized by the trustee or the master servicer as holders of the related
securities for purposes of the related pooling and servicing agreement or
indenture, and Beneficial Owners will be able to exercise their rights as owners
of the securities only indirectly through DTC, participants and Intermediaries.
Any Beneficial Owner that desires to purchase, sell or otherwise transfer any
interest in DTC Registered Securities may do so only through DTC, either
directly if the Beneficial Owner is a participant or indirectly through
participants and, if applicable, Intermediaries. Pursuant to the procedures of
DTC, transfers of the beneficial ownership of any DTC Registered Securities will
be required to be made in minimum denominations specified in the related
prospectus supplement. The ability of a Beneficial Owner to pledge DTC
Registered Securities to persons or entities that are not participants in the
DTC system, or to otherwise act with respect to the securities, may be limited
because of the lack of physical certificates or notes evidencing the securities
and because DTC may act only on behalf of participants.
Distributions in respect of the DTC Registered Securities will be
forwarded by the trustee or other specified person to DTC, and DTC will be
responsible for forwarding the payments to participants, each of which will be
responsible for disbursing the payments to the Beneficial Owners it represents
or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their securities.
Under DTC's procedures, DTC will take actions permitted to be taken by holders
of any class of DTC Registered Securities under the pooling and servicing
agreement or indenture only at the direction of one or more participants to
whose account the DTC Registered Securities are credited and whose aggregate
holdings represent no less than any minimum amount of Percentage Interests or
voting rights required therefor. DTC may take conflicting actions with respect
to any action of holders of securities of any class to the extent that
participants authorize these actions. None of the master servicer, the
depositor, the trustee or any of their respective affiliates will have any
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the DTC Registered Securities, or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
GLOBAL SECURITIES
Some of the offered securities may be Global Securities. Except in some
limited circumstances, the Global Securities will be available only in
book-entry form. Investors in the Global Securities may hold those Global
Securities through any of DTC, Clearstream, or Euroclear System (in Europe). The
Global Securities will be traceable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors through Clearstream and
Euroclear System will be conducted in the ordinary way in accordance with the
normal rules and operating procedures of Clearstream and Euroclear System and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Clearstream or Euroclear System
and DTC participants holding interests in Global Securities will be effected on
a delivery-against-payment basis through the respective depositories of
Clearstream and Euroclear System (in that capacity) and as DTC participants.
Non-U.S. holders (as described below) of interests in Global Securities
will be subject to U.S. withholding taxes unless those holders meet various
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Clearstream and
Euroclear System will hold positions on behalf of their participants through
their relevant depositary which in turn will hold those positions in their
accounts as DTC participants.
Investors electing to hold their interests in Global Securities through
DTC will follow DTC settlement practices. Investor securities custody accounts
will be credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their interests in Global Securities through
Clearstream or Euroclear System accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Secondary market trading between DTC participants will occur in
accordance with DTC rules. Secondary market trading between Clearstream
participants or Euroclear System participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a Clearstream participant or a Euroclear System participant, the
purchaser will send instructions to Clearstream or Euroclear System through a
Clearstream participant or Euroclear System participant at least one business
day prior to settlement. Clearstream or Euroclear System will instruct the
relevant depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date, on the basis of the actual number of days in that accrual period and a
year assumed to consist of 360 days. For transactions settling on the 31st of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by the relevant depositary to
the DTC participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream participant's or Euroclear System
participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails),the Clearstream or Euroclear System
cash debit will be valued instead as of the actual settlement date.
Clearstream participants and Euroclear System participants will need to
make available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear System.
Under this approach, they may take on credit exposure to Clearstream or
Euroclear System until the Global Securities are credited to their account one
day later. As an alternative, if Clearstream or Euroclear System has extended a
line of credit to them, Clearstream participants or Euroclear System
participants can elect not to preposition funds and allow that credit line to be
drawn upon to finance settlement. Under this procedure, Clearstream participants
or Euroclear System participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of those overdraft charges, although
the result will depend on each Clearstream participant's or Euroclear System
participant's particular cost of funds. Since the settlement is taking place
during New York business hours, DTC participants can employ their usual
procedures for crediting Global Securities to the respective European depositary
for the benefit of Clearstream participants or Euroclear System participants.
The sale proceeds will be available to the DTC seller on the settlement date.
Thus, to the DTC participants a cross-market transaction will settle no
differently than a trade between two DTC participants.
Due to time zone differences in their favor, Clearstream participants
and Euroclear System participants may employ their customary procedures for
transactions in which Global Securities are to be transferred by the respective
clearing system, through the respective depositary, to a DTC participant. The
seller will send instructions to Clearstream or Euroclear System through a
Clearstream participant or Euroclear System participant at least one business
day prior to settlement. In these cases Clearstream or Euroclear System will
instruct the respective depositary, as appropriate, to credit the Global
Securities to the DTC participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in that accrual period and a year assumed to consist to 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of Clearstream participant or
Euroclear System participant the following day, and receipt of the cash proceeds
in the Clearstream participant's or Euroclear System participant's account would
be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Clearstream participant or
Euroclear System participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream
participant's or Euroclear System participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear System and that
purchase interests in Global Securities from DTC participants for delivery to
Clearstream participants or Euroclear System participants should note that these
trades would automatically fail on the sale side unless affirmative action is
taken. At least three techniques should be readily available to eliminate this
potential problem:
o borrowing through Clearstream or Euroclear System for one day
(until the purchase side of the trade is reflected in their
Clearstream or Euroclear System accounts) in accordance with
the clearing system's customary procedures;
o borrowing the Global Securities in the U.S. from a DTC
participant no later than one day prior to settlement, which
would give the Global Securities sufficient time to be
reflected in their Clearstream or Euroclear System account in
order to settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC
participant is at least one day prior to the value date for
the sale to the Clearstream participant or Euroclear System
participant.
A beneficial owner of interests in Global Securities holding securities
through Clearstream or Euroclear System (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons (as defined below), unless (i) each
clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between that beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (ii) that
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate: Exemption for Non-U.S. Persons (Form W-8BEN). Beneficial
holders of interests in Global Securities that are Non-U.S. Persons (as defined
below) can obtain a complete exemption from the withholding tax by filing a
signed Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United
States Tax Withholding). If the information shown on Form W-8BEN changes, a new
Form W-8BEN must be filed within 30 days of that change.
A Non-U.S. Person (as defined below), including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form W-8ECI (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Non-U.S. Persons residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form W-8BEN (Holdership, Exemption or Reduced Rate
Certificate). Form W-8BEN may be filed by Noteholders or their agent.
U.S. Persons can obtain a complete exemption from the withholding tax
by filing Form W-9 (Payer's Request for Taxpayer Identification Number and
Certification).
The holder of an interest in a Global Security or, in the case of a
Form W-8BEN or a Form W-8ECI filer, his agent, files by submitting the
appropriate form to the person through whom it holds the security (the clearing
agency, in the case of persons holding directly on the books of the clearing
agency). Form W-8BEN and Form W-8ECI are effective for three calendar years. The
term "U.S. 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 (except, in the
case of a partnership, to the extent provided in regulations), or an estate
whose income is subject to United States federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States Persons have the authority to control all substantial decisions of the
trust. The term "Non-U.S. Person" means any person who is not a U.S. Person.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of securities, the depositor will
assign, or cause to be assigned, to the related trustee (or its nominee),without
recourse, the mortgage loans or mortgage securities being included in the
related trust fund, together with, all principal and interest received on or
with respect to the mortgage loans or mortgage securities after the cut-off
date, other than principal and interest due on or before the cut-off date. If
specified in the related prospectus supplement, the depositor or any of its
affiliates may retain an interest in the trust fund assets, if any, for itself
or transfer the same to others. The trustee will, concurrently with the
assignment, deliver the securities of the series to or at the direction of the
depositor in exchange for the mortgage loans and/or mortgage securities in the
related trust fund. Each mortgage loan will be identified in a schedule
appearing as an exhibit to the related pooling and servicing agreement or
servicing agreement. The schedule will include, among other things, information
as to the principal balance of each mortgage loan in the related trust fund as
of the cut-off date, as well as information respecting the mortgage rate, the
currently scheduled monthly payment of principal and interest, the maturity of
the mortgage note and the Loan-to-Value Ratio at origination or modification
(without regard to any secondary financing).
In addition, the depositor will, as to each mortgage loan, other than
(1) mortgage loans underlying any mortgage securities and (2) Contracts,
deliver, or cause to be delivered, to the related trustee (or to the custodian
described below) the following documents:
o the mortgage note endorsed, without recourse, either in blank
or to the order of the trustee (or its nominee),
o the mortgage with evidence of recording indicated on the
mortgage (except for any mortgage not returned from the public
recording office) or, in the case of a cooperative mortgage
loan, on the related financing statement,
o an assignment of the mortgage in blank or to the trustee (or
its nominee) in recordable form (or, with respect to a
cooperative mortgage 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),
o any intervening assignments of the mortgage with evidence of
recording on the assignment (except for any assignment not
returned from the public recording office),
o if applicable, any riders or modifications to the mortgage
note and mortgage,
o if the mortgage loan is secured by additional collateral,
certain security and assignment documents relating to the
pledge of the additional collateral, and
o any other documents set forth in the related pooling and
servicing agreement, mortgage loan purchase agreement or
servicing agreement.
The assignments may be blanket assignments covering mortgages on mortgaged
properties located in the same county, if permitted by law.
Notwithstanding the foregoing, a trust fund may include mortgage loans
where the original mortgage note is not delivered to the trustee if the
depositor delivers, or causes to be delivered, to the related trustee (or the
custodian) a copy or a duplicate original of the mortgage note, together with an
affidavit certifying that the original thereof has been lost or destroyed. In
addition, if the depositor cannot deliver, with respect to any mortgage loan,
the mortgage or any intervening assignment with evidence of recording on the
assignment concurrently with the execution and delivery of the related pooling
and servicing agreement or servicing agreement because of a delay caused by the
public recording office, the depositor will deliver, or cause to be delivered,
to the related trustee (or the custodian) a true and correct photocopy of the
mortgage or assignment as submitted for recording within one year. The depositor
will deliver, or cause to be delivered, to the related trustee (or the
custodian) the mortgage or assignment with evidence of recording indicated on
the assignment after receipt thereof from the public recording office. If the
depositor cannot deliver, with respect to any mortgage loan, the mortgage or any
intervening assignment with evidence of recording on the mortgage or assignment
concurrently with the execution and delivery of the related pooling and
servicing agreement or servicing agreement because the mortgage or assignment
has been lost, the depositor will deliver, or cause to be delivered, to the
related trustee (or the custodian) a true and correct photocopy of the mortgage
or assignment with evidence of recording on the mortgage or assignment. If the
depositor cannot deliver, with respect to any mortgage loan, the mortgage or any
intervening assignment with evidence of recording on the mortgage or assignment
because the applicable jurisdiction retains the originals of such documents, the
depositor will deliver photocopies of such documents containing an original
certification by the judicial or other governmental authority of the
jurisdiction where such documents were recorded. Assignments of the mortgage
loans to the trustee (or its nominee) will be recorded in the appropriate public
recording office, except (1) where recordation is not required by the Rating
Agencies rating the applicable securities, (2) in states where, in the opinion
of counsel acceptable to the trustee, recording is not required to protect the
trustee's interests in the mortgage loan against the claim of any subsequent
transferee or any successor to or creditor of the depositor or the originator of
the mortgage loan or (3) where Mortgage Electronic Registration Systems, Inc. is
identified on the mortgage or a properly recorded assignment of mortgage as the
mortgagee of record solely as nominee for a Seller and its successors and
assigns. In addition, the depositor shall not be required to deliver intervening
assignments or mortgage note endorsements between the underlying sellers of the
mortgage loans and the Seller, between the Seller and the depositor and between
the depositor and the trustee.
As to each Contract, the depositor will deliver, or cause to be
delivered, to the related trustee (or the custodian) the following documents:
o the original Contract endorsed, without recourse, to the order
of the trustee,
o copies of documents and instruments related to the Contract
and the security interest in the Manufactured Home securing
the Contract, and
o a blanket assignment to the trustee of all Contracts in the
related trust fund and the related documents and instruments.
In order to give notice of the right, title and interest of the securityholders
to the Contracts, the depositor will cause to be executed and delivered to the
trustee a UCC-1 financing statement identifying the trustee as the secured party
and identifying all Contracts as collateral.
The depositor will, as to each mortgage security included in a mortgage
pool, deliver, or cause to be delivered, to the related trustee (or the
custodian), either (1) cause an electronic transfer of that security or (2)
provide a physical certificate or note evidencing the mortgage security,
registered in the name of the related trustee (or its nominee), or endorsed in
blank or to the related trustee (or its nominee), or accompanied by transfer
documents sufficient to effect a transfer to the trustee (or its nominee).
The trustee (or the custodian) will hold the documents in trust for the
benefit of the related securityholders, and generally will review the documents
within 180 days after receipt thereof in the case of documents delivered
concurrently with the execution and delivery of the related pooling and
servicing agreement or indenture, and within the time period specified in the
related pooling and servicing agreement or indenture in the case of all other
documents delivered. If any document is found to be missing or defective in any
material respect, the trustee (or the custodian) will be required to promptly so
notify the master servicer, the depositor, and the related Seller. If the
related Seller does not cure the omission or defect within a specified period
after notice is given thereto by the trustee, and the omission or defect
materially and adversely affects the interests of securityholders in the
affected mortgage loan or mortgage security, then, the related Seller will be
obligated to repurchase the mortgage loan or mortgage security from the trustee
at its purchase price (or, if and to the extent it would otherwise be permitted
to do so for a breach of representation and warranty as described under "The
Mortgage Pools--Representations of Sellers," to substitute for the mortgage loan
or mortgage security). The trustee will be obligated to enforce this obligation
of the Seller to the extent described above under "The Mortgage
Pools--Representations by Sellers," but there can be no assurance that the
applicable Seller will fulfill its obligation to repurchase (or substitute for)
the affected mortgage loan or mortgage security as described above. The
depositor will not be obligated to repurchase or substitute for the mortgage
loan or mortgage security if the Seller defaults on its obligation to do so.
This repurchase or substitution obligation constitutes the sole remedy available
to the related securityholders and the related trustee for omission of, or a
material defect in, a constituent document. Any affected mortgage loan or
mortgage security not so repurchased or substituted for shall remain in the
related trust fund.
The trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the mortgage loans
and/or mortgage securities in any mortgage pool, and to maintain possession of
and, if applicable, to review, the documents relating to the mortgage loans
and/or mortgage securities, in any case as the agent of the trustee. The
identity of any custodian to be appointed on the date of initial issuance of the
securities will be set forth in the related prospectus supplement. A custodian
may be an affiliate of the depositor or the master servicer.
Except as to mortgage loans underlying any mortgage securities, the
Seller will make representations and warranties as to the types and geographical
concentrations of the mortgage loans and as to the accuracy of some of the
information furnished to the related trustee in respect of each mortgage loan
(for example, the original Loan-to-Value Ratio, the principal balance as of the
cut-off date, the mortgage rate and maturity). Upon a breach of any of these
representations which materially and adversely affects the interests of the
securityholders in a mortgage loan, the Seller will be obligated to cure the
breach in all material respects, to repurchase the mortgage loan at its purchase
price or, to substitute for the mortgage loan a Qualified Substitute Mortgage
Loan in accordance with the provisions for substitution by Sellers as described
above under "The Mortgage Pools--Representations by Sellers." This repurchase or
substitution obligation constitutes the sole remedy available to securityholders
or the trustee for a breach of a representation by the depositor. Any mortgage
loan not so repurchased or substituted for shall remain in the related trust
fund.
Pursuant to the related pooling and servicing agreement or servicing
agreement, the master servicer for any mortgage pool, either directly or through
servicers, will service and administer the mortgage loans included in the
mortgage pool and assigned to the related trustee as more fully set forth under
"Servicing of Mortgage Loans." Each of the depositor and the master servicer
will make limited representations and warranties regarding its authority to
enter into, and its ability to perform its obligations under, the pooling and
servicing agreement or servicing agreement.
DISTRIBUTION ACCOUNT
GENERAL. The master servicer and/or the trustee will, as to each trust
fund, establish and maintain or cause to be established and maintained a
Distribution Account, which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
securities of the related series. A Distribution Account shall be maintained as
an Eligible Account, and the funds held therein may be held as cash or invested
in Permitted Investments. The master servicer will have sole discretion to
determine the particular investments made so long as it complies with the
investment terms of the related pooling and servicing agreement or the related
servicing agreement and indenture. Any Permitted Investments shall not cause the
depositor to register under the Investment Company Act of 1940. Any interest or
other income earned on funds in the Distribution Account will be paid to the
related master servicer or trustee as additional compensation or will be
available for payments on the securities as provided in the prospectus
supplement. If permitted by the Rating Agency or Agencies and so specified in
the related prospectus supplement, a Distribution Account may contain funds
relating to more than one series of mortgage pass-through certificates and may
contain other funds representing payments on mortgage loans owned by the related
master servicer or serviced by it on behalf of others.
DEPOSITS. With respect to each series of securities, the related master
servicer, servicers, trustee or special servicer will be required to deposit or
cause to be deposited in the Distribution Account for the related trust fund
within a period following receipt (in the case of collections and payments), the
following payments and collections received, or advances made, by the master
servicer, the servicers, the trustee or any special servicer subsequent to the
cut-off date with respect to the mortgage loans and/or mortgage securities in
the trust fund (other than payments due on or before the cut-off date):
o all payments on account of principal, including principal
prepayments, on the mortgage loans;
o all payments on account of interest on the mortgage loans,
including any default interest collected, in each case net of
any portion thereof retained by the master servicer, any
servicer, or any special servicer as its servicing
compensation or as compensation to the trustee, and further
net of any retained interest of the depositor;
o all payments on the mortgage securities;
o all payments on the U.S. Government Securities (if any);
o all Insurance Proceeds and Liquidation Proceeds;
o any amounts paid under any instrument or drawn from any fund
that constitutes credit enhancement for the related series of
securities as described under "Description of Credit
Enhancement";
o any advances made as described under "--Advances" below;
o any Buydown Funds (and, if applicable, investment earnings on
the Buydown Funds) required to be paid to securityholders, as
described below;
o any amounts paid by the master servicer and the servicers to
cover Prepayment Interest Shortfalls arising out of the
prepayment of mortgage loans as described under "Servicing of
Mortgage Loans--Servicing and Other Compensation and Payment
of Expenses; Retained Interest";
o to the extent that any item does not constitute additional
servicing compensation to the master servicer, a servicer or a
special servicer, any payments on account of modification or
assumption fees, late payment charges or prepayment premiums
on the mortgage loans;
o any amount required to be deposited by the master servicer or
the trustee in connection with losses realized on investments
for the benefit of the master servicer or the trustee, as the
case may be, of funds held in the Distribution Account; and
o any other amounts required to be deposited in the Distribution
Account as provided in the related pooling and servicing
agreement or the related servicing agreement and indenture and
described in this prospectus or in the related prospectus
supplement.
With respect to each buydown mortgage loan, the master servicer will be
required to deposit, or cause the related servicer to deposit, the related
Buydown Funds provided to it in a Buydown Account which will comply with the
requirements set forth in this prospectus with respect to the Distribution
Account. The terms of all buydown mortgage loans provide for the contribution of
Buydown Funds in an amount equal to or exceeding either (1) the total payments
to be made from the funds pursuant to the related buydown plan or (2) if the
Buydown Funds are to be deposited on a discounted basis, that amount of Buydown
Funds which, together with investment earnings on the Buydown Funds at a rate as
will support the scheduled level of payments due under the buydown mortgage
loan. Neither the master servicer, any servicer nor the depositor will be
obligated to add to any discounted Buydown Funds any of its own funds should
investment earnings prove insufficient to maintain the scheduled level of
payments. To the extent that any insufficiency is not recoverable from the
mortgagor or, in an appropriate case, from the Seller, distributions to
securityholders may be affected. With respect to each buydown mortgage loan, the
master servicer will be required monthly to withdraw from the Buydown Account
and deposit, or cause the servicer of the mortgage loans to withdraw from the
Buydown Account and deposit, in the Distribution Account as described above the
amount, if any, of the Buydown Funds (and, if applicable, investment earnings on
the Buydown Funds) for each buydown mortgage loan that, when added to the amount
due from the mortgagor on the buydown mortgage loan, equals the full monthly
payment which would be due on the buydown mortgage loan if it were not subject
to the buydown plan.
If the mortgagor on a buydown mortgage loan prepays the mortgage loan
in its entirety during the Buydown Period, the master servicer or servicer of
the mortgage loan will be required to withdraw from the Buydown Account and
remit to the mortgagor or the other designated party in accordance with the
related buydown plan any Buydown Funds remaining in the Buydown Account. If a
prepayment by a mortgagor during the Buydown Period together with Buydown Funds
will result in full prepayment of a buydown mortgage loan, the master servicer
or servicer of the mortgage loan generally will be required to withdraw from the
Buydown Account and deposit in the Distribution Account the Buydown Funds and
investment earnings on the Buydown Funds, if any, which together with the
prepayment will result in a prepayment in full; provided that Buydown Funds may
not be available to cover a prepayment under some mortgage loan programs. Any
Buydown Funds so remitted to the master servicer or the servicer of the mortgage
loan in connection with a prepayment described in the preceding sentence will be
deemed to reduce the amount that would be required to be paid by the mortgagor
to repay fully the related mortgage loan if the mortgage loan were not subject
to the buydown plan. Any investment earnings remaining in the Buydown Account
after prepayment or after termination of the Buydown Period will be remitted to
the related mortgagor or the other designated party pursuant to the Buydown
Agreement relating to each buydown mortgage loan. If the mortgagor defaults
during the Buydown Period with respect to a buydown mortgage loan and the
property securing the buydown mortgage loan is sold in liquidation (either by
the master servicer, the servicer of the mortgage loan, the primary insurer, any
pool insurer or any other insurer), the master servicer or related servicer will
be required to withdraw from the Buydown Account the Buydown Funds and all
investment earnings on the Buydown Funds, if any, and either deposit the same in
the Distribution Account or, alternatively, pay the same to the primary insurer
or the pool insurer, as the case may be, if the mortgaged property is
transferred to the insurer and the insurer pays all of the loss incurred in
respect of the default.
Prior to the deposit of funds into the Distribution Account, as
described under "--Deposits" above, funds related to the mortgage loans serviced
by a master servicer or a servicer may be maintained by a master servicer or a
servicer in a Protected Account which will be established so as to comply with
the standards of each Rating Agency that has rated any one or more classes of
securities of the related series. Each Protected Account shall be maintained as
an Eligible Account, and the funds held therein may be held as cash or invested
in Permitted Investments. Any interest or other income earned on funds in a
Protected Account will be paid to the master servicer or servicer, as
applicable, as additional compensation. If permitted by the Rating Agency or
Agencies and so specified in the related prospectus supplement, a Protected
Account may contain funds relating to more than one series of mortgage
pass-through certificates and may contain other funds representing payments on
mortgage loans owned by the related master servicer or serviced by it on behalf
of others. In the event that a trust fund has multiple servicers, funds from the
Protected Accounts may first be remitted to a Master Servicer Collection
Account, meeting the same eligibility standards as the Protected Accounts, prior
to being deposited into the Distribution Account.
WITHDRAWALS. With respect to each series of securities, the master
servicer, trustee or special servicer generally may make withdrawals from the
Distribution Account for the related trust fund for any one or more of the
following purposes, unless otherwise provided in the related agreement and
described in the related prospectus supplement:
(1) to make distributions to the related securityholders on each
distribution date;
(2) to reimburse the master servicer, any servicer or any other
specified person for unreimbursed amounts advanced by it in
respect of mortgage loans in the trust fund as described under
"--Advances" below, these reimbursements to be made out of
amounts received which were identified and applied by the
master servicer or a servicer as late collections of interest
(net of related servicing fees) on and principal of the
particular mortgage loans with respect to which the advances
were made or out of amounts drawn under any form of credit
enhancement with respect to the mortgage loans;
(3) to reimburse the master servicer, a servicer or a special
servicer for unpaid servicing fees earned by it and some
unreimbursed servicing expenses incurred by it with respect to
mortgage loans in the trust fund and properties acquired in
respect thereof, these reimbursement to be made out of amounts
that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular mortgage loans and properties, and
net income collected on the particular properties, with
respect to which the fees were earned or the expenses were
incurred or out of amounts drawn under any form of credit
enhancement with respect to the mortgage loans and properties;
(4) to reimburse the master servicer, a servicer or any other
specified person for any advances described in clause (2)
above made by it and any servicing expenses referred to in
clause (3) above incurred by it which, in the good faith
judgment of the master servicer, the applicable servicer or
the other person, will not be recoverable from the amounts
described in clauses (2) and (3), respectively, the
reimbursement to be made from amounts collected on other
mortgage loans in the trust fund or, if and to the extent so
provided by the related pooling and servicing agreement or the
related servicing agreement and indenture and described in the
related prospectus supplement, only from that portion of
amounts collected on the other mortgage loans that is
otherwise distributable on one or more classes of subordinate
securities of the related series;
(5) if and to the extent described in the related prospectus
supplement, to pay the master servicer, a servicer, a special
servicer or another specified entity (including a provider of
credit enhancement) interest accrued on the advances described
in clause (2) above made by it and the servicing expenses
described in clause (3) above incurred by it while these
remain outstanding and unreimbursed;
(6) to reimburse the master servicer, a servicer, the depositor,
or any of their respective directors, officers, employees and
agents, as the case may be, for expenses, costs and
liabilities incurred thereby, as and to the extent described
under "The Agreements--Certain Matters Regarding the Master
Servicer and the Depositor";
(7) if and to the extent described in the related prospectus
supplement, to pay the fees of the trustee;
(8) to reimburse the trustee or any of its directors, officers,
employees and agents, as the case may be, for expenses, costs
and liabilities incurred thereby, as and to the extent
described under The Agreements--Certain Matters Regarding the
Trustee";
(9) to pay the master servicer or the trustee, as additional
compensation, interest and investment income earned in respect
of amounts held in the Distribution Account;
(10) to pay (generally from related income) the master servicer, a
servicer or a special servicer for costs incurred in
connection with the operation, management and maintenance of
any mortgaged property acquired by the trust fund by
foreclosure or by deed in lieu of foreclosure;
(11) if one or more elections have been made to treat the trust
fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the trust fund or its
assets or transactions, as and to the extent described under
"Federal Income Tax Consequences--REMICS--Prohibited
Transactions and Other Possible REMIC Taxes";
(12) to pay for the cost of an independent appraiser or other
expert in real estate matters retained to determine a fair
sale price for a defaulted mortgage loan or a property
acquired in respect thereof in connection with the liquidation
of the mortgage loan or property;
(13) to pay for the cost of various opinions of counsel obtained
pursuant to the related pooling and servicing agreement or the
related servicing agreement and indenture for the benefit of
the related securityholders;
(14) to pay to itself, the depositor, a Seller or any other
appropriate person all amounts received with respect to each
mortgage loan purchased, repurchased or removed from the trust
fund pursuant to the terms of the related pooling and
servicing agreement or the related servicing agreement and
indenture and not required to be distributed as of the date on
which the related purchase price is determined;
(15) to make any other withdrawals permitted by the related pooling
and servicing agreement or the related servicing agreement and
indenture and described in the related prospectus supplement;
(16) to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to
multifamily or commercial properties that constitute security
for defaulted mortgage loans, and for any containment,
clean-up or remediation of hazardous wastes and materials
present on that mortgaged properties, as described under
"Servicing of Mortgage Loans--Realization Upon or Sale of
Defaulted Mortgage Loans"; and
(17) to clear and terminate the Distribution Account upon the
termination of the trust fund.
DISTRIBUTIONS
Distributions on the securities of each series will be made by or on
behalf of the related trustee on each distribution date as specified in the
related prospectus supplement from the available funds for the series and the
distribution date. The available funds for any series of securities and any
distribution date will generally refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
mortgage loans and/or mortgage securities and any other assets included in the
related trust fund that are available for distribution to the securityholders of
the series on that date. The particular components of the available funds for
any series on each distribution date will be more specifically described in the
related prospectus supplement.
Distributions on the securities of each series (other than the final
distribution in retirement of any certificate) will be made to the persons in
whose names the securities are registered on the Record Date, and the amount of
each distribution will be determined as of the Determination Date. All
distributions with respect to each class of securities on each distribution date
will be allocated in accordance with the holder's Percentage Interest in a
particular class. Payments will be made either by wire transfer in immediately
available funds to the account of a securityholder at a bank or other entity
having appropriate facilities therefor, if the securityholder has provided the
trustee or other person required to make the payments with wiring instructions
no later than five business days prior to the related Record Date or other date
specified in the related prospectus supplement (and, if so provided in the
related prospectus supplement, the securityholder holds securities in any
requisite amount or denomination specified therein), or by check mailed to the
address of the securityholder as it appears on the security register; provided,
however, that the final distribution in retirement of any class of securities
will be made only upon presentation and surrender of the securities at the
location specified in the notice to securityholders of the final distribution.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE SECURITIES
Each class of securities of each series, other than Strip Securities
and REMIC Residual Certificates that have no security interest rate, may have a
different per annum rate at which interest accrues on that class of securities,
which may be fixed, variable or adjustable, or any combination of rates. The
related prospectus supplement will specify the security interest rate or, in the
case of a variable or adjustable security interest rate, the method for
determining the security interest rate, for each class. The related prospectus
supplement will specify whether interest on the securities of the series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months or
on a different method.
Distributions of interest in respect of the securities of any class,
other than any class of Accrual Securities, Strip Securities or REMIC Residual
Certificates that is not entitled to any distributions of interest, will be made
on each distribution date based on the accrued interest for the class and the
distribution date, subject to the sufficiency of the portion of the available
funds allocable to the class on the distribution date. Prior to the time
interest is distributable on any class of Accrual Securities, the amount of
accrued interest otherwise distributable on the class will be added to the
principal balance thereof on each distribution date. With respect to each class
of interest-bearing securities, accrued interest for each distribution date will
be equal to interest at the applicable security interest rate accrued for a
specified period (generally one month) on the outstanding principal balance
thereof immediately prior to the distribution date. Accrued interest for each
distribution date on Strip Securities entitled to distributions of interest will
be similarly calculated except that it will accrue on a notional amount that is
based on either (1) the principal balances of some or all of the mortgage loans
and/or mortgage securities in the related trust fund or (2) the principal
balances of one or more other classes of securities of the same series.
Reference to a notional amount with respect to a class of Strip Securities is
solely for convenience in making calculations of accrued interest and does not
represent the right to receive any distribution of principal. If so specified in
the related prospectus supplement, the amount of accrued interest that is
otherwise distributable on (or, in the case of Accrual Securities, that may
otherwise be added to the principal balance of) one or more classes of the
securities of a series will be reduced to the extent that any Prepayment
Interest Shortfalls, as described under "Yield Considerations", exceed the
amount of any sums (including, if and to the extent specified in the related
prospectus supplement, the master servicer's or applicable servicer's servicing
compensation) that are applied to offset the shortfalls. The particular manner
in which the shortfalls will be allocated among some or all of the classes of
securities of that series will be specified in the related prospectus
supplement. The related prospectus supplement will also describe the extent to
which the amount of accrued interest that is otherwise distributable on (or, in
the case of Accrual Securities, that may otherwise be added to the principal
balance of) a class of offered securities may be reduced as a result of any
other contingencies, including delinquencies, losses and Deferred Interest on or
in respect of the related mortgage loans or application of the Relief Act with
respect to the mortgage loans. Any reduction in the amount of accrued interest
otherwise distributable on a class of securities by reason of the allocation to
the class of a portion of any Deferred Interest on or in respect of the related
mortgage loans will result in a corresponding increase in the principal balance
of the class.
As and to the extent described in the related prospectus supplement,
distributions of principal with respect to a series of securities will be made
on each distribution date to the holders of the class or classes of securities
of the series entitled thereto until the principal balance or balances of the
securities have been reduced to zero. In the case of a series of securities
which includes two or more classes of securities, the timing, order, priority of
payment or amount of distributions in respect of principal, and any schedule or
formula or other provisions applicable to the determination thereof (including
distributions among multiple classes of senior securities or subordinate
securities), shall be as set forth in the related prospectus supplement.
Distributions of principal with respect to one or more classes of securities may
be made at a rate that is faster (and, in some cases, substantially faster) than
the rate at which payments or other collections of principal are received on the
mortgage loans and/or mortgage securities in the related trust fund, may not
commence until the occurrence of events such as the retirement of one or more
other classes of securities of the same series, or may be made at a rate that is
slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the mortgage loans
and/or mortgage securities. In addition, distributions of principal with respect
to one or more classes of securities may be made, subject to available funds,
based on a specified principal payment schedule and, with respect to one or more
classes of securities, may be contingent on the specified principal payment
schedule for another class of the same series and the rate at which payments and
other collections of principal on the mortgage loans and/or mortgage securities
in the related trust fund are received.
PRE-FUNDING ACCOUNT
If so specified in the related prospectus supplement, the pooling and
servicing agreement or other agreement may provide for the transfer by the
Sellers of additional mortgage loans to the related trust after the Closing
Date. The additional mortgage loans will be required to conform to the
requirements set forth in the related pooling and servicing agreement or other
agreement providing for the transfer, and will be underwritten to the same
standards as the mortgage loans initially included in the trust fund as
described in the prospectus supplement. As specified in the related prospectus
supplement, the transfer may be funded by the establishment of a pre-funding
account established with the trustee. If a pre-funding account is established,
all or a portion of the proceeds of the sale of one or more classes of
securities of the related series will be deposited in the account to be released
as additional mortgage loans are transferred. A pre-funding account will be
required to be maintained as an Eligible Account, the amounts therein may be
required to be invested in Permitted Investments and the amount held therein
shall at no time exceed 50% of the proceeds of the offering of the related
securities. The related pooling and servicing agreement or other agreement
providing for the transfer of additional mortgage loans generally will provide
that the transfers must be made within up to three months (with respect to any
series of certificates) or up to, but not in excess of, one year (with respect
to any series of notes) after the Closing Date, and that amounts set aside to
fund the transfers (whether in a pre-funding account or otherwise) and not so
applied within the required period of time will be deemed to be principal
prepayments and applied in the manner set forth in the prospectus supplement. To
the extent amounts in any pre-funding account have not been used to purchase
additional mortgage loans, holders of the securities may receive an additional
prepayment, which may affect their yield to maturity. In addition,
securityholders may not be able to reinvest amounts received from any
pre-funding account in comparable securities, or may only be able to do so at a
lower interest rate.
DISTRIBUTIONS ON THE SECURITIES IN RESPECT OF PREPAYMENT PREMIUMS
Prepayment premiums will generally be retained by the master servicer,
a servicer, or by the Seller as additional compensation. However, if so provided
in the related prospectus supplement, prepayment premiums received on or in
connection with the mortgage loans or mortgage securities in any trust fund will
be distributed on each distribution date to the holders of the class or classes
of securities of the related series entitled thereto in accordance with the
provisions described in the prospectus supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage
loans and/or mortgage securities in any trust fund (to the extent not covered or
offset by draws on any reserve fund or under any instrument of credit
enhancement or applied against overcollateralization) will be allocated among
the respective classes of securities of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, these allocations
may result in reductions in the entitlements to interest and/or principal
balances of one or more classes of securities, or may be effected simply by a
prioritization of payments among classes of securities.
ADVANCES
If and to the extent provided in the related prospectus supplement, and
subject to any limitations specified therein, the related master servicer or any
servicer will be obligated to advance, or have the option of advancing, on or
before each distribution date, from its own funds or from excess funds held in
the related Master Servicing Collection Account or Protected Account that are
not part of the available funds for the related series of securities for that
distribution date, an amount up to the aggregate of any scheduled payments of
interest (and, if specified in the related prospectus supplement, principal) on
the mortgage loans that were delinquent on, or not received by, the related
Determination Date (or such other date specified in the Agreement, but in any
event prior to the related distribution date). No notice will be given to the
certificateholders of these advances. Advances are intended to maintain a
regular flow of scheduled interest and principal payments to holders of the
class or classes of securities entitled thereto, rather than to guarantee or
insure against losses. Accordingly, all advances made from the master servicer's
or a servicer's own funds will be reimbursable out of related recoveries on the
mortgage loans (including, to the extent described in the prospectus supplement,
amounts received under any fund or instrument constituting credit enhancement)
respecting which advances were made and other specific sources as may be
identified in the related prospectus supplement, including amounts which would
otherwise be payable to the offered securities. No Nonrecoverable Advance will
be required to be made by the master servicer or a servicer; and, if previously
made by a master servicer or a servicer, a Nonrecoverable Advance will be
reimbursable from any amounts in the related Master Servicer Collection Account
or Protected Account prior to any distributions being made to the related series
of securityholders. If advances have been made from excess funds in a Master
Servicer Collection Account, the master servicer will be required to replace the
funds in such account on any future distribution date to the extent that funds
then in such account are insufficient to permit full distributions to
securityholders on that date. If so specified in the related prospectus
supplement, the obligation of a master servicer or a servicer to make advances
may be secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, a surety bond, will be set forth in the related prospectus supplement. If
any person other than the master servicer has any obligation to make advances as
described above, the related prospectus supplement will identify the person. If
and to the extent so provided in the related prospectus supplement, any entity
making advances will be entitled to receive interest on the advances for the
period that the advances are outstanding at the rate specified in the prospectus
supplement, and the entity will be entitled to payment of the interest
periodically from general collections on the mortgage loans in the related trust
fund prior to any payment to securityholders or as otherwise provided in the
related pooling and servicing agreement or servicing agreement and described in
the prospectus supplement. As specified in the related prospectus supplement
with respect to any series of securities as to which the trust fund includes
mortgage securities, the advancing obligations with respect to the underlying
mortgage loans will be pursuant to the terms of the mortgage securities, as may
be supplemented by the terms of the applicable pooling and servicing agreements
or servicing agreements for such mortgage securities, and may differ from the
provisions described above.
MODIFICATIONS
In instances in which a mortgage loan is in default or if default is
reasonably foreseeable, and if determined by the master servicer to be in the
best interest of the securityholders, the master servicer or servicer may permit
servicing modifications of the mortgage loan rather than proceeding with
foreclosure. However, the master servicer's and the servicer's ability to
perform servicing modifications will be subject to some limitations, including
but not limited to the following. Advances and other amounts may be added to the
outstanding principal balance of a mortgage loan only once during the life of a
mortgage loan. Any amounts added to the principal balance of the mortgage loan,
or capitalized amounts added to the mortgage loan, will be required to be fully
amortized over the remaining term of the mortgage loan. All capitalizations are
to be implemented in accordance with the sponsor's standards and may be
implemented only by servicers that have been approved by the master servicer for
that purpose. The final maturity of any mortgage loan shall not be extended
beyond the assumed final distribution date. No servicing modification with
respect to a mortgage loan will have the effect of reducing the mortgage rate
below one half of the mortgage rate as in effect on the cut off date, but not
less than the servicing fee rate. Further, the aggregate current principal
balance of all mortgage loans subject to modifications can be no more than five
percent (5%) of the aggregate principal balance of the mortgage loans as of the
cut off date, but this limit may increase from time to time with the consent of
the rating agencies.
Any Advances made on any mortgage loan will be reduced to reflect any
related servicing modifications previously made. The mortgage rate and Net
Mortgage Rate as to any mortgage loan will be deemed not reduced by any
servicing modification, so that the calculation of accrued certificate interest
(as defined in the prospectus supplement) payable on the offered securities will
not be affected by the servicing modification.
REPORTS TO SECURITYHOLDERS
With each distribution to securityholders of a particular class of
offered securities, the related master servicer, trustee or other specified
person will make available to each holder of record of the class of securities a
statement or statements with respect to the related trust fund setting forth the
information specifically described in the related pooling and servicing
agreement or the related servicing agreement or indenture, which generally will
include the following as applicable except as otherwise provided therein:
o the applicable record dates, accrual periods, determination
dates for calculating distributions and general distribution
dates;
o the total cash flows received and the general sources thereof;
o the amount, if any, of fees or expenses accrued and paid, with
an identification of the payee and the general purpose of such
fees;
o the amount, accrued or paid in respect of any credit
enhancement or other support, including the payee and the
general purpose of such payment;
o the amount, if any, of the distribution allocable to principal
(by class);
o the amount, if any, of the distribution allocable to interest
(by class and any shortfalls or carry-forwards);
o the amount of, if any, of excess cash flow or excess spread
and the application of such excess cash flow;
o interest rates, as applicable, to the pool assets and
securities;
o the beginning and ending balance of the reserve fund or
similar account, if any, together with any material activity;
o the amounts drawn on any credit enhancement, or other support,
and the amount of coverage remaining under any enhancement;
o the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on
the distribution date;
o number and amount of pool assets, together with updated pool
composition information;
o the aggregate amount of advances included in the distributions
on the distribution date (including the general purpose of
such advances), the aggregate amount of unreimbursed advances
at the close of business on the distribution date, and the
general source of funds for reimbursements;
o if applicable, material modifications, extensions or waivers
to pool asset terms, fees, penalties or payments during the
distribution period or that have become material over time;
o material breaches of pool asset representation or warranties
or transaction covenants;
o information on loss, delinquency or other tests used for
determining early amortization, liquidation, stepdowns or
other performance triggers as more completely described in the
prospectus supplement and whether the trigger was met;
o information regarding any new issuance of securities backed by
the same asset pool, any pool asset changes, such as additions
or removals in connection with a prefunding and pool asset
substitutions and repurchases, and cash flows available for
future purchases, such as the balances of any prefunding, if
applicable;
o any material changes in the solicitation, credit-granting,
underwriting, origination, acquisition or pool selection
criteria or procedures, as applicable, used to originate,
acquire or select new pool assets;
o the number and aggregate principal balance of any mortgage
loans in the related mortgage pool in respect of which (A) one
scheduled payment is delinquent, (B) two scheduled payments
are delinquent, (C) three or more scheduled payments are
delinquent and (D) foreclosure proceedings have been
commenced, and loss information for the period;
o the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount, if applicable, as of the close of business on the
applicable distribution date and a description of any change
in the calculation of these amounts; and
o with respect to any series of securities as to which the trust
fund includes mortgage securities, additional information as
required under the related Agreement and specified in the
related prospectus supplement.
In the case of information furnished pursuant to the first two items
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of offered securities or per a specified portion of the
minimum denomination. In addition to the information described above, reports to
securityholders will contain other information as is set forth in the applicable
pooling and servicing agreement or the applicable servicing agreement or
indenture, which may include prepayments, reimbursements to subservicers and the
master servicer and losses borne by the related trust fund. In addition, within
a reasonable period of time after the end of each calendar year, the master
servicer or trustee will furnish a report to each holder of record of a class of
offered securities at any time during the calendar year which, for example, will
include information as to the aggregate of amounts reported pursuant to the
first three items above for the calendar year or, in the event the person was a
holder of record of a class of securities during a portion of the calendar year,
for the applicable portion of the year. Reports, whether monthly or annual, will
be transmitted in paper format to the holder of record of the class of
securities contemporaneously with the distribution on that particular class. In
addition, the monthly reports will be posted on a website as described below
under "Available Information" and "Reports to Securityholders."
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
As set forth below and in the applicable prospectus supplement, credit
enhancement may be provided by one or more of a financial guaranty insurance
policy, a special hazard insurance policy, a mortgage pool insurance policy or a
letter of credit. In addition, if provided in the applicable prospectus
supplement, in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of a reserve fund to cover
the losses, subordination of one or more classes of subordinate securities for
the benefit of one or more classes of senior securities, of
cross-collateralization or overcollateralization, or a combination of the
foregoing. The credit support may be provided by an assignment of the right to
receive specified cash amounts, a deposit of cash into a reserve fund or other
pledged assets, or by guarantees provided by a third-party or any combination
thereof identified in the applicable prospectus supplement. Each component will
have limitations and will provide coverage with respect to Realized Losses on
the related mortgage loans. Credit support will cover Defaulted Mortgage Losses,
but coverage may be limited or unavailable with respect to Special Hazard
Losses, Fraud Losses, Bankruptcy Losses and Extraordinary Losses. To the extent
that the credit support for the offered securities of any series is exhausted,
the holders thereof will bear all further risk of loss.
The amounts and types of credit enhancement arrangements as well as the
providers thereof, if applicable, with respect to the offered securities of each
series will be set forth in the related prospectus supplement. To the extent
provided in the applicable prospectus supplement and the pooling and servicing
agreement or indenture, the credit enhancement arrangements may be periodically
modified, reduced and substituted for based on the aggregate outstanding
principal balance of the mortgage loans covered thereby or the principal amount
or interest due on one or more classes of securities. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable prospectus supplement, credit support for the offered securities
of one series may cover the offered securities of one or more other series.
In general, references to "mortgage loans" under this "Description of
Credit Enhancement" section are to mortgage loans in a trust fund. However, if
so provided in the prospectus supplement for a series of securities, any
mortgage securities included in the related trust fund and/or the related
underlying mortgage loans may be covered by one or more of the types of credit
support described in this prospectus. The related prospectus supplement will
specify, as to each form of credit support, the information indicated below with
respect thereto, to the extent the information is material and available.
SUBORDINATE SECURITIES
If so specified in the related prospectus supplement, one or more
classes of securities of a series may be subordinate securities. Subordinate
securities may be offered securities. To the extent specified in the related
prospectus supplement, the rights of the holders of subordinate securities to
receive distributions from the Distribution Account on any distribution date
will be subordinated to the corresponding rights of the holders of senior
securities. In addition, as provided in the prospectus supplement, losses or
shortfalls will be allocated to subordinate securities before they are allocated
to more senior securities. If so provided in the related prospectus supplement,
the subordination of a class may apply only in the event of (or may be limited
to) some types of losses or shortfalls. The related prospectus supplement will
set forth information concerning the manner and amount of subordination provided
by a class or classes of subordinate securities in a series and the
circumstances under which the subordination will be available.
CROSS-COLLATERALIZATION
If the mortgage loans and/or mortgage securities in any trust fund are
divided into separate groups, each supporting a separate class or classes of
securities of the related series, credit enhancement may be provided by
cross-collateralization support provisions requiring that distributions be made
on senior securities evidencing interests in one group of mortgage loans and/or
mortgage securities prior to distributions on subordinate securities evidencing
interests in a different group of mortgage loans and/or mortgage securities
within the trust fund. The prospectus supplement for a series that includes a
cross-collateralization provision will describe the manner and conditions for
applying the provisions.
OVERCOLLATERALIZATION
If so specified in the related prospectus supplement, interest
collections on the mortgage loans may exceed interest payments on the offered
securities for the related distribution date. The excess interest may be
deposited into a reserve fund or applied as a payment of principal on the
securities. To the extent excess interest is applied as principal payments on
the securities, the effect will be to reduce the principal balance of the
securities relative to the outstanding balance of the mortgage loans, thereby
creating overcollateralization and additional protection to the securityholders,
as specified in the related prospectus supplement. If so provided in the related
prospectus supplement, overcollateralization may also be provided as to any
series of securities by the issuance of securities in an initial aggregate
principal amount which is less than the aggregate principal amount of the
related mortgage loans.
FINANCIAL GUARANTY INSURANCE POLICY
If so specified in the related prospectus supplement, a financial
guaranty insurance policy may be obtained and maintained for a class or series
of securities. The insurer with respect to a financial guaranty insurance policy
will be described in the related prospectus supplement.
A financial guaranty insurance policy will be unconditional and
irrevocable and will guarantee to holders of the applicable securities that an
amount equal to the full amount of payments due to the holders will be received
by the trustee or its agent on behalf of the holders for payment on each
distribution date. The specific terms of any financial guaranty insurance policy
will be set forth in the related prospectus supplement. A financial guaranty
insurance policy may have limitations and generally will not insure the
obligation of the Sellers or the master servicer to repurchase or substitute for
a defective mortgage loan, will not insure Prepayment Interest Shortfalls or
interest shortfalls due to the application of the Relief Act and will not
guarantee any specific rate of principal payments. The insurer will be
subrogated to the rights of each holder to the extent the insurer makes payments
under the financial guaranty insurance policy.
MORTGAGE POOL INSURANCE POLICIES
Any mortgage pool insurance policy obtained by the depositor for a
trust fund will be issued by the insurer named in the applicable prospectus
supplement. Each mortgage pool insurance policy will cover Defaulted Mortgage
Losses in an amount equal to a percentage specified in the applicable prospectus
supplement of the aggregate principal balance of the mortgage loans on the
cut-off date, or will cover a portion of Defaulted Mortgage Losses on any
mortgage up to a specified percentage of the Value of that mortgage loan. As set
forth under "Maintenance of Credit Enhancement," the master servicer will use
reasonable efforts to maintain, or cause the servicers to maintain, any mortgage
pool insurance policy and to present claims thereunder to the insurer on behalf
of itself, the related trustee and the related securityholders. The mortgage
pool insurance policies, however, are not blanket policies against loss, since
claims thereunder may only be made respecting particular defaulted mortgage
loans and only upon satisfaction of the terms of the related policy. Any
exceptions to coverage will be described in the related prospectus supplement.
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.
LETTER OF CREDIT
If any component of credit enhancement as to the offered securities of
a series is to be provided by a letter of credit, a bank will deliver to the
related trustee an irrevocable letter of credit. The letter of credit may
provide direct coverage with respect to the mortgage loans. The bank that
delivered the letter of credit, as well as the amount available under the letter
of credit with respect to each component of credit enhancement, will be
specified in the applicable prospectus supplement. If so specified in the
related prospectus supplement, the letter of credit may permit draws only in the
event of certain types of losses and shortfalls. The letter of credit may also
provide for the payment of required advances which the master servicer or any
servicer fails to make. The amount available under the letter of credit will, in
all cases, be reduced to the extent of any unreimbursed payments thereunder and
may otherwise be reduced as described in the related prospectus supplement. The
letter of credit will expire on the expiration date set forth in the related
prospectus supplement, unless earlier terminated or extended in accordance with
its terms.
SPECIAL HAZARD INSURANCE POLICIES
Any special hazard insurance policy covering Special Hazard Losses
obtained by the depositor for a trust fund will be issued by the insurer named
in the applicable prospectus supplement. Each special hazard insurance policy
will, subject to limitations described below, protect holders of the related
series of securities from Special Hazard Losses. See "Description of Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder." However, a special
hazard insurance policy will not cover losses occasioned by war, civil
insurrection, some governmental actions, errors in design, faulty workmanship or
materials (except under some circumstances), nuclear reaction, chemical
contamination, waste by the mortgagor and other risks. Aggregate claims under a
special hazard insurance policy will be limited to the amount set forth in the
related prospectus supplement and will be subject to reduction as described in
the related prospectus supplement.
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 the damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the master servicer,
special servicer or the servicer, the insurer will pay the lesser of (1) the
cost of repair or replacement of the property or (2) upon transfer of the
property to the insurer, the unpaid principal balance of the mortgage loan at
the time of acquisition of the property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the mortgage rate to the date of claim
settlement and expenses incurred by the master servicer, special servicer or
servicer with respect to the property. If the property is transferred to a third
party in a sale approved by the issuer of the special hazard insurance policy,
the amount that the issuer will pay will be the amount under (2) above reduced
by the net proceeds of the sale of the property. No claim may be validly
presented under the special hazard insurance policy unless hazard insurance on
the property securing a defaulted mortgage loan has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance by the issuer of the special hazard
insurance policy). If the unpaid principal balance plus accrued interest and
expenses is paid by the insurer, the amount of further coverage under the
related special hazard insurance policy will be reduced by that 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 that amount. Restoration
of the property with the proceeds described under (1) above will satisfy the
condition under each mortgage pool insurance policy that the property be
restored before a claim under the mortgage pool insurance policy may be validly
presented with respect to the defaulted mortgage loan secured by the property.
The payment described under (2) above will render presentation of a claim in
respect of the mortgage loan under the related mortgage pool insurance policy
unnecessary. Therefore, so long as a mortgage pool insurance policy remains in
effect, the payment by the insurer under a special hazard insurance policy of
the cost of repair or of the unpaid principal balance of the related mortgage
loan plus accrued interest and expenses will not affect the total Insurance
Proceeds paid to securityholders, but will affect the relative amounts of
coverage remaining under the related special hazard insurance policy and
mortgage pool insurance policy.
As and to the extent set forth in the applicable prospectus supplement,
coverage in respect of Special Hazard Losses for a series of securities may be
provided, in whole or in part, by a type of instrument other than a special
hazard insurance policy or by means of a special hazard representation of the
Seller or the depositor.
RESERVE FUNDS
If so provided in the related prospectus supplement, the depositor will
deposit or cause to be deposited in a reserve fund any combination of cash, one
or more irrevocable letters of credit or one or more Permitted Investments in
specified amounts, or any other instrument satisfactory to the relevant Rating
Agency or Agencies, which will be applied and maintained in the manner and under
the conditions specified in the prospectus supplement. In the alternative or in
addition to the deposit, to the extent described in the related prospectus
supplement, a reserve fund may be funded through application of all or a portion
of amounts otherwise payable on any related subordinate securities, from the
retained interest of the depositor or otherwise. To the extent that the funding
of the reserve fund is dependent on amounts otherwise payable on related
subordinate securities, any retained interest of the depositor or other cash
flows attributable to the related mortgage loans or reinvestment income, the
reserve fund may provide less coverage than initially expected if the cash flows
or reinvestment income on which the funding is dependent are lower than
anticipated. In addition, with respect to any series of securities as to which
credit enhancement includes a letter of credit, if so specified in the related
prospectus supplement, if specified conditions are met, the remaining amount of
the letter of credit may be drawn by the trustee and deposited in a reserve
fund. Amounts in a reserve fund may be distributed to securityholders, or
applied to reimburse the master servicer or a servicer for outstanding advances,
or may be used for other purposes, in the manner and to the extent specified in
the related prospectus supplement. The related prospectus supplement will
disclose whether a reserve fund is part of the related trust fund. If set forth
in the related prospectus supplement, a reserve fund may provide coverage to
more than one series of securities.
In connection with the establishment of any reserve fund, the reserve
fund will be structured so that the trustee will have a perfected security
interest for the benefit of the securityholders in the assets in the reserve
fund. However, to the extent that the depositor, any affiliate thereof or any
other entity has an interest in any reserve fund, in the event of the
bankruptcy, receivership or insolvency of that entity, there could be delays in
withdrawals from the reserve fund and corresponding payments to the
securityholders which could adversely affect the yield to investors on the
related securities.
Amounts deposited in any reserve fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
master servicer or any other person named in the related prospectus supplement.
CASH FLOW AGREEMENTS
If so provided in the related prospectus supplement, the trust fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The principal terms of a guaranteed investment contract or other
cash flow agreement, and the identity of the obligor, will be described in the
prospectus supplement for a series of notes.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the applicable prospectus supplement does not
expressly provide for alternative credit enhancement arrangements in lieu of
some or all of the arrangements mentioned below, the following paragraphs shall
apply.
If a financial guaranty insurance policy has been obtained for one or
more classes of securities of a series, the trustee will be obligated to
exercise reasonable efforts to keep the financial guaranty insurance policy in
full force and effect throughout the term of the applicable pooling and
servicing agreement or servicing agreement, until the specified class or classes
of securities have been paid in full, unless coverage thereunder has been
exhausted through payment of claims, or until the financial guaranty insurance
policy is replaced in accordance with the terms of the applicable pooling and
servicing agreement or servicing agreement. The trustee will agree to remit the
premiums for each financial guaranty insurance policy, from available funds of
the related trust, in accordance with the provisions and priorities set forth in
the applicable pooling and servicing agreement or servicing agreement, on a
timely basis. In the event the insurer ceases to be a qualified insurer as
described in the related prospectus supplement, or fails to make a required
payment under the related financial guaranty insurance policy, neither the
trustee nor any other person will have any obligation to replace the insurer.
Any losses associated with any reduction or withdrawal in rating by an
applicable Rating Agency shall be borne by the related securityholders.
If a mortgage pool insurance policy has been obtained for some or all
of the mortgage loans related to a series of securities, the master servicer
will be obligated to exercise reasonable efforts to keep the mortgage pool
insurance policy (or an alternate form of credit support) in full force and
effect throughout the term of the applicable pooling and servicing agreement or
servicing agreement to the extent provided in the related prospectus supplement.
The master servicer will agree to pay the premiums for each mortgage pool
insurance policy on a timely basis. In the event the pool insurer ceases to be a
qualified insurer because it ceases to be qualified by law to transact pool
insurance business or coverage is terminated for any reason other than
exhaustion of the coverage, the master servicer will use reasonable efforts to
obtain from another qualified insurer a replacement insurance policy comparable
to the mortgage pool insurance policy with a total coverage equal to the then
outstanding coverage of the mortgage pool insurance policy, provided that, if
the cost of the replacement policy is greater than the cost of the mortgage pool
insurance policy, the coverage of the replacement policy will, unless otherwise
agreed to by the depositor, be reduced to a level such that its premium rate
does not exceed the premium rate on the mortgage pool insurance policy.
If a letter of credit or alternate form of credit enhancement has been
obtained for a series of securities, the trustee will be obligated to exercise
reasonable efforts cause to be kept or to keep the letter of credit (or an
alternate form of credit support) in full force and effect throughout the term
of the applicable pooling and servicing agreement or indenture, unless coverage
thereunder has been exhausted through payment of claims or otherwise, or
substitution therefor is made as described below under "--Reduction or
Substitution of Credit Enhancement." Unless otherwise specified in the
applicable prospectus supplement, if a letter of credit obtained for a series of
securities is scheduled to expire prior to the date the final distribution on
the securities is made and coverage under the letter of credit has not been
exhausted and no substitution has occurred, the trustee will draw the amount
available under the letter of credit and maintain the amount in trust for the
securityholders.
If a special hazard insurance policy has been obtained for the mortgage
loans related to a series of securities, the master servicer will also be
obligated to exercise reasonable efforts to maintain and keep the policy in full
force and effect throughout the term of the applicable pooling and servicing
agreement or servicing agreement, unless coverage thereunder has been exhausted
through payment of claims or otherwise or substitution therefor is made as
described below under "--Reduction or Substitution of Credit Enhancement." If
coverage for Special Hazard Losses takes the form of a special hazard insurance
policy, the policy will provide coverage against risks of the type described in
this prospectus under "Description of Credit Enhancement--Special Hazard
Insurance Policies." The master servicer may obtain a substitute policy for the
existing special hazard insurance policy if prior to the substitution the master
servicer obtains written confirmation from the Rating Agency or Agencies that
rated the related securities that the substitution shall not adversely affect
the then-current ratings assigned to the securities by the Rating Agency or
Agencies.
The master servicer, on behalf of itself, the trustee and
securityholders, will provide the trustee information required for the trustee
to draw under the letter of credit and will present claims to each pool insurer,
to the issuer of each special hazard insurance policy, and, in respect of
defaulted mortgage loans for which there is no servicer, to each primary insurer
and take any reasonable steps as are necessary to permit recovery under the
letter of credit, insurance policies or comparable coverage respecting defaulted
mortgage loans or mortgage loans which are the subject of a bankruptcy
proceeding. As set forth above, all collections by the master servicer under any
mortgage pool insurance policy or any Primary Insurance Policy and, where the
related property has not been restored, a special hazard insurance policy, are
to be deposited in the related Distribution Account, subject to withdrawal as
described above. All draws under any letter of credit are also to be deposited
in the related Distribution Account. In those cases in which a mortgage loan is
serviced by a servicer, the servicer, on behalf of itself, the trustee and the
securityholders will present claims to the primary insurer, and all paid claims
shall initially be deposited in a Protected Account prior to being delivered to
the master servicer for ultimate deposit to the related Distribution Account.
If any property securing a defaulted mortgage loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
special hazard insurance policy are insufficient to restore the damaged property
to a condition sufficient to permit recovery under any financial guaranty
insurance policy, mortgage pool insurance policy, letter of credit or any
related Primary Insurance Policy, neither the master servicer nor any servicer
is required to expend its own funds to restore the damaged property unless it
determines (1) that the restoration will increase the proceeds to one or more
classes of securityholders on liquidation of the mortgage loan after
reimbursement of the master servicer for its expenses and (2) that the expenses
will be recoverable by it through liquidation Proceeds or Insurance Proceeds. If
recovery under any financial guaranty insurance policy, mortgage pool insurance
policy, letter of credit or any related Primary Insurance Policy is not
available because the master servicer or a servicer has been unable to make the
above determinations, has made the determinations incorrectly or recovery is not
available for any other reason, the master servicer and each servicer is
nevertheless obligated to follow the 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 the determinations have been
incorrectly made, is entitled to reimbursement of its expenses in connection
with the restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
The amount of credit support provided pursuant to any form of credit
enhancement may be reduced. In most cases, the amount available pursuant to any
form of credit enhancement will be subject to periodic reduction in accordance
with a schedule or formula on a nondiscretionary basis pursuant to the terms of
the related pooling and servicing agreement or indenture. Additionally, in most
cases, the form of credit support (and any replacements therefor) may be
replaced, reduced or terminated, and the formula used in calculating the amount
of coverage with respect to Bankruptcy Losses, Special Hazard Losses or Fraud
losses may be changed, without the consent of the securityholders, upon the
written assurance from each applicable Rating Agency that its then-current
rating of the related series of securities will not be adversely affected.
Furthermore, in the event that the credit rating of any obligor under any
applicable credit enhancement is downgraded, the credit rating or ratings of the
related series of securities may be downgraded to a corresponding level, and,
neither the master servicer nor any other person will be obligated to obtain
replacement credit support in order to restore the rating or ratings of the
related series of securities. The master servicer will also be permitted to
replace the credit support with other credit enhancement instruments issued by
obligors whose credit ratings are equivalent to the downgraded level and in
lower amounts which would satisfy the downgraded level, provided that the
then-current rating or ratings of the related series of securities are
maintained. Where the credit support is in the form of a reserve fund, a
permitted reduction in the amount of credit enhancement will result in a release
of all or a portion of the assets in the reserve fund to the depositor, the
master servicer or the other person that is entitled thereto. Any assets so
released will not be available for distributions in future periods.
OTHER FINANCIAL OBLIGATIONS RELATED TO THE SECURITIES
DERIVATIVES
The trust fund may include one or more derivative instruments, as
described in this section. All derivative instruments included in any trust fund
will be used only in a manner that reduces or alters risk resulting from the
mortgage loans or other assets in the pool, and only in a manner such that the
return on the offered securities will be based primarily on the performance of
the mortgage loans or other assets in the pool. Derivative instruments may
include 1) interest rate swaps (or caps, floors and collars) and yield
supplement agreements as described below, 2) currency swaps, 3) market value
swaps that are referenced to the value of one or more of the mortgage loans or
other assets included in the trust fund or to a class of offered securities, and
4) credit default swaps that protect against defaults and losses on mortgage
loans or other assets included in the trust fund or to a class of offered
securities as described below.
An interest rate swap is an agreement between two parties to exchange a
stream of interest payments on an agreed hypothetical or "notional" principal
amount. No principal amount is exchanged between the counterparties to an
interest rate swap. In a typical swap, one party agrees to pay a fixed rate on a
notional principal amount, while the counterparty pays a floating rate based on
one or more reference interest rates including the London Interbank Offered
Rate, or LIBOR, a specified bank's prime rate or U.S. Treasury Bill rates.
Interest rate swaps also permit counterparties to exchange a floating rate
obligation based upon one reference interest rate, such as LIBOR, for a floating
rate obligation based upon another referenced interest rate, such as U.S.
Treasury Bill rates. An interest rate cap, collar or floor is an agreement where
the counterparty agrees to make payments representing interest on a notional
principal amount when a specified reference interest rate is above a strike
rate, outside of a range of strike rates, or below a strike rate as specified in
the agreement, generally in exchange for a fixed amount paid to the counterparty
at the time the agreement is entered into. A yield supplement agreement is a
type of cap agreement, and is substantially similar to a cap agreement as
described above.
The trustee on behalf of a trust fund may enter into interest rate
swaps, caps, floors and collars, or yield supplement agreements, to minimize the
risk to securityholders from adverse changes in interest rates or to provide
supplemental credit support. Cap agreements and yield supplement agreements may
be entered into to supplement the interest rate or other rates available to make
interest payments on one or more classes of the securities of any series.
A market value swap might be used in a structure where the pooled
assets are hybrid ARMs, or mortgage loans that provide for a fixed rate period
and then convert by their terms to adjustable rate loans. Such a structure might
provide that at a specified date near the end of the fixed rate period, the
investors must tender their securities to the trustee who will then transfer the
securities to other investors in a mandatory auction procedure. The market value
swap would ensure that the original investors would receive at least par at the
time of tender, by covering any shortfall between par and the then current
market value of their securities.
Derivatives may include credit default swaps where credit enhancement
is provided in the form of a swap agreement. Credit default swaps will only be
used to protect against defaults and losses on mortgage loans or other assets
included in the trust fund or allocated to a class of offered securities.
Additionally, agreements relating to other types of derivative products that are
designed to provide credit enhancement to the related series may be entered into
by a trustee and one or more counterparties. The terms of credit derivatives and
any other derivative product agreement and any counterparties will be described
in the accompanying prospectus supplement.
Any derivative contracts will be documented based upon the standard
forms provided by the International Swaps and Derivatives Association, or ISDA.
These forms generally consist of an ISDA master agreement, a schedule to the
master agreement, and a confirmation, although in some cases the schedule and
confirmation will be combined in a single document and the standard ISDA master
agreement will be incorporated therein by reference. Standard ISDA definitions
also will be incorporated by reference. Each confirmation will provide for
payments to be made by the derivative counterparty to the trust, and in some
cases by the trust to the derivative counterparty, generally based upon
specified notional amounts and upon differences between specified interest rates
or values. For example, the confirmation for an interest rate cap agreement will
contain a schedule of fixed interest rates, generally referred to as strike
rates, and a schedule of notional amounts, for each distribution date during the
term of the interest rate cap agreement. The confirmation also will specify a
reference rate, generally a floating or adjustable interest rate, and will
provide that payments will be made by the derivative counterparty to the trust
on each distribution date, based on the notional amount for that distribution
date and the excess, if any, of the specified reference rate over the strike
rate for that distribution date.
In the event of the withdrawal of the credit rating of a derivative
counterparty or the downgrade of such credit rating below levels specified in
the derivative contract (where the derivative contract is relevant to the
ratings of the offered securities, such levels generally are set by the rating
agencies rating the offered securities), the derivative counterparty may be
required to post collateral for the performance of its obligations under the
derivative contract, or to take certain other measures intended to assure
performance of those obligations. Posting of collateral will be documented using
the ISDA Credit Support Annex.
There can be no assurance that the trustee will be able to enter into
derivatives at any specific time or at prices or on other terms that are
advantageous. In addition, although the terms of the derivatives may provide for
termination under various circumstances, there can be no assurance that the
trustee will be able to terminate a derivative when it would be economically
advantageous to the trust fund to do so.
PURCHASE OBLIGATIONS
Some types of trust assets and some classes of securities of any
series, as specified in the related prospectus supplement, may be subject to a
purchase obligation that would become applicable on one or more specified dates,
or upon the occurrence of one or more specified events, or on demand made by or
on behalf of the applicable securityholders. A purchase obligation may be in the
form of a conditional or unconditional purchase commitment, liquidity facility,
remarketing agreement, maturity guaranty, put option or demand feature. The
terms and conditions of each purchase obligation, including the purchase price,
timing and payment procedure, will be described in the accompanying prospectus
supplement. A purchase obligation relating to trust assets may apply to those
trust assets or to the related securities. Each purchase obligation may be a
secured or unsecured obligation of the provider thereof, which may include a
bank or other financial institution or an insurance company. Each purchase
obligation will be evidenced by an instrument delivered to the trustee for the
benefit of the applicable securityholders of the related series. As specified in
the accompanying prospectus supplement, each purchase obligation relating to
trust assets will be payable solely to the trustee for the benefit of the
securityholders of the related series. Other purchase obligations may be payable
to the trustee or directly to the holders of the securities to which that
obligation relate.
DESCRIPTION OF PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
The mortgaged property with respect to each mortgage loan will be
required to be covered by a hazard insurance policy and, if required as
described below, a Primary Insurance Policy. The following is only a brief
description of these insurance policies and does not purport to summarize or
describe all of the provisions of these policies. The insurance is subject to
underwriting and approval of individual mortgage loans by the respective
insurers.
PRIMARY MORTGAGE INSURANCE POLICIES
In a securitization of single family loans, single family loans
included in the related mortgage pool having a Loan-to-Value Ratio at
origination of over 80% (or other percentage as described in the related
prospectus supplement) may be required by the depositor to be covered by a
Primary Insurance Policy. The Primary Insurance Policy will insure against
default on a mortgage loan as to at least the principal amount thereof exceeding
75% of the Value of the related mortgaged property (or other percentage as
described in the related prospectus supplement) at origination of the mortgage
loan, unless and until the principal balance of the mortgage loan is reduced to
a level that would produce a Loan-to-Value Ratio equal to or less than at least
80% (or other percentage as described in the prospectus supplement). This type
of mortgage loan will not be considered to be an exception to the foregoing
standard if no Primary Insurance Policy was obtained at origination but the
mortgage loan has amortized to below the above Loan-to-Value Ratio percentage as
of the applicable cut-off date. Mortgage loans which are subject to negative
amortization will only be covered by a Primary Insurance Policy if the coverage
was so required upon their origination, notwithstanding that subsequent negative
amortization may cause the mortgage loan's Loan-to-Value Ratio, based on the
then-current balance, to subsequently exceed the limits which would have
required the coverage upon their origination. Multifamily, commercial and
mixed-use loans will not be covered by a Primary Insurance Policy, regardless of
the related Loan-to-Value Ratio.
While the terms and conditions of the Primary Insurance Policies issued
by a primary insurer will differ from those in Primary Insurance Policies issued
by other primary insurers, each Primary Insurance Policy will in general cover
the Primary Insurance Covered Loss. The primary insurer generally will be
required to pay:
o the insured percentage of the Primary Insurance Covered Loss;
o the entire amount of the Primary Insurance Covered Loss, after
receipt by the primary insurer of good and merchantable title
to, and possession of, the mortgaged property; or
o at the option of the primary insurer, 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 (1) the date the mortgage loan would have been
discharged in full if the default had not occurred or (2) an
approved sale.
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:
o advance or discharge (1) hazard insurance premiums and (2) as
necessary and approved in advance by the primary insurer, real
estate taxes, protection and preservation expenses and
foreclosure and related costs;
o 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
o tender to the primary insurer good and merchantable title to,
and possession of, the mortgaged property.
For any single family loan for which the coverage is required under the
standard described above, the master servicer will maintain, or will cause each
servicer to maintain, in full force and effect and to the extent coverage is
available a Primary Insurance Policy with regard to each single family loan,
provided that the Primary Insurance Policy was in place as of the cut-off date
and the depositor had knowledge of the Primary Insurance Policy. The master
servicer or the Seller will not cancel or refuse to renew a Primary Insurance
Policy in effect at the time of the initial issuance of a series of securities
that is required to be kept in force under the applicable pooling and servicing
agreement or indenture unless the replacement Primary Insurance Policy for the
canceled or non-renewed policy is maintained with an insurer whose claims-paying
ability is acceptable to the Rating Agency or Agencies that rated the series of
securities for mortgage pass-through certificates having a rating equal to or
better than the highest then-current rating of any class of the series of
securities. For further information regarding the extent of coverage under any
mortgage pool insurance policy or primary Insurance Policy, see "Description of
Credit Enhancement--Mortgage Pool insurance Policies."
HAZARD INSURANCE POLICIES
The terms of the mortgage loans require each mortgagor to maintain a
hazard insurance policy for their mortgage loan. Additionally, the pooling and
servicing agreement or servicing agreement will require the master servicer to
cause to be maintained for each mortgage loan a hazard insurance policy
providing for no less than the coverage of the standard form of fire insurance
policy with extended coverage customary in the state in which the property is
located. The coverage generally will be in an amount equal to the lesser of the
principal balance owing on the mortgage loan and 100% of the insurable value of
the improvements securing the mortgage loan; provided, that in any case, such
amount shall be sufficient to prevent the mortgagor and/or mortgagee from
becoming a co-insurer. The ability of the master servicer to ensure that hazard
insurance proceeds are appropriately applied may be dependent on it, or the
servicer of the mortgage loan, being named as an additional insured under any
hazard insurance policy and under any flood insurance policy referred to below,
or upon the extent to which information in this regard is furnished to the
master servicer by mortgagors or servicers.
As set forth above, all amounts collected by the master servicer or a
servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the mortgaged property or released to the mortgagor in
accordance with teamster servicer's normal servicing procedures) will be
deposited in the related Distribution Account. The pooling and servicing
agreement or servicing agreement will provide that the master servicer may
satisfy its obligation to cause hazard policies to be maintained by maintaining,
or causing a servicer to maintain, a blanket policy insuring against losses on
the mortgage loans. If the blanket policy contains a deductible clause, the
master servicer will deposit, or will cause the applicable servicer to deposit,
in the related Distribution Account all sums which would have been deposited
therein but for the clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the mortgage loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most of these 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, depending on the case, vandalism. The foregoing
list is merely indicative of the 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 the mortgage
loan, the pooling and servicing agreement or servicing agreement requires the
master servicer to cause to be maintained for this mortgage loan, flood
insurance (to the extent available) in an amount equal in general to the lesser
of the amount required to compensate for any loss or damage on a replacement
cost basis or the maximum insurance available under the federal flood insurance
program.
The hazard insurance policies covering the mortgaged properties
typically contain a co-insurance clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, the clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(1) the replacement cost of the improvements damaged or destroyed less physical
depreciation or (2) the proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of the
improvements.
Since the amount of hazard insurance that mortgagors are required to
maintain on the improvements securing the mortgage loans may decline as the
principal balances of the related mortgage loans decrease, and since residential
properties have historically appreciated in value over time, hazard insurance
proceeds could be insufficient to restore fully the damaged property in the
event of a partial loss. See "Description of Credit Enhancement--Special Hazard
Insurance Policies" for a description of the limited protection afforded by any
special hazard insurance policy against losses occasioned by hazards which are
otherwise uninsured against (including losses caused by the application of the
co-insurance clause described in the preceding paragraph).
Under the terms of the mortgage loans, mortgagors are generally
required to present claims to insurers under hazard insurance policies
maintained on the mortgaged properties. The master servicer, on behalf of the
trustee and securityholders, is obligated to present claims, or cause the
servicer of the mortgage loans to present claims, under any special hazard
insurance policy and any blanket insurance policy insuring against hazard losses
on the mortgaged properties. However, the ability of the master servicer or
servicer to present the claims is dependent upon the extent to which information
in this regard is furnished to the master servicer or the servicers by
mortgagors.
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
221, Section 223, 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 or for the refinance of indebtedness on
existing one- to four-family housing. Mortgage loans for the purchase of
multifamily residential rental properties are insured by the FHA under Section
221 and Section 223. Mortgage loans for the purchase or refinance of condominium
units are insured by FHA under Section 234. Trust assets 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 borrowers for as long as the borrowers continue to be
eligible for the payments. To be eligible, a borrower 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 on foreclosure, or other acquisition of possession,
and conveyance of the mortgaged premises to HUD or on assignment of the
defaulted mortgage loan to HUD. The FHA insurance that may be provided under
these programs on 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: (a)
the unpaid principal amount of the mortgage loan; (b) any mortgage interest
accrued and unpaid at the time of assignment; (c) reimbursement of any advances
made under the mortgage and approved by HUD; (d) reimbursement for approved
costs and attorney's fees; and (e) debenture interest on the net claims amount
(excluding mortgage interest) from the date of assignment to the date of
payment. The insurance payment is reduced by the amount of any cash retained by
the trust or any damage or insurance recovery.
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 the mortgage loans underlying a series of securities
will be described in the related prospectus supplement.
The mortgage loans may also be insured under Title I Program of the
FHA. The applicable provisions of this program will be described in the related
prospectus supplement. The master servicer will be required to take steps, or
cause the servicers of the mortgage loans to take steps, reasonably necessary to
keep any FHA insurance in full force and effect.
VA MORTGAGE GUARANTY
The Servicemen's Readjustment Act of 1944, as amended, permits a
veteran or, in some 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 for the purchaser in most circumstances 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 dollar limit established by the VA. The liability on the guaranty is
reduced or increased pro rata with any reduction or increase in 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 depositor for VA loans in excess of amounts specified by the VA.
The amount of the 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 SPONSOR
The sponsor will be MILA Inc. for each series of securities unless
otherwise indicated in the related prospectus supplement. The sponsor was
incorporated in the State of Washington in 1989. The Sponsor is a full service
lender who originates and acquires a wide variety of mortgage loan types
The sponsor maintains its principal office at 6021 244th Street SW,
Mountlake Terrace, WA, 98043. Its telephone number is (800) 332-6452.
THE DEPOSITOR
The depositor will be MILA Mortgage Acceptance, Inc. for each series of
securities unless otherwise indicated in the related prospectus supplement. The
depositor was formed in the State of Delaware on June 21, 2005 as a wholly-owned
subsidiary of MILA, Inc., a Washington corporation. The depositor was organized
for the purpose of serving as a private secondary mortgage market conduit. The
depositor does not have, nor is it expected in the future to have, any
significant assets. After issuance and registration of the securities
contemplated in this prospectus and any supplement hereto, the depositor will
have no duties or responsibilities with respect to the pool assets or the
securities.
The depositor maintains its principal office at 6021 244th Street SW,
Mountlake Terrace, WA 98043. Its telephone number is (800) 332-6452.
THE AGREEMENTS
GENERAL
Each series of certificates will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related prospectus
supplement. In general, the parties to a pooling and servicing agreement will
include the depositor, the trustee, the master servicer and, in some cases, a
special servicer. However, a pooling and servicing agreement that relates to a
trust fund that includes mortgage securities may include a party solely
responsible for the administration of the mortgage securities, and a pooling and
servicing agreement that relates to a trust fund that consists solely of
mortgage securities may not include a master servicer, special servicer or other
servicer as a party. All parties to each pooling and servicing agreement under
which securities of a series are issued will be identified in the related
prospectus supplement. Each series of notes will be issued pursuant to an
indenture. The parties to each indenture will be the related Issuer and the
trustee. The Issuer will be created pursuant to an owner trust agreement between
the depositor and the owner trustee and the mortgage loans or mortgage
securities securing the notes will be serviced pursuant to a servicing agreement
between the Issuer and the master servicer.
Forms of the Agreements have been filed as exhibits to the registration
statement of which this prospectus is a part. However, the provisions of each
Agreement will vary depending upon the nature of the related securities and the
nature of the related trust fund. The following summaries describe provisions
that may appear in a pooling and servicing agreement with respect to a series of
certificates or in either the servicing agreement or indenture with respect to a
series of notes. The prospectus supplement for a series of securities will
describe material provisions of the related Agreements that differ from the
description thereof set forth below. The depositor will provide a copy of each
Agreement (without exhibits) that relates to any series of securities without
charge upon written request of a holder of an offered security of the series
addressed to it at its principal executive offices specified in this prospectus
under "The Depositor". As to each series of securities, the related agreements
will be filed with the Commission in a current report on Form 8-K following the
issuance of the securities.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The pooling and servicing agreement or servicing agreement for each
series of securities will provide that the master servicer may not resign from
its obligations and duties except upon a determination that performance of the
duties is no longer permissible under applicable law or except (1) in connection
with a permitted transfer of servicing or (2) upon appointment of a successor
servicer reasonably acceptable to the trustee and upon receipt by the trustee of
letter from each Rating Agency generally to the effect that the resignation and
appointment will not, in and of itself, result in a downgrading of the
securities. No resignation will become effective until the trustee or a
successor servicer has assumed the master servicer's responsibilities, duties,
liabilities and obligations under the pooling and servicing agreement or
servicing agreement.
Each pooling and servicing agreement and servicing agreement will also
provide that the master servicer, the depositor and their directors, officers,
employees or agents will not be under any liability to the trust fund or the
securityholders for any action taken or for refraining from the taking of any
action in good faith, or for errors in judgment, unless the liability which
would otherwise be imposed was by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties. Each pooling and servicing agreement and servicing
agreement will further provide that the master servicer, the depositor, and any
director, officer, employee or agent of the master servicer or the depositor are
entitled to indemnification by the trust fund and will be held harmless against
any loss, liability or expense (including reasonable legal fees and
disbursements of counsel) incurred in connection with any legal action relating
to the pooling and servicing agreement or servicing agreement or the related
series of securities, other than any loss, liability or expense related to any
specific mortgage loan or mortgage loans (except a loss, liability or expense
otherwise reimbursable pursuant to the pooling and servicing agreement) and any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of reckless
disregard of obligations and duties. In addition, each pooling and servicing
agreement and servicing agreement will provide that neither the master servicer
nor the depositor will be under any obligation to appear in, prosecute or defend
any legal or administrative action that is not incidental to its respective
duties under the pooling and servicing agreement or servicing agreement and
which in its opinion may involve it in any expense or liability. The master
servicer or the depositor may, however, in its discretion undertake any action
which it may deem necessary or desirable with respect to the pooling and
servicing agreement or servicing agreement and the rights and duties of the
parties to that agreement and the interests of the securityholders. The legal
expenses and costs of the action and any resulting liability will be expenses,
costs and liabilities of the trust fund, and the master servicer or the
depositor, as the case may be, will be entitled reimbursement from funds
otherwise distributable to securityholders.
Any person into which the master servicer may be merged or
consolidated, any person resulting from any merger or consolidation to which the
master servicer is a party or any person succeeding to the business of the
master servicer will be the successor of the master servicer under the related
pooling and servicing agreement or servicing agreement, provided that (1) the
person is qualified to service mortgage loans on behalf of Fannie Mae or Freddie
Mac and (2) the merger, consolidation or succession does not adversely affect
the then-current ratings of the classes of securities of the related series that
have been rated. In addition, notwithstanding the prohibition on its
resignation, the master servicer may assign its rights under a pooling and
servicing agreement or servicing agreement, provided clauses (1) and (2) above
are satisfied and the person is reasonably satisfactory to the depositor and the
trustee. In the case of an assignment, the master servicer will be released from
its obligations under the pooling and servicing agreement or servicing
agreement, exclusive of liabilities and obligations incurred by it prior to the
time of the assignment.
EVENTS OF DEFAULT AND RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT
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:
o any failure by the master servicer to make a required deposit
to the Distribution Account (other than a Monthly Advance)
which continues unremedied for 3 days (or other time period
described in the related prospectus supplement) after the
giving of written notice of the failure to the master
servicer;
o any failure by the master servicer to observe or perform in
any material respect any other of its material covenants or
agreements in the pooling and servicing agreement with respect
to the series of certificates, which covenants and agreements
materially affect the rights of certificateholders of such
series, and which failure continues unremedied for a period of
60 days after the date on which written notice of such
failure, properly requiring the same to be remedied, shall
have been given to the master servicer by the trustee, or to
the master servicer and the trustee by the holders of
certificates evidencing not less than 25% of the aggregate
undivided interests (or, if applicable, voting rights) in the
related trust fund;
o events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings regarding the
master servicer and some actions by the master servicer
indicating its insolvency or inability to pay its obligations,
as specified in the related pooling and servicing agreement;
o any failure of the master servicer to make advances as
described in this prospectus under "Description of the
Securities--Advances," by the date and time set forth in the
pooling and servicing agreement;
o any assignment or delegation by the master servicer of its
rights and duties under the pooling and servicing agreement,
in contravention of the provisions permitting assignment and
delegation in the pooling and servicing agreement; and
o any other event of default as set forth in the pooling and
servicing agreement.
Additional events of default will be described in the related prospectus
supplement. A default pursuant to the terms of any mortgage securities included
in any trust fund will not constitute an event of default under the related
pooling and servicing agreement.
So long as an event of default remains unremedied, either the depositor
or the trustee may, and at the direction of the holders of certificates
evidencing not less than 51% of the aggregate undivided interests (or, if
applicable, voting rights) in the related trust fund the trustee shall, by
written notification to the master servicer and to the depositor or the trustee,
as applicable, terminate all of the rights and obligations of the master
servicer under the pooling and servicing agreement (other than any rights of the
master servicer as certificateholder) covering the trust fund and in and to the
mortgage loans and the proceeds thereof, whereupon the trustee or, upon notice
to the depositor and with the depositor's consent, its designee will succeed to
all responsibilities, duties and liabilities of the master servicer under the
pooling and servicing agreement (other than any obligation to purchase mortgage
loans) and will be entitled to similar compensation arrangements. In the event
that the trustee would be obligated to succeed the master servicer but is
unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of,
an established mortgage loan servicing institution with a net worth of at least
$15,000,000 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 an appointment, the trustee is obligated to act as master
servicer. The trustee and the successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the initial master servicer under the pooling and servicing agreement.
No certificateholder will have any right under a pooling and servicing
agreement to institute any proceeding with respect to the pooling and servicing
agreement unless (1) that holder previously gave the trustee written notice of a
default that is continuing, (2) the holders of certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting
rights)in the related trust fund requested the trustee in writing to institute
the proceeding in its own name as trustee, (3) the trustee receives reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred in or because of the proceeding and (4) the trustee for a reasonable
time after receipt of the request and indemnity has neglected or refused to
institute any proceeding.
The holders of certificates representing at least 66% of the aggregate
undivided interests (or, if applicable, voting rights) evidenced by those
certificates affected by a default or event of default may waive the default or
event of default (other than a failure by the master servicer to make an
advance); provided, however, that (1) a default or event of default under the
first or fourth items listed under "--Events of Default" above may be waived
only by all of the holders of certificates affected by the default or event of
default and (2) no waiver shall reduce in any manner the amount of, or delay the
timing of, payments received on mortgage loans which are required to be
distributed to, or otherwise materially adversely affect, any non-consenting
certificateholder.
SERVICING AGREEMENT
For a series of notes, a servicing default under the related servicing
agreement generally will include:
o any failure by the master servicer to make a required deposit
to the Distribution Account or, if the master servicer is so
required, to distribute to the holders of any class of notes
or Equity Certificates of the series any required payment
which continues unremedied for 5 business days (or other
period of time described in the related prospectus supplement)
after the giving of written notice of the failure to the
master servicer by the trustee or the Issuer;
o any failure by the master servicer duly to observe or perform
in any material respect any other of its covenants or
agreements in the servicing agreement with respect to the
series of securities which continues unremedied for 45 days
after the giving of written notice of the failure to the
master servicer by the trustee or the Issuer;
o events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings regarding the
master servicer and some actions by the master servicer
indicating its insolvency or inability to pay its obligations,
as specified in the related servicing agreement; and
o any other servicing default as set forth in the servicing
agreement.
So long as a servicing default remains unremedied, either the depositor
or the trustee may, by written notification to the master servicer and to the
Issuer or the trustee or trust fund, as applicable, terminate all of the rights
and obligations of the master servicer under the servicing agreement (other than
any right of the master servicer as noteholder or as holder of the Equity
Certificates and other than the right to receive servicing compensation and
expenses for master servicing the mortgage loans during any period prior to the
date of the termination), whereupon the trustee will succeed to all
responsibilities, duties and liabilities of the master servicer under the
servicing agreement (other than any obligation to purchase mortgage loans) and
will be entitled to similar compensation arrangements. In the event that the
trustee would be obligated to succeed the master servicer but is unwilling so to
act, it may appoint (or if it is unable so to act, it shall appoint) or petition
a court of competent jurisdiction for the appointment of an approved mortgage
servicing institution with a net worth of at least $15,000,000 to act as
successor to the master servicer under the servicing agreement (unless otherwise
set forth in the servicing agreement). Pending the appointment, the trustee is
obligated to act in the capacity. The trustee and the successor may agree upon
the servicing compensation to be paid, which in no event may be greater than the
compensation to the initial master servicer under the servicing agreement.
INDENTURE
For a series of notes, an event of default under the indenture
generally will include:
o a default for five days or more (or other period of time
described in the related prospectus supplement) in the payment
of any principal of or interest on any note of the series;
o failure to perform any other covenant of the Issuer in the
indenture which continues for a period of thirty days after
notice thereof is given in accordance with the procedures
described in the related indenture;
o any representation or warranty made by the Issuer in the
indenture or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or
affecting the series having been incorrect in a material
respect as of the time made, and the breach is not cured
within thirty days after notice thereof is given in accordance
with the procedures described in the related indenture;
o events of bankruptcy, insolvency, receivership or liquidation
of the Issuer, as specified in the related indenture; or
o any other event of default provided with respect to notes of
that series.
If an event of default with respect to the notes of any series at the
time outstanding occurs and is continuing, the trustee or the holders of a
majority of the then aggregate outstanding amount of the notes of the series may
declare the principal amount of all the notes of the series to be due and
payable immediately. The declaration may, in some circumstances, be rescinded
and annulled by the holders of a majority in aggregate outstanding amount of the
related notes.
If following an event of default with respect to any series of notes,
the notes of the series have been declared to be due and payable, the trustee
may, in its discretion, notwithstanding the acceleration, elect to maintain
possession of the collateral securing the notes of the series and to continue to
apply payments on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of the series as they would
have become due if there had not been a declaration. In addition, the trustee
may not sell or otherwise liquidate the collateral securing the notes of a
series following an event of default, unless (1) the holders of 100% of the then
aggregate outstanding amount of the notes of the series consent to the sale, (2)
the proceeds of the sale or liquidation are sufficient to pay in full the
principal of and accrued interest, due and unpaid, on the outstanding notes of
the series at the date of the sale or (3) the trustee determines that the
collateral would not be sufficient on an ongoing basis to make all payments on
the notes as the payments would have become due if the notes had not been
declared due and payable, and the trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the notes of the series.
In the event that the trustee liquidates the collateral in connection
with an event of default, the indenture provides that the trustee will have a
prior lien on the proceeds of the liquidation for unpaid fees and expenses. As a
result, upon the occurrence of an event of default, the amount available for
payments to the noteholders would be less than would otherwise be the case.
However, the trustee may not institute a proceeding for the enforcement of its
lien except in connection with a proceeding for the enforcement of the lien of
the indenture for the benefit of the noteholders after the occurrence of the
event of default.
In the event the principal of the notes of a series is declared due and
payable, as described above, the holders of the notes issued at a discount from
par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of the discount that is unamortized.
No noteholder or holder of an Equity Certificate generally will have
any right under an owner trust agreement or indenture to institute any
proceeding with respect to the Agreement unless (1) that holder previously has
given to the trustee written notice of default and the continuance thereof, (2)
the holders of notes or Equity Certificates of any class evidencing not less
than 25% of the aggregate Percentage Interests constituting that class (a) have
made written request upon the trustee to institute the proceeding in its own
name as trustee and (b) have offered to the trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred in or
because of the proceeding, (3) the trustee has neglected or refused to institute
the proceeding for 60 days after receipt of the request and indemnity and (4) no
direction inconsistent with the written request has been given to the trustee
during the 60 day period by the holders of a majority of the aggregate
Percentage Interests constituting that class.
AMENDMENT
Each pooling and servicing agreement may be amended by the parties
thereto, without the consent of any of the holders of certificates covered by
the pooling and servicing agreement,
o to cure any ambiguity,
o to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein,
o 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 as shall be necessary to maintain
the qualification of the trust fund as a REMIC or to avoid or
minimize the risk of imposition of any tax on the related
trust fund, provided that the trustee has received an opinion
of counsel to the effect that (1) the action is necessary or
desirable to maintain the qualification or to avoid or
minimize the risk, and (2) the action will not adversely
affect in any material respect the interests of any holder of
certificates covered by the pooling and servicing agreement,
or (B) to restrict the transfer of the REMIC Residual
Certificates, provided that the depositor has determined that
the then-current ratings of the classes of the certificates
that have been rated will not be adversely affected, as
evidenced by a letter from each applicable Rating Agency, and
that the amendment will not give rise to any tax with respect
to the transfer of the REMIC Residual Certificates to a
non-permitted transferee,
o to make any other provisions with respect to matters or
questions arising under the pooling and servicing agreement
which are not materially inconsistent with the provisions
thereof, provided that the action will not adversely affect in
any material respect the interests of any certificateholder,
or
o to comply with any changes in the Code.
The pooling and servicing agreement may also be amended by the parties
thereto with the consent of the holders of certificates of each class affected
thereby evidencing, in each case, at least 66% of the aggregate Percentage
Interests constituting the class for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of the holders of
certificates covered by the pooling and servicing agreement, except that the
amendment may not (1) reduce in any manner the amount of, or delay the timing
of, payments received on mortgage loans which are required to be distributed on
a certificate of any class without the consent of the holder of the certificate
or (2) reduce the aforesaid percentage of certificates of any class the holders
of which are required to consent to the amendment without the consent of the
holders of all certificates of the class covered by the pooling and servicing
agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related trust fund, the trustee will not be entitled to consent
to any amendment to a pooling and servicing agreement without having first
received an opinion of counsel to the effect that the amendment or the exercise
of any power granted to the master servicer, the depositor, the trustee or any
other specified person in accordance with the amendment will not result in the
imposition of a tax on the related trust fund or cause the trust fund to fail to
qualify as a REMIC.
With respect to each series of notes, each related servicing agreement
or indenture may be amended by the parties thereto without the consent of any of
the holders of the notes covered by the Agreement, to cure any ambiguity, to
correct, modify or supplement any provision therein, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that the action
will not adversely affect in any material respect the interests of any holder of
notes covered by the Agreement. Each Agreement may also be amended by the
parties thereto with the consent of the holders of notes evidencing not less
than 66% of the voting rights, for any purpose; provided, however, that the
amendment may not:
(1) reduce in any manner the amount of or delay the timing of,
payments received on trust fund assets which are required to
be distributed on any certificate without the consent of the
holder of the certificate,
(2) adversely affect in any material respect the interests of the
holders of any class of notes in a manner other than as
described in (1), without the consent of the holders of notes
of the class evidencing not less than 66% of the aggregate
voting rights of the class or
(3) reduce the aforesaid percentage of voting rights required for
the consent to the amendment without the consent of the
holders of all notes covered by the Agreement then
outstanding.
The voting rights evidenced by any security will be the portion of the voting
rights of all of the securities in the related series allocated in the manner
described in the related prospectus supplement.
The Master Servicer and any director, officer, employee or agent of the
Master Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
under the transaction documents.
TERMINATION; RETIREMENT OF SECURITIES
The obligations created by the related Agreements for each series of
securities (other than the limited payment and notice obligations of the
trustee) will terminate upon the payment to securityholders of that series of
all amounts held in the Distribution Account or by the master servicer and
required to be paid to them pursuant to the Agreements following the earlier of
(1) the final payment or other liquidation or disposition (or any advance with
respect thereto) of the last mortgage loan, REO property and/or mortgage
security subject thereto and (2) the purchase by (a) the master servicer, a
servicer, the depositor or its designee, (b) if specified in the related
prospectus supplement with respect to each series of certificates, by the holder
of the REMIC Residual Certificates (see "Federal Income Tax Consequences" below)
or (c) if specified in the prospectus supplement with respect to each series of
notes, by the holder of the Equity Certificates, from the trust fund for the
series of all remaining mortgage loans, REO properties and/or mortgage
securities. In addition to the foregoing, the master servicer, a servicer, the
depositor or its designee will have the option to purchase, in whole but not in
part, the securities specified in the related prospectus supplement in the
manner set forth in the related prospectus supplement. With respect to any
series of certificates which provides for such purchase, the purchase shall not
be made unless either: (1) the aggregate principal balance of the certificates
as of the date is equal to or less than the percentage specified in the related
prospectus supplement (which shall not be greater than 25%) of the aggregate
principal balance of the certificates as of the Closing Date or (2) the
aggregate principal balance of the mortgage loans as of the date is equal to or
less than the percentage specified in the related prospectus supplement (which
shall not be greater than 25%) of the aggregate principal balance of the
mortgage loans as of the cut-off date. With respect to any series of notes which
provides for such purchase, the purchase shall not be made unless the aggregate
principal balance of the notes as of the date is equal to or less than the
percentage specified in the related prospectus supplement (which shall not be
greater than 25%) of the aggregate principal balance of the notes as of the
Closing Date or a period specified in the related prospectus supplement has
elapsed since the initial distribution date. In the event that any series of
certificates or notes which provides for such a purchase at 25%, the
certificates or notes will use the word "Callable" in their title. Upon the
purchase of the securities or at any time thereafter, at the option of the
master servicer, a servicer, the depositor or its designee, the assets of the
trust fund may be sold, thereby effecting a retirement of the securities and the
termination of the trust fund, or the securities so purchased may be held or
resold by the master servicer, a servicer, the depositor or its designee. In no
event, however, unless otherwise provided in the prospectus supplement, will a
trust created by a pooling and servicing agreement related to a series of
certificates continue beyond the expiration of 21 years from the death of the
survivor of the persons named in the pooling and servicing agreement. Written
notice of termination of the pooling and servicing agreement will be given to
each securityholder, and the final distribution will be made only upon surrender
and cancellation of the securities at an office or agency appointed by the
trustee which will be specified in the notice of termination. If the
securityholders are permitted to terminate the trust under the applicable
pooling and servicing agreement, a penalty may be imposed upon the
securityholders based upon the fee that would be foregone by the master servicer
because of the termination.
The purchase of mortgage loans and property acquired in respect of
mortgage loans evidenced by a series of securities shall be made at the option
of the master servicer, a servicer, the depositor, its desingee or, if
applicable, the holder of the REMIC Residual Certificates or Equity Certificates
at the price specified in the related prospectus supplement. The exercise of the
right will effect early retirement of the securities of that series, but the
right of the master servicer, the depositor or, if applicable, the holder to so
purchase is subject to the aggregate principal balance of the mortgage loans
and/or mortgage securities in the trust fund for that series as of the
distribution date on which the purchase is to occur being less than the
percentage specified in the related prospectus supplement of the aggregate
principal balance of the mortgage loans and/or mortgage securities for that
series at the cut-off date or closing date, as specified in the prospectus
supplement. The prospectus supplement for each series of securities will set
forth the amounts that the holders of the securities will be entitled to receive
upon the early retirement. The early termination may adversely affect the yield
to holders of the securities. With respect to any series of certificates, an
optional purchase of the mortgage loans in the related trust fund may not result
in the related certificates receiving an amount equal to the principal balance
thereof plus accrued and unpaid interest and any undistributed shortfall on the
related 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.
Following any optional termination, there will be no continuing direct
or indirect liability of the trust fund or any securityholder as sellers of the
assets of the trust fund.
THE TRUSTEE
The trustee under each pooling and servicing agreement and indenture
will be named in the related prospectus supplement. The commercial bank,
national banking association, banking corporation or trust company that serves
as trustee may have typical banking relationships with the depositor and its
affiliates. The trustee shall at all times be a corporation or an association
organized and doing business under the laws of any state or the United States of
America, authorized under the laws to exercise corporate trust powers, having a
combined capital and surplus of at least $15,000,000 and subject to supervision
or examination by federal or state authority.
DUTIES OF THE TRUSTEE
The trustee for each series of securities will make no representation
as to the validity or sufficiency of the related Agreements, the securities or
any underlying mortgage loan, mortgage security or related document and will not
be accountable for the use or application by or on behalf of any master
servicer, servicer or special servicer of any funds paid to the master servicer,
servicer or special servicer in respect of the securities or the underlying
mortgage loans or mortgage securities, or any funds deposited into or withdrawn
from the Distribution Account for the series or any other account by or on
behalf of the master servicer, servicer or special servicer. If no event of
default has occurred and is continuing, the trustee for each series of
securities will be required to perform only those duties specifically required
under the related pooling and servicing agreement or indenture. However, upon
receipt of any of the various certificates, reports or other instruments
required to be furnished to it pursuant to the related Agreement, a trustee will
be required to examine the documents and to determine whether they conform to
the requirements of the agreement.
If an event of default shall occur, then, and in each and every such
case, so long as such event of default shall not have been remedied, the trustee
or the securityholders entitled to at least 51% of the voting rights, by notice
in writing to the master servicer (and to the trustee if given by such Holders
of Certificates), with a copy to the Rating Agencies, may terminate all of the
rights and obligations (but not the liabilities) of the master servicer and in
and to the trust fund, other than its rights as a securityholder; provided,
however, that the successor to the master servicer shall have accepted the
duties of master servicer effective upon the resignation or termination of the
master servicer. On or after the delivery to the master servicer of such notice,
all authority and power of the master servicer, whether with respect to the
securities (other than as a Holder thereof) or the mortgage loans or otherwise,
shall pass to and be vested in the trustee, and, without limitation, the trustee
is authorized and empowered to execute and deliver, on behalf of the master
servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the mortgage loans and
related documents, or otherwise at the expense of the master servicer. The
master servicer agrees to cooperate with (and pay any related costs and expenses
of) the trustee in effecting the termination of the master servicer's
responsibilities and right, including, without limitation, the transfer to the
trustee or another successor master servicer for administration by it of (i) the
property and amounts which are then or should be part of the trust fund or which
thereafter become part of the trust fund; (ii) originals or copies of all
documents of the master servicer reasonably requested by the trustee to enable a
successor to assume the master servicer's duties; (iii) the rights and
obligations of the master servicer under the Subservicing Agreements with
respect to the mortgage loans; and (iv) all cash amounts which shall at the time
be deposited by the master servicer or should have been deposited to the
Distribution Account or thereafter be received with respect to the mortgage
loans.
Within 90 days of the time the master servicer receives a notice of
termination, the trustee another successor appointed as set forth herein shall
be the successor in all respects to the master servicer in its capacity as
master servicer under the related Agreement and the transactions set forth or
provided for therein and shall be subject thereafter to all the
responsibilities, duties and liabilities relating thereto placed on the master
servicer including the obligation to make Advances which have been or will be
required to be made by the terms and provisions thereof; and provided further,
that any failure to perform such duties or responsibilities caused by the master
servicer's failure to provide information required by the related Agreement
shall not be considered a default by the successor master servicer. As
compensation therefor, the trustee or another successor master servicer shall be
entitled to all funds relating to the mortgage loans which the master servicer
would have been entitled to charge to the Distribution Account if the master
servicer had continued to act. If the trustee has become the successor to the
master servicer, then notwithstanding the above, if the trustee shall be
unwilling to so act, or shall be unable to so act, the trustee may appoint, or
petition a court of competent jurisdiction to appoint, any established housing
and home finance institution, which is also a Fannie Mae- or Freddie
Mac-approved mortgage servicing institution, having a net worth of not less than
$10,000,000 as the successor to the master servicer in the assumption of all or
any part of the responsibilities, duties or liabilities of the master servicer.
Pending appointment of a successor to the master servicer, the trustee shall act
in such capacity as herein above provided. In connection with such appointment
and assumption, the trustee may make such arrangements for the compensation of
such successor out of payments on mortgage loans as it and such successor shall
agree; provided, however, that no such compensation shall be in excess of that
permitted the master servicer. Each of the Depositor, the trustee and such
successor shall take such action, consistent with the related Agreement, as
shall be necessary to effectuate any such succession. In no event shall the
successor master servicer be liable for the acts or omissions of the predecessor
master servicer.
Upon any such termination or appointment of a successor to the master
servicer, the trustee shall give prompt notice thereof to securityholders and to
the Rating Agencies. Within 60 days after the occurrence of any event of
default, the trustee shall transmit by mail to all securityholders notice of
each such event of default hereunder known to the trustee, unless such event of
default shall have been cured or waived.
Upon written request of three or more securityholders of record, for
purposes of communicating with other securityholders with respect to their
rights under this Agreement, the trustee will afford such securityholders access
during business hours to the most recent list of securityholders held by the
trustee.
SOME MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement,
the fees and normal disbursements of any trustee may be the expense of the
related master servicer or other specified person or may be required to be borne
by the related trust fund.
The trustee for each series of securities generally will be entitled to
indemnification, from amounts held in the Distribution Account for the series,
for any loss, liability or expense incurred by the trustee in connection with
the trustee's acceptance or administration of its trusts under the related
pooling and servicing agreement or indenture unless the loss, liability, cost or
expense was incurred by reason of willful misfeasance, bad faith or gross
negligence on the part of the trustee in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations or duties.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may resign at any time, in which event the depositor will
be obligated to appoint a successor trustee. The depositor may also remove the
trustee if the trustee ceases to be eligible to continue under the pooling and
servicing agreement or if the trustee becomes insolvent. Upon becoming aware of
the circumstances, the depositor will be obligated to appoint a successor
trustee. The trustee may also be removed at any time by the holders of
securities evidencing not less than 51% of the aggregate undivided interests
(or, if applicable, voting rights) in the related trust fund. Any resignation or
removal of the trustee and appointment of a successor trustee will not become
effective until acceptance of the appointment by the successor trustee.
YIELD CONSIDERATIONS
The yield to maturity of an offered security will depend on the price
paid by the holder for the security, the security interest rate on a security
entitled to payments of interest (which security interest rate may vary if so
specified in the related prospectus supplement) and the rate and timing of
principal payments (including prepayments, defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to reduce the
principal balance of the security (or notional amount thereof if applicable) and
other factors.
A class of securities may be entitled to payments of interest at a
fixed security interest rate, a variable security interest rate or adjustable
security interest rate, or any combination of security interest rates, each as
specified in the related prospectus supplement. A variable security interest
rate may be calculated based on the weighted average of the Net Mortgage Rates
of the related mortgage loans, or the weighted average of the interest rates
(which may be net of trustee fees) of the related mortgage securities, for the
month preceding the distribution date if so specified in the related prospectus
supplement. As will be described in the related prospectus supplement, the
aggregate payments of interest on a class of securities, and their yield to
maturity, will be affected by the rate of payment of principal on the securities
(or the rate of reduction in the notional balance of securities entitled only to
payments of interest), in the case of securities evidencing interests in ARM
Loans, by changes in the Net Mortgage Rates on the ARM Loans, and in the case of
securities evidencing interests in mortgage securities with floating or variable
rates, by changes in such rates and the indices on which they are based. See
"Maturity and Prepayment Considerations" below. The yield on the securities will
also be affected by liquidations of mortgage loans following mortgagor defaults
and by purchases of mortgage loans in the event of breaches of representations
and warranties made in respect of the mortgage loans by the depositor, the
master servicer and others, or conversions of ARM Loans to a fixed interest
rate. See "The Mortgage Pools--Representations by Sellers" and "Descriptions of
the Securities--Assignment of Trust Fund Assets" above. Holders of Strip
Securities or a class of securities having a security interest rate that varies
based on the weighted average mortgage rate of the underlying mortgage loans may
be affected by disproportionate prepayments and repurchases of mortgage loans
having higher Net Mortgage Rates or rates applicable to the Strip Securities, as
applicable.
With respect to any series of securities, a period of time will elapse
between the date upon which payments on the related mortgage loans are due and
the distribution date on which the payments are passed through to
securityholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on the mortgage loans were distributed to
securityholders on or near the date they were due.
In general, if a class of securities is purchased at initial issuance
at a premium and payments of principal on the related mortgage loans occur at a
rate faster than anticipated at the time of purchase, the purchaser's actual
yield to maturity will be lower than that assumed at the time of purchase.
Similarly, if a class of securities is purchased at initial issuance at a
discount and payments of principal on the related mortgage loans occur at a rate
slower than that assumed at the time of purchase, the purchaser's actual yield
to maturity will be lower than that originally anticipated. The effect of
principal prepayments, liquidations and purchases on yield will be particularly
significant in the case of a series of securities having a class entitled to
payments of interest only or to payments of interest that are disproportionately
high relative to the principal payments to which the class is entitled. Such a
class will likely be sold at a substantial premium to its principal balance and
any faster than anticipated rate of prepayments will adversely affect the yield
to its holders. Extremely rapid prepayments may result in the failure of such
holders to recoup their original investment. In addition, the yield to maturity
on other types of classes of securities, including Accrual Securities and
securities with a security interest rate which fluctuates inversely with or at a
multiple of an index, may be relatively more sensitive to the rate of prepayment
on the related mortgage loans than other classes of securities.
The timing of changes in the rate of principal payments on or
repurchases of the mortgage loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. In general, the earlier
a prepayment of principal on the underlying mortgage loans or a repurchase
thereof, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of securities
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
When a principal prepayment in full is made on a mortgage loan, the
borrower is generally charged interest only for the period from the due date of
the preceding scheduled payment up to the date of the prepayment, instead of for
the full accrual period, that is, the period from the due date of the preceding
scheduled payment up to the due date for the next scheduled payment. In
addition, a partial principal prepayment may likewise be applied as of a date
prior to the next scheduled due date (and, accordingly, be accompanied by
accrued interest for less than the full accrual period). However, interest
accrued and distributable on any series of securities on any distribution date
will generally correspond to interest accrued on the principal balance of
mortgage loans for their respective full accrual periods. Consequently, if a
prepayment on any mortgage loan is distributable to securityholders on a
particular distribution date, but the prepayment is not accompanied by accrued
interest for the full accrual period, the interest charged to the borrower (net
of servicing and administrative fees and any retained interest of the depositor)
may be less than the corresponding amount of interest accrued and otherwise
payable on the related mortgage loan, and a Prepayment Interest Shortfall will
result. If and to the extent that the shortfall is allocated to a class of
offered securities, its yield will be adversely affected. The prospectus
supplement for a series of securities will describe the manner in which the
shortfalls will be allocated among the classes of the securities. If so
specified in the related prospectus supplement, the master servicer or related
servicer will be required to apply some or all of its servicing compensation for
the corresponding period to offset the amount of the shortfalls. The related
prospectus supplement will also describe any other amounts available to off set
the shortfalls. See "Servicing of Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses; Retained Interest".
The trust fund with respect to any series may include ARM Loans. As is
the case with conventional, fixed-rate mortgage loans originated in a high
interest rate environment which may be subject to a greater rate of principal
prepayments when interest rates decrease, ARM Loans may be subject to a greater
rate of principal prepayments (or purchases by the related servicer or the
master servicer) due to their refinancing in a low interest rate environment.
For example, if prevailing interest rates fall significantly, ARM Loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed-rate or other adjustable-rate
mortgage loans at competitive interest rates may encourage mortgagors to
refinance their adjustable-rate mortgages to "lock in" a lower fixed interest
rate or to take advantage of the availability of other adjustable-rate mortgage
loans. A rising interest rate environment may also result in an increase in the
rate of defaults on the mortgage loans.
The trust fund with respect to any series may include convertible ARM
Loans. Convertible ARM Loans may be subject to a greater rate of principal
prepayments (or purchases by the related servicer or the master servicer) due to
their conversion to fixed interest rate loans in a low interest rate
environment. The conversion feature may also be exercised in a rising interest
rate environment as mortgagors attempt to limit their risk of higher rates. A
rising interest rate environment may also result in an increase in the rate of
defaults on these mortgage loans. If the related servicer or the master servicer
purchases convertible ARM Loans, a mortgagor's exercise of the conversion option
will result in a distribution of the principal portion thereof to the
securityholders, as described in this prospectus. Alternatively, to the extent a
servicer or the master servicer fails to purchase converting ARM Loans, the
mortgage pool will include fixed-rate mortgage loans.
The rate of defaults on the mortgage loans will also affect the rate
and timing of principal payments on the mortgage loans and thus the yield on the
securities. In general, defaults on single family loans are expected to occur
with greater frequency in their early years. The rate of default on single
family loans which are refinanced or limited documentation mortgage loans, and
on mortgage loans, with high Loan-to-Value Ratios, may be higher than for other
types of mortgage loans. Furthermore, the rate and timing of prepayments,
defaults and liquidations on the mortgage loans will be affected by the general
economic condition of the region of the country in which the related mortgaged
properties are located. The risk of delinquencies and loss is greater and
prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by, among other factors, increasing unemployment or
falling property values.
With respect to some mortgage loans in a mortgage pool, the mortgage
rate at origination may be below the rate that would result if the index and
margin relating thereto were applied at origination. Under the applicable
underwriting standards, the mortgagor under each mortgage loan generally will be
qualified, or the mortgage loan otherwise approved, on the basis of the mortgage
rate in effect at origination. The repayment of the mortgage loan may thus be
dependent on the ability of the mortgagor to make larger level monthly payments
following the adjustment of the mortgage rate. In addition, the periodic
increase in the amount paid by the mortgagor of a buydown mortgage loan during
or at the end of the applicable Buydown Period may create a greater financial
burden for the mortgagor, who might not have otherwise qualified for a mortgage
under applicable underwriting guidelines, and may accordingly increase the risk
of default with respect to the related mortgage loan.
The mortgage rates on ARM Loans subject to negative amortization
generally adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial mortgage rates are generally lower than the sum of
the Indices applicable at origination and the related Note Margins), the amount
of interest accruing on the principal balance of the mortgage loans may exceed
the amount of their minimum scheduled monthly payment. As a result, a portion of
the accrued interest on negatively amortizing mortgage loans may become Deferred
Interest which will be added to the principal balance thereof and will bear
interest at the applicable mortgage rate. The addition of the Deferred Interest
to the principal balance of any related class or classes of securities will
lengthen the weighted average life thereof and may adversely affect yield to
holders thereof, depending upon the price at which the securities were
purchased. In addition, with respect to ARM Loans subject to negative
amortization, during a period of declining interest rates, it might be expected
that each minimum scheduled monthly payment on the mortgage loan would exceed
the amount of scheduled principal and accrued interest on the principal balance
thereof, and since the excess will be applied to reduce the principal balance of
the related class or classes of securities, the weighted average life of the
securities will be reduced and may adversely affect the yield to holders
thereof, depending upon the price at which the securities were purchased.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the mortgage loans in a given mortgage pool will vary depending upon
the type of mortgage loans included in the mortgage pool. The prospectus
supplement for a series of securities will contain information with respect to
the types and maturities of the mortgage loans in the related mortgage pool. The
prepayment experience with respect to the mortgage loans in a mortgage pool will
affect the life and yield of the related series of securities.
With respect to balloon loans, payment of the balloon payment (which,
based on the amortization schedule of the mortgage loans, is expected to be a
substantial amount) will generally depend on the mortgagor's ability to obtain
refinancing of the mortgage loans or to sell the mortgaged property prior to the
maturity of the balloon loan. The ability to obtain refinancing will depend on a
number of factors prevailing at the time refinancing or sale is required,
including 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. None of the
depositor, the master servicer, a servicer or any of their affiliates will be
obligated to refinance or repurchase any mortgage loan or to sell the mortgaged
property.
The extent of prepayments of principal of the mortgage loans may be
affected by a number of factors, including solicitations and the availability of
mortgage credit, the relative economic vitality of the area in which the
mortgaged properties are located and, in the case of multifamily, commercial and
mixed-use loans, the quality of management of the mortgage properties, the
servicing of the mortgage loans, possible changes in tax laws and other
opportunities for investment. In addition, the rate of principal payments on the
mortgage loans may be affected by the existence of lock-out periods and
requirements that principal prepayments be accompanied by prepayment premiums,
as well as due-on-sale and due-on-encumbrance provisions, and by the extent to
which the provisions may be practicably enforced. See "Servicing of Mortgage
Loans--Collection and Other Servicing Procedures" and "Legal Aspects of the
Mortgage Loans--Enforceability of Certain Provisions" for a description of
provisions of the pooling and servicing agreement and legal aspects of mortgage
loans that may affect the prepayment experience on the mortgage loans.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. In addition, as prevailing market interest rates decline, even borrowers
with ARM Loans that have experienced a corresponding interest rate decline may
have an increased incentive to refinance for purposes of either (1) converting
to a fixed rate loan and thereby "locking in" the rate or (2) taking advantage
of the initial "teaser rate" (a mortgage interest rate below what it would
otherwise be if the applicable index and gross margin were applied) on another
adjustable rate mortgage loan. Moreover, although the mortgage rates on ARM
Loans will be subject to periodic adjustments, the adjustments generally will
not increase or decrease the mortgage rates by more than a fixed percentage
amount on each adjustment date, will not increase the mortgage rates over a
fixed percentage amount during the life of any ARM Loan and will be based on an
index (which may not rise and fall consistently with mortgage interest rates)
plus the related Note Margin (which may be different from margins being used at
the time for newly originated adjustable rate mortgage loans). As a result, the
mortgage rates on the ARM Loans at any time may not equal the prevailing rates
for similar, newly originated adjustable rate mortgage loans. In high interest
rate environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently high in relation to the then-current mortgage rates on newly
originated ARM Loans that the rate of prepayment may increase as a result of
refinancings. There can be no assurance as to the rate of prepayments on the
mortgage loans during any period or over the life of any series of securities.
If the applicable pooling and servicing agreement for a series of
securities provides for a pre-funding account or other means of funding the
transfer of additional mortgage loans to the related trust fund, as described
under "Description of the Securities--Pre-Funding Account" in this prospectus,
and the trust fund is unable to acquire the additional mortgage loans within any
applicable time limit, the amounts set aside for the purpose may be applied as
principal payments on one or more classes of securities of the series. See
"Yield Considerations."
There can be no assurance as to the rate of prepayment of the mortgage
loans. The depositor is not aware of any publicly available statistics relating
to the principal prepayment experience of diverse portfolios of mortgage loans
such as the mortgage loans over an extended period of time. All statistics known
to the depositor that have been compiled with respect to prepayment experience
on mortgage loans indicate that while some mortgage loans may remain outstanding
until their stated maturities, a substantial number will be paid prior to their
respective stated maturities. No representation is made as to the particular
factors that will affect the prepayment of the mortgage loans or as to the
relative importance of these factors.
As described in this prospectus and in the prospectus supplement, the
master servicer, a servicer, the depositor or a person specified in the related
prospectus supplement (other than holder of any class of offered certificates,
other than the REMIC Residual Certificates, if offered) may have the option to
purchase the assets in a trust fund and effect early retirement of the related
series of securities. See "The Agreements--Termination; Retirement of
Securities."
LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion summarizes legal aspects of mortgage loans
that is general in nature. The summaries do not purport to be complete. They do
not reflect the laws of any particular state nor the laws of all states in which
the mortgaged properties may be situated. This is because these legal aspects
are governed in part by the law of the state that applies to a particular
mortgaged property and the laws of the states may vary substantially. You should
refer to the applicable federal and state laws governing the mortgage loans.
MORTGAGES
Each single family, multifamily, commercial and mixed-use loan and, if
applicable, the Contracts (in each case other than cooperative mortgage
loans),will be evidenced by a note or bond and secured by an instrument granting
a security interest in real property, which may be a mortgage, deed of trust or
a deed to secure debt, depending upon the prevailing practice and law in the
state in which the related mortgaged property is located, and may have first,
second or third priority. Mortgages and deeds to secure debt are referred to as
"mortgages." Contracts evidence both the obligation of the obligor to repay the
loan evidenced thereby and grant a security interest in the related Manufactured
Homes to secure repayment of the loan. However, as Manufactured Homes have
become larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held that
Manufactured Homes may become subject to real estate title and recording laws.
See "--Contracts" below. In some states, a mortgage or deed of trust creates a
lien upon the real property encumbered by the mortgage or deed of trust.
However, in other states, the mortgage or deed of trust conveys legal title to
the property respectively, to the mortgagee or to a trustee for the benefit of
the mortgagee subject to a condition subsequent (i.e., the payment of the
indebtedness secured thereby). The lien created by the mortgage or deed of trust
is not prior to the lien for real estate taxes and assessments and other charges
imposed under governmental police powers. Priority between mortgages depends on
their terms or on the terms of separate subordination or inter-creditor or
agreements, the knowledge of the parties in some cases 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. The trustee's authority under a
deed of trust, the grantee's authority under a deed to secure debt 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
trustor mortgage, and, in deed of trust transactions, the directions of the
beneficiary.
COOPERATIVE MORTGAGE LOANS
If specified in the prospectus supplement relating to a series of
certificates, the mortgage loans and Contracts may include cooperative mortgage
loans. Each mortgage note evidencing a cooperative mortgage loan will be secured
by a security interest in shares issued by the related Cooperative, 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 the shares of the Cooperative, the priority of
which will depend on, among other things, the terms of the particular security
agreement as well as the order of recordation and/or filing of the agreement (or
financing statements related thereto) in the appropriate recording office.
Cooperative buildings relating to the cooperative mortgage loans are
located primarily in the State of New York. Generally, each Cooperative owns in
fee or has a long-term 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 lessor, as the case may be, is also responsible for fulfilling
the 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 (1) 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 (2) 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 the
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
mortgagee 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 mortgage 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 payment to the Cooperative pursuant to the
proprietary lease, which payment represents the tenant-stockholder's
proportional 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 mortgage loan evidenced by a
mortgage 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 mortgagee 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 mortgagee'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 mortgage 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 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 taxable year to the corporation representing
his proportionate share of interest expenses and 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 the items are allowable as a
deduction to the corporation, that 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 mortgage loans will qualify under the section for
any particular year. In the event that the Cooperative fails to qualify for one
or more years, the value of the collateral securing any related cooperative
mortgage 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 a failure would be permitted to continue over a
period of years appears remote.
LEASES AND RENTS
Mortgages that encumber income-producing multifamily and commercial
properties often contain an assignment of rents and leases, pursuant to which
the borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived therefrom, while (unless rents
are to be paid directly to the lender) retaining a revocable license to collect
the rents for so long as there is no default. If the borrower defaults, the
license terminates and the lender is entitled to collect the rents. Local law
may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
CONTRACTS
Under the laws of most states, manufactured housing constitutes
personal property and is subject to the motor vehicle registration laws of the
state or other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for manufactured homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC which has been adopted by all states. Financing statements are
effective for five years and must be renewed prior to the end of each five year
period. The certificate of title laws adopted by the majority of states provide
that ownership of motor vehicles and manufactured housing shall be evidenced by
a certificate of title issued by the motor vehicles department (or a similar
entity) of the state. In the states that have enacted certificate of title laws,
a security interest in a unit of manufactured housing, so long as it is not
attached to land in so permanent a fashion as to become a fixture, is generally
perfected by the recording of the interest on the certificate of title to the
unit in the appropriate motor vehicle registration office or by delivery of the
required documents and payment of a fee to the appropriate motor vehicle
registration office, depending on state law.
The master servicer will be required under the related pooling and
servicing agreement or servicing agreement to, or to cause the servicer of the
Contract to, effect the notation or delivery of the required documents and fees,
and to obtain possession of the certificate of title, as appropriate under the
laws of the state in which any Manufactured Home is registered. In the event the
master servicer or servicer, as applicable, fails, due to clerical errors or
otherwise, to effect the notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the trustee may not have a first priority
security interest in the Manufactured Home securing a Contract. As Manufactured
Homes have become larger and often have been attached to their sites without any
apparent intention by the borrowers to move them, courts in many states have
held that Manufactured Homes may become subject to real estate title and
recording laws. As a result, a security interest in a Manufactured Home could be
rendered subordinate to the interests of other parties claiming an interest in
the home under applicable state real estate law. In order to perfect a security
interest in a Manufactured Home under real estate laws, the holder of the
security interest must file either a "fixture filing" under the provisions of
the UCC or a real estate mortgage under the real estate laws of the state where
the home is located. These filings must be made in the real estate records
office of the county where the home is located. Generally, Contracts will
contain provisions prohibiting the obligor from permanently attaching the
Manufactured Home to its site. So long as the obligor does not violate this
agreement, a security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the Manufactured Home that is prior to
the security interest originally retained by the Seller and transferred to the
depositor.
The depositor will assign or cause to be assigned a security interest
in the Manufactured Homes to the trustee, on behalf of the securityholders.
Neither the depositor, the master servicer, any servicer, nor the trustee will
amend the certificates of title to identify the trustee, on behalf of the
securityholders, as the new secured party and, accordingly, the depositor or the
Seller will continue to be named as the secured party on the certificates of
title relating to the Manufactured Homes. In most states, the assignment is an
effective conveyance of the security interest without amendment of any lien
noted on the related certificate of title and the new secured party succeeds to
the depositor's rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the certificate of title,
the assignment of the security interest might not be held effective against
creditors of the depositor or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the trustee against the rights of subsequent purchasers of
a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the depositor
has failed to perfect or cause to be perfected the security interest assigned to
the trust fund, the security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the trustee, on
behalf of the securityholders, as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the trustee
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which the Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after the relocation and
thereafter until the owner re-registers the Manufactured Home in the state of
relocation. If the owner were to relocate a Manufactured Home to another state
and re-register the Manufactured Home in that state, and if the depositor did
not take steps to re-perfect its security interest in that state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the depositor must surrender possession if it
holds the certificate of title to the Manufactured Home or, in the case of
Manufactured Homes registered in states that provide for notation of lien, the
depositor would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
depositor would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states that do not require a
certificate of title for registration of a Manufactured Home, re-registration
could defeat perfection. Similarly, when an obligor under a manufactured housing
conditional sales contract sells a Manufactured Home, the obligee must surrender
possession of the certificate of title or it will receive notice as a result of
its lien noted thereon and accordingly will have an opportunity to require
satisfaction of the related manufactured housing conditional sales contract
before release of the lien. Under each related pooling and servicing agreement
or servicing agreement, the master servicer will be obligated to, or to cause
each of the servicers to, take these steps, at the master servicer's or
servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
depositor will obtain the representation of the related Seller that it has no
knowledge of any of these liens with respect to any Manufactured Home securing a
Contract. However, these liens could arise at any time during the term of a
Contract. No notice will be given to the trustee or securityholders in the event
this type of lien arises.
FORECLOSURE ON MORTGAGES AND SOME CONTRACTS
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, in some states, the trustee must
record a notice of default and send a copy to the borrower-trustor and to any
person who has recorded a request for a copy of notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within a specified
period, a notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers in a specified
manner prior to the date of trustee's sale. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property.
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 these 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.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for a credit bid less than or equal to the unpaid
principal amount of the note plus the accrued and unpaid interest and the
expense of foreclosure, in which case the mortgagor's debt will be extinguished
unless the lender purchases the property for a lesser amount in order to
preserve its right against a borrower to seek a deficiency judgment and the
remedy is available under state law and the related loan documents. In the same
states, there is a statutory minimum purchase price which the lender may offer
for the property and 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, paying taxes and
making the 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. 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".
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages. The junior
mortgagee must either pay the entire amount due on the senior mortgages prior to
or at the time of the foreclosure sale or undertake to pay on any senior
mortgages on which the mortgagor is currently in default. Under either course of
action, the junior mortgagee may add the amounts paid to the balance due on the
junior loan, and may be subrogated to the rights of the senior mortgagees. In
addition, in the event that the foreclosure of a junior mortgage triggers the
enforcement of a "due-on-sale" clause, the junior mortgagee may be required to
pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, with respect to those single family loans which are junior mortgage
loans, if the lender purchases the property, the lender's title will be subject
to all senior liens and claims and governmental liens. The proceeds received by
the referee or trustee from the sale are applied first to the costs, fees and
expenses of sale and then in satisfaction of the indebtedness secured by the
mortgage or deed of trust under which the sale was conducted. Any remaining
proceeds are generally payable to the holders of junior mortgages or deeds of
trust and other liens and claims in order of their priority, whether or not the
borrower is in default. Any additional proceeds are generally payable to the
mortgagor or trustor. The payment of the proceeds to the holders of junior
mortgages may occur in the foreclosure action of the senior mortgagee or may
require the institution of separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property or
the borrower's execution of a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimums. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protection to the borrower.
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 Cooperative may cancel the proprietary lease or occupancy
agreement, even while pledged, for failure by the tenant-stockholder to pay the
obligations or charges owed by the tenant-stockholder, including mechanics'
liens against the Cooperative's building incurred by the tenant-stockholder.
Generally, 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 Cooperative may generally terminate a proprietary lease or
occupancy agreement in the event the borrower breaches its covenants in the
proprietary lease or occupancy agreement. 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 the 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 the 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
mortgage loan and accrued and unpaid interest on the loan.
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 mortgage 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 or assigning the proprietary lease.
The 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 mortgage 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.
In New York, foreclosure on the Cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the New York UCC
and the security agreement relating to those shares. Article 9 of the New York
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 banks 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.
REPOSSESSION WITH RESPECT TO CONTRACTS
GENERAL. Repossession of manufactured housing is governed by state law.
A few states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of the home in the
event of a default by the obligor generally will be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in small particulars, the general repossession procedure
established by the UCC is as follows:
o Except in those states where the debtor must receive notice of
the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession
may be effected either through self-help (peaceable retaking
without court order), voluntary repossession or through
judicial process (repossession pursuant to court-issued writ
of replevin). The self-help and/or voluntary repossession
methods are more commonly employed, and are accomplished
simply by retaking possession of the manufactured home. In
cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the
appropriate state court, and the manufactured home must then
be repossessed in accordance with that order. Whether the
method employed is self-help, voluntary repossession or
judicial repossession, the repossession can be accomplished
either by an actual physical removal of the manufactured home
to a secure location for refurbishment and resale or by
removing the occupants and their belongings from the
manufactured home and maintaining possession of the
manufactured home on the location where the occupants were
residing. Various factors may affect whether the manufactured
home is physically removed or left on location, such as the
nature and term of the lease of the site on which it is
located and the condition of the unit. In many cases, leaving
the manufactured home on location is preferable, in the event
that the home is already set up, because the expenses of
retaking and redelivery will be saved. However, in those cases
where the home is left on location, expenses for site rentals
will usually be incurred.
o Once repossession has been achieved, preparation for the
subsequent disposition of the manufactured home can commence.
The disposition may be by public or private sale provided the
method, manner, time, place and terms of the sale are
commercially reasonable.
o Sale proceeds are to be applied first to repossession expenses
(expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to
satisfaction of the indebtedness. While some states impose
prohibitions or limitations on deficiency judgments if the net
proceeds from resale do not cover the full amount of the
indebtedness, the remainder may be sought from the debtor in
the form of a deficiency judgement in those states that do not
prohibit or limit deficiency judgments. The deficiency
judgment is a personal judgment against the debtor for the
shortfall. Occasionally, after resale of a manufactured home
and payment of all expenses and indebtedness, there is a
surplus of funds. In that case, the UCC requires the party
suing for the deficiency judgment to remit the surplus to the
debtor. Because the defaulting owner of a manufactured home
generally has very little capital or income available
following repossession, a deficiency judgment may not be
sought in many cases or, if obtained, will be settled at a
significant discount in light of the defaulting owner's
strained financial condition.
LOUISIANA LAW. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION
SINGLE FAMILY, MULTIFAMILY AND COMMERCIAL PROPERTIES. The purposes of a
foreclosure action in respect of a mortgaged property is to enable the lender to
realize upon its security and to bar the borrower, and all persons who have
interests in the property that are subordinate to that of the foreclosing
lender, from exercise of their "equity of redemption". The doctrine of equity of
redemption provides that, until the property encumbered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having interests that are subordinate to that of the foreclosing lender
have an equity of redemption and may redeem the property by paying the entire
debt with interest. Those having an equity of redemption must generally be made
parties and joined in the foreclosure proceeding in order for their equity of
redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchase through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
MANUFACTURED HOMES. While state laws do not usually require notice to
be given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of the
UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
SINGLE FAMILY, MULTIFAMILY AND COMMERCIAL LOANS. Some states have
imposed statutory prohibitions which limit the remedies of a beneficiary under a
deed of trust or a mortgagee under a mortgage. In some states (including
California), statutes limit the right of the beneficiary or mortgagee to obtain
a deficiency judgment against the borrower following non-judicial foreclosure by
power of sale. 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 the deficiency judgment
may be executed. Some state statutes require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the borrower. In other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security;
however in some of these states, the lender, following judgment on the 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 the election, is
that lenders will usually proceed against the security first rather than
bringing a personal action against the borrower. Finally, in some states,
statutory provisions limit any deficiency judgment against the former borrower
following a foreclosure to the excess of the outstanding debt over the fair
value of the property at the time of the public sale. The purpose of these
statutes is generally to prevent a beneficiary or mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low or no
bids at the judicial sale.
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 some
circumstances, including circumstances where the disposition of the collateral
(which, in the case of a cooperative mortgage 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 collateral
or enforce a deficiency judgment. For example, under the federal Bankruptcy
Code, virtually all actions (including foreclosure actions and deficiency
judgment proceedings) to collect a debt are automatically stayed upon the filing
of the bankruptcy petition and, often, no interest or principal payments are
made during the course of the bankruptcy case. The delay and the consequences
thereof caused by the automatic stay can be significant. Also, under the
Bankruptcy Code, the filing of a petition in a bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out the
junior lien. Moreover, with respect to federal bankruptcy law, a court with
federal bankruptcy jurisdiction may permit a debtor through his or her Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearage within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the residence
had yet occurred) prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearage over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
13 except with respect to mortgage payment arrearages, which may be cured within
a reasonable time period.
In the case of income-producing multifamily properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents and
leases related to the mortgaged property. Under Section 362 of the Bankruptcy
Code, the lender will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents.
Tax liens arising under the Code may have priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
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.
CONTRACTS. In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including federal bankruptcy
laws and related state laws, may interfere with or affect the ability of a
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the home at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
ENVIRONMENTAL LEGISLATION
Under CERCLA, and under state law in some states, a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property may become liable for the
costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict, as well as joint and several,
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA. This
exemption exempts from the definition of owners and operators those who, without
participating in the management of a facility, hold indicia of ownership
primarily to protect a security interest in the facility.
The Conservation Act amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other federal and state laws may impose liability on a secured party
which takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property on which contaminants other
than CERCLA hazardous substances are present, including petroleum, agricultural
chemicals, hazardous wastes, asbestos, radon, and lead-based paint. The cleanup
costs may be substantial. It is possible that the cleanup costs could become a
liability of a trust fund and reduce the amounts otherwise distributable to the
holders of the related series of certificates. Moreover, federal statutes and
states by statute may impose a lien for any cleanup costs incurred by the state
on the property that is the subject of the cleanup costs. All subsequent liens
on the property generally are subordinated to the lien and, in some states, even
prior recorded liens are subordinated to such lien. In the latter states, the
security interest of the trustee in a related parcel of real property that is
subject to the lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps
to evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, the depositor has not
made and will not make the evaluations prior to the origination of the secured
contracts. Neither the depositor, the master servicer, nor any servicer will be
required by any Agreement to undertake these evaluations prior to foreclosure or
accepting a deed-in-lieu of foreclosure. The depositor does not make any
representations or warranties or assume any liability with respect to the
absence or effect of contaminants on any related real property or any casualty
resulting from the presence or effect of contaminants. However, neither the
master servicer nor any servicer will be obligated to foreclose on related real
property or accept a deed-in-lieu of foreclosure if it knows or reasonably
believes that there are material contaminated conditions on the property. A
failure so to foreclose may reduce the amounts otherwise available to
certificateholders of the related series.
CONSUMER PROTECTION LAWS
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
TILA, as implemented by Regulation Z, Real Estate Settlement Procedures Act, as
implemented by Regulation X, Equal Credit Opportunity Act, as implemented by
Regulation B, 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.
In particular, an originator's failure to comply with certain requirements of
the federal TILA, as implemented by Regulation Z, could subject both originators
and assignees of such obligations to monetary penalties and could result in
obligors' rescinding the mortgage loans either against the originators or
assignees. Further, the failure of the borrower to use the correct form of
notice of right to cancel in connection with non purchase money transactions
could subject the originator and assignees to extended borrower rescission
rights.
HOMEOWNERSHIP ACT AND SIMILAR STATE LAWS
Some of the mortgage loans, known as High Cost Loans, may be subject to
special rules, disclosure requirements and other provisions that were added to
the federal TILA by the Homeownership Act, if such trust assets were originated
after October 1, 1995, are not loans made to finance the purchase of the
mortgaged property and have interest rates or origination costs in excess of
certain prescribed levels. The Homeownership Act requires certain additional
disclosures, specifies the timing of those disclosures and limits or prohibits
the inclusion of certain provisions in mortgages subject to the Homeownership
Act. Purchasers or assignees of any High Cost Loan, including any trust, could
be liable under federal law for all claims and subject to all defenses that the
borrower could assert against the originator of the High Cost Loan under the
federal TILA or any other law, unless the purchaser or assignee did not know and
could not with reasonable diligence have determined that the mortgage loan was
subject to the provisions of the Homeownership Act. Remedies available to the
borrower include monetary penalties, as well as rescission rights if the
appropriate disclosures were not given as required or if the particular mortgage
includes provisions prohibited by law. The maximum damages that may be recovered
under these provisions from an assignee, including the trust, is the remaining
amount of indebtedness plus the total amount paid by the borrower in connection
with the mortgage loan.
In addition to the Homeownership Act, a number of legislative proposals
have been introduced at the federal, state and local level that are designed to
discourage predatory lending practices. Some states have enacted, or may enact,
laws or regulations that prohibit inclusion of some provisions in mortgage loans
that have interest rates or origination costs in excess of prescribed levels,
and require that borrowers be given certain disclosures prior to the
consummation of the mortgage loans. In some cases, state or local law may impose
requirements and restrictions greater than those in the Homeownership Act. An
originators' failure to comply with these laws could subject the trust (and
other assignees of the mortgage loans) to monetary penalties and could result in
the borrowers rescinding the mortgage loans against either the trust or
subsequent holders of the mortgage loans.
Lawsuits have been brought in various states making claims against
assignees of High Cost Loans for violations of state law allegedly committed by
the originator. Named defendants in these cases include numerous participants
within the secondary mortgage market, including some securitization trusts.
Under the anti predatory lending laws of some states, the borrower is
required to meet a net tangible benefits test in connection with the origination
of the related mortgage loan. This test may be highly subjective and open to
interpretation. As a result, a court may determine that a mortgage loan does not
meet the test even if the originator reasonably believed that the test was
satisfied. Any determination by a court that the mortgage loan does not meet the
test will result in a violation of the state anti predatory lending law, in
which case the related seller will be required to purchase that mortgage loan
from the trust.
ADDITIONAL CONSUMER PROTECTIONS LAWS WITH RESPECT TO CONTRACTS
Contracts often contain provisions obligating the obligor to pay late
charges if payments are not timely made. Federal and state law may specifically
limit the amount of late charges that may be collected. Under the related
pooling and servicing agreement or servicing agreement, late charges will be
retained by the master servicer or servicer as additional servicing
compensation, and any inability to collect these amounts will not affect
payments to Securityholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The FTC Rule has the effect of subjecting a seller (and some related
creditors and their assignees) in a consumer credit transaction and any assignee
of the creditor to all claims and defenses which the debtor in the transaction
could assert against the seller of the goods. Liability under the FTC Rule is
limited to the amounts paid by a debtor on the Contract, and the holder of the
Contract may also be unable to collect amounts still due under the Contract.
Most of the Contracts in a trust fund will be subject to the requirements of the
FTC Rule. Accordingly, the trust fund, as holder of the Contracts, will be
subject to any claims or defenses that the purchaser of the related Manufactured
Home may assert against the seller of the Manufactured Home, subject to a
maximum liability equal to the amounts paid by the obligor on the Contract. If
an obligor is successful in asserting the claim or defense, and if the Seller
had or should have had knowledge of the claim or defense, the master servicer
will have the right to require the Seller to repurchase the Contract because of
breach of its Seller's representation and warranty that no claims or defenses
exist that would affect the obligor's obligation to make the required payments
under the Contract. The Seller would then have the right to require the
originating dealer to repurchase the Contract from it and might also have the
right to recover from the dealer any losses suffered by the Seller with respect
to which the dealer would have been primarily liable to the obligor.
ENFORCEABILITY OF CERTAIN PROVISIONS
TRANSFER OF MORTGAGED PROPERTIES. Unless the related 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 without the prior
consent of the lender. The enforceability of these clauses has been the subject
of legislation or litigation in many states, and in some cases the
enforceability of these clauses was limited or denied. However, Garn-St Germain
Act preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to 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, amongst others, intra-family transfers, some
transfers by operation of law, leases of fewer than three years and the creation
of a junior encumbrance. Regulations promulgated under the Garn-St Germain Act
also prohibit the imposition of a prepayment penalty upon the acceleration of a
loan pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average life
of the mortgage loans and the number of mortgage loans which may be outstanding
until maturity.
TRANSFER OF MANUFACTURED HOMES. Generally, Contracts contain provisions
prohibiting the sale or transfer of the related Manufactured Home without the
consent of the obligee on the Contract and permitting the acceleration of the
maturity of the Contracts by the obligee on the Contract upon a sale or transfer
that is not consented to. The master servicer will, or will cause the servicer
of the Contract, to the extent it has knowledge of the conveyance or proposed
conveyance, to exercise or cause to be exercised its rights to accelerate the
maturity of the related Contracts through enforcement of due-on-sale clauses,
subject to applicable state law. In some cases, the transfer may be made by a
delinquent obligor in order to avoid a repossession proceeding with respect to a
Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the master
servicer or the servicer of the Contract desires to accelerate the maturity of
the related Contract, the master servicer's or servicer's ability to do so will
depend on the enforceability under state law of the due-on-sale clause. The
Garn-St Germain Act preempts, subject to certain exceptions and conditions,
state laws prohibiting enforcement of due-on-sale clauses applicable to the
Manufactured Homes. Consequently, in some cases the master servicer or servicer
may be prohibited from enforcing a due-on-sale clause in respect of a
Manufactured Home.
LATE PAYMENT CHARGES AND PREPAYMENT RESTRICTIONS. Notes and mortgages,
as well as manufactured housing conditional sales contracts and installment loan
agreements, may contain provisions that obligate the borrower to pay a late
charge or additional interest if payments are not timely made, and in some
circumstances, may prohibit prepayments for a specified period and/or condition
prepayments upon the borrower's payment of prepayment fees or yield maintenance
penalties. In some states, there are or may be specific limitations upon the
late charges which a lender may collect from a borrower for delinquent payments
or the amounts that a lender may collect from a borrower as an additional charge
if the loan is prepaid even when the loans expressly provide for the collection
of those charges. Although the Parity Act permits the collection of prepayment
charges and late fees in connection with some types of eligible loans preempting
any contrary state law prohibitions, some states may not recognize the
preemptive authority of the Parity Act or have formally opted out of the Parity
Act. As a result, it is possible that prepayment charges and late fees may not
be collected even on loans that provide for the payment of those charges unless
otherwise specified in the accompanying prospectus supplement. The master
servicer or another entity identified in the accompanying prospectus supplement
will be entitled to all prepayment charges and late payment charges received on
the loans and those amounts will not be available for payment on the bonds. The
Office of Thrift Supervision (OTS), the agency that administers the Parity Act
for unregulated housing creditors, withdrew its favorable Parity Act regulations
and Chief Counsel Opinions that previously authorized lenders to charge
prepayment charges and late fees in certain circumstances notwithstanding
contrary state law, effective with respect to loans originated on or after July
1, 2003. However, the OTS's ruling does not retroactively affect loans
originated before July 1, 2003.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
INSTALLMENT CONTRACTS
The trust fund assets may also consist of installment sales contracts.
Under an installment contract the seller (referred to in this section as the
"lender") retains legal title to the property and enters into an agreement with
the purchaser (referred to in this section as the "borrower") for the payment of
the purchase price, plus interest, over the term of the contract. Only after
full performance by the borrower of the installment contract is the lender
obligated to convey title to the property to the purchaser. As with mortgage or
deed of trust financing, during the effective period of the installment
contract, the borrower is generally responsible for the maintaining the property
in good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by- state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated and the
buyer's equitable interest in the property is forfeited. The lender in this
situation is not required to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the installment contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under these statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the defaulted
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, the lender's procedures for obtaining possession and clear title
under an installment contract in a given state are simpler and less time
consuming and costly than are the procedures for foreclosing and obtaining clear
title to a property subject to one or more liens.
APPLICABILITY OF USURY LAWS
Title V provides that state usury limitations shall not apply to some
types of residential first mortgage loans originated by some lenders after March
31, 1980. A similar federal statute was in effect with respect to mortgage loans
made during the first three months of 1980. The Office of Thrift Supervision is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Some states have taken action to reimpose
interest rate limits or to limit discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien on
some kinds of Manufactured Housing. Contracts would be covered if they satisfy
conditions including, among other things, terms governing any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of or foreclosure with respect to
the related unit. Title V authorized any state to reimpose limitations on
interest rates and finance charges by adopting before April 1,1983 a law or
constitutional provision which expressly rejects application of the federal law.
Fifteen states adopted this type of law prior to the April 1,1983 deadline. In
addition, even where Title V was not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on loans
covered by Title V. In any state in which application of Title V was expressly
rejected or a provision limiting discount points or other charges has been
adopted, no Contract which imposes finance charges or provides for discount
points or charges in excess of permitted levels has been included in the trust
fund.
Usury limits apply to junior mortgage loans in many states. Any
applicable usury limits in effect at origination will be reflected in the
maximum mortgage rates for ARM Loans, as set forth in the related prospectus
supplement.
As indicated above under "The Mortgage Pools--Representations by
Sellers," each Seller of a mortgage loan will have represented that the 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 historically have been subjected to a variety of restrictions. The
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. Title
VIII provides that, notwithstanding any state law to the contrary, (1)
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency with
respect to origination of alternative mortgage instruments by national banks,(2)
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 (3) all other non-federally chartered housing
creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, with respect to origination of alternative
mortgage instruments by federal savings and loan associations. Title VIII
provides that any state may reject applicability of the provisions of Title VIII
by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of the provisions. Some states have taken
this action.
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including components of manufactured housing such as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The depositor is aware of a limited number
of cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. In the event an obligor
is successful in asserting this claim, the related securityholders could suffer
a loss if (1) the related Seller fails or cannot be required to repurchase the
affected Contract for a breach of representation and warranty and (2) the master
servicer, the servicer of the Contract or the trustee were unsuccessful in
asserting any claim of contribution or subornation on behalf of the
securityholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde in manufactured housing, with
the result that recoveries from these manufacturers, suppliers or other persons
may be limited to their corporate assets without the benefit of insurance.
SERVICEMEMBERS RELIEF ACT
Under the terms of the Relief Act, a mortgagor who enters military
service after the origination of the mortgagor's mortgage loan (including a
mortgagor who was in reserve status and is called to active duty after
origination of the mortgage loan), may not be charged interest (including fees
and charges) above an annual rate of 6% during the period of the mortgagor's
active duty status, unless a court orders otherwise upon application of the
lender. The Relief Act applies to mortgagors who are members of the Army, Navy,
Air Force, Marines, National Guard, Reserves, Coast Guard, and officers of the
U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to mortgagors who enter military service, including
reservists who are called to active duty, after origination of the related
mortgage loan, no information can be provided as to the number of loans that may
be affected by the Relief Act. With respect to any mortgage loan subject to the
Relief Act with an interest rate in excess of 6% per annum, application of the
Relief Act would adversely affect, for an indeterminate period of time, the
ability of the master servicer or servicer to collect full amounts of interest
on that mortgage loan. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related mortgage loans, would result in a reduction
of the amounts distributable to the holders of the related securities, and would
not be covered by advances by the master servicer, any servicer or other entity
or by any form of credit enhancement provided in connection with the related
series of securities, unless described in the prospectus supplement. In
addition, the Relief Act imposes limitations that would impair the ability of
the master servicer or servicer to foreclose on an affected single family loan
or enforce rights under a Contract during the mortgagor's period of active duty
status, and, under some circumstances, during an additional three month period
thereafter. Thus, in the event that the Relief Act or similar legislation or
regulations applies to any mortgage loan which goes into default, there may be
delays in payment and losses on the related securities in connection therewith.
Any other interest shortfalls, deferrals or forgiveness of payments on the
mortgage loans resulting from similar legislation or regulations may result in
delays in payments or losses to securityholders of the related series.
Certain states have enacted or may enact their own versions of the
Relief Act which may provide for more enhanced consumer protection provisions
than those set forth in the Relief Act. The Relief Act may not preempt those
state laws.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of RICO can be seized by the
government if the property was used in, or purchased with the proceeds of, these
crimes. Under procedures contained in 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: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) 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.
JUNIOR MORTGAGES
Some of the mortgage loans may be secured by mortgages or deeds of
trust which are junior to senior mortgages or deeds of trust which are not part
of the trust fund. The rights of the securityholders, as mortgagee under a
junior mortgage, are subordinate to those of the mortgagee under the senior
mortgage, including the prior rights of the senior mortgagee to receive hazard
insurance and condemnation proceeds and to cause the property securing the
mortgage loan to be sold upon default of the mortgagor, which may extinguish the
junior mortgagee's lien unless the junior mortgagee asserts its subordinate
interest in the property in foreclosure litigation and, in some cases, either
reinitiates or satisfies the defaulted senior loan or loans. A junior mortgagee
may satisfy a defaulted senior loan in full or, in some states, may cure the
default and bring the senior loan current thereby reinstating the senior loan,
in either event usually adding the amounts expended to the balance due on the
junior loan. In most states, absent a provision in the mortgage or deed of
trust, no notice of default is required to be given to a junior mortgagee. Where
applicable law or the terms of the senior mortgage or deed of trust do not
require notice of default to the junior mortgagee, the lack of this notice may
prevent the junior mortgagee from exercising any right to reinstate the loan
which applicable law may provide.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with condemnation proceedings, and to apply the proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in the order the
mortgagee may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property is
taken by condemnation, the mortgagee or beneficiary under underlying senior
mortgages will have the prior right to collect any insurance proceeds payable
under a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, may be applied to the indebtedness of junior mortgages in the order
of their priority.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which are prior to the mortgage
or deed of trust, to provide and maintain fire insurance on the property, to
maintain and repair the property and not to commit or permit any waste thereof,
and to appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee under the mortgage. Upon a failure of
the mortgagor to perform any of these obligations, the mortgagee or beneficiary
is given the right under some mortgages or deeds of trust to perform the
obligation itself, at its election, with the mortgagor agreeing to reimburse the
mortgagee for any sums expended by the mortgagee on behalf of the mortgagor. All
sums so expended by a senior mortgagee become part of the indebtedness secured
by the senior mortgage.
NEGATIVE AMORTIZATION LOANS
A notable case decided by the United States Court of Appeals, First
Circuit, held that state restrictions on the compounding of interest are not
preempted by the provisions of the DIDMC and as a result, a mortgage loan that
provided for negative amortization violated New Hampshire's requirement that
first mortgage loans provide for computation of interest on a simple interest
basis. The holding was limited to the effect of DIDMC on state laws regarding
the compounding of interest and the court did not address the applicability of
the Alternative Mortgage Transaction Parity Act of 1982, which authorizes lender
to make residential mortgage loans that provide for negative amortization. The
First Circuit's decision is binding authority only on Federal District Courts in
Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is the opinion of Thacher Proffitt & Wood LLP,
counsel to the depositor, with respect to the anticipated material federal
income tax consequences of the purchase, ownership and disposition of offered
securities offered under this prospectus and the prospectus supplement insofar
as it relates to matters of law or legal conclusions with respect thereto. This
discussion is directed solely to securityholders that hold the securities 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
the individual circumstances of particular categories of investors, some of
which (such as banks, insurance companies and foreign investors) may be subject
special treatment under the Code. Further, the authorities on which this
discussion, and the opinion referred to below, are based are subject to change
or differing interpretations, which could apply retroactively. Prospective
investors should note that no rulings have been or will be sought from the IRS
with respect to any of the federal income tax consequences discussed below, and
no assurance can be given that the IRS will not take contrary positions.
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 (1) 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 (2) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers are encouraged
to consult their own tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed in this prospectus. In addition to the federal
income tax consequences described in this prospectus, potential investors should
consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of the securities. See "State and Other Tax
Consequences."
The following discussion addresses securities of three general types:
o REMIC Certificates representing interests in a trust fund, or
a portion thereof, that the REMIC Administrator will elect to
have treated as a REMIC under the REMIC Provisions of the
Code,
o notes representing indebtedness of a trust fund as to which no
REMIC election will be made, and
o Grantor Trust Certificates representing interests in a Grantor
Trust Fund as to which no REMIC election will be made.
The prospectus supplement for each series of certificates will indicate whether
a REMIC election (or elections) will be made for the related trust fund and, if
this election is to be made, will identify all "regular interests" and "residual
interests" in the REMIC. For purposes of this tax discussion, references to a
"securityholder," "certificateholder" or a "holder" are to the beneficial owner
of a security or certificate, as the case may be.
The following discussion is based in part upon the OID Regulations and
in part upon REMIC Regulations. The OID Regulations do not adequately address
issues relevant to securities such as the offered securities. In some instances,
the OID Regulations provide that they are not applicable to securities such as
the offered securities.
REMICS
CLASSIFICATION OF REMICS. On or prior to the date of the related
prospectus supplement with respect to the proposed issuance of each series of
REMIC Certificates, Thacher Proffitt & Wood LLP, counsel to the depositor, will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related pooling and servicing agreement, for federal income
tax purposes, 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 REMIC Regular Certificates or 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 status as a REMIC during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for that year and thereafter. In that event, the entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
REMIC's income for the period in which the requirements for status as a REMIC
are not satisfied. The pooling and servicing agreement with respect to each
REMIC will include provisions designed to maintain the related 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 inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general, the
REMIC Certificates will be "real estate assets" within the meaning of Section
856(c)(4)(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 the
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 the certificates are treated as "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code. In addition, the REMIC
Regular Certificates will be "qualified mortgages" within the meaning of
Section860G(a)(3) of the Code if transferred to another REMIC on its startup day
in exchange for regular or residual interests therein. The determination as to
the percentage of the REMIC's assets that constitute assets described in the
foregoing sections of the Code will be made with respect to each calendar
quarter based on the average adjusted basis of each category of the assets held
by the REMIC during the calendar quarter. The REMIC Administrator will report
those determinations to certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to mortgage loans,
payments on mortgage loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the mortgage loans, or whether the assets (to the
extent not invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the mortgage loans for purposes of all of
the Code sections mentioned in the immediately preceding paragraph. In addition,
in some instances mortgage loans may not be treated entirely as assets described
in the foregoing sections of the Code. If so, the related prospectus supplement
will describe the mortgage loans that may not be so treated. The REMIC
Regulations do provide, however, that cash received from payments on mortgage
loans held pending distribution is considered part of the mortgage loans for
purposes of Section 856(c)(4)(A) of the Code. Furthermore, foreclosure property
will qualify as "real estate assets" under Section 856(c)(4)(A) of the Code.
TIERED REMIC STRUCTURES. For some series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
trust fund as REMICs for federal income tax purposes. As to each such series of
REMIC Certificates, in the opinion of counsel to the depositor, assuming
compliance with all provisions of the related pooling and servicing agreement,
each of the REMICs in that trust fund will qualify as a REMIC and the REMIC
Certificates issued by these REMICs will be considered to evidence ownership of
REMIC Regular Certificates or REMIC Residual Certificates in the related REMIC
within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code,
and "loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code, and whether the income on the certificates is interest described in
Section 856(c)(3)(B) of the Code, all of the REMICs in that trust fund 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. A REMIC Regular Certificate may be issued with
"original issue discount" within the meaning of Section 1273(a) of the Code. Any
holder of a REMIC Regular Certificate issued with original issue discount
generally will be required to include original issue discount in income as it
accrues, in accordance with the "constant yield" method described below, in
advance of the receipt of the cash attributable to that income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and some other debt instruments issued with original issue
discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to mortgage loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of that 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 Committee Report indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of the REMIC Regular
Certificate. The Prepayment Assumption used in reporting original issue discount
for each series of REMIC Regular Certificates will be consistent with this
standard and will be disclosed in the related prospectus supplement. However,
none of the depositor, the master servicer or the trustee will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates will
be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the Closing Date, the issue
price for that class will be the fair market value of that 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 the certificate
other than "qualified stated interest." "Qualified stated interest" is interest
that is unconditionally payable at least annually (during the entire term of the
instrument) at a single fixed rate, or at a "qualified floating rate," an
"objective rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on the 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
the REMIC Regular Certificates. If the original issue discount rules apply to
the certificates in a particular series, the related prospectus supplement will
describe the manner in which these rules will be applied with respect to the
certificates in that series that bear an adjustable interest rate in preparing
information returns to the certificateholders and the IRS.
The first interest payment on a REMIC Regular Certificate may be made
more than one month after the date of issuance, which is a period longer than
the subsequent monthly intervals between interest payments. Assuming the
"accrual period" (as defined below) for original issue discount is each monthly
period that ends on the day prior to each 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 the 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 the
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 the REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of the accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first distribution date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of a REMIC Regular Certificate is computed as the sum
of the amounts determined, as to each payment included in the stated redemption
price of the REMIC Regular Certificate, by multiplying (1) the number of
complete years (rounding down for partial years) from the issue date until that
payment is expected to be made (presumably taking into account the Prepayment
Assumption) by (2) 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 the 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 de minimis original issue
discount attributable to that certificate and a fraction, the numerator of which
is the amount of the principal payment and the denominator of which is the
outstanding stated principal amount of the REMIC Regular Certificate. The OID
Regulations also would permit a certificateholder to elect to accrue de minimis
original issue discount into income currently based on a constant yield method.
See "Taxation of Owners of REMIC Regular Certificates--Market Discount" for a
description of this 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 the 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 the 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, each period that ends on a date
that corresponds to the day prior to each 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 the accrual
period. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (1) 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 the REMIC Regular Certificate during the accrual period of
amounts included in the stated redemption price, over (2) the adjusted issue
price of the 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 loans being
prepaid at a rate equal to the Prepayment Assumption, (2) using a discount rate
equal to the original yield to maturity of the certificate and (3) taking into
account events (including actual prepayments) that have occurred before the
close of the accrual period. For these purposes, the original yield to maturity
of the certificate will be calculated based on its issue price and assuming that
distributions on the certificate will be made in all accrual periods based on
the mortgage loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of the certificate, increased by the
aggregate amount of original issue discount that accrued with respect to the
certificate in prior accrual periods, and reduced by the amount of any
distributions made on the certificate in prior accrual periods of amounts
included in the stated redemption price. The original issue discount accruing
during any accrual period, computed as described above, will be allocated
ratably to each day during the accrual period to determine the daily portion of
original issue discount for that day.
A subsequent purchaser of a REMIC Regular Certificate that purchases a
certificate that is treated as having been issued with original issue discount
at a cost (excluding any portion of the 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 the certificate. However, each such daily portion will
be reduced, if the cost of the certificate is in excess of its "adjusted issue
price," in proportion to the ratio the excess bears to the aggregate original
issue discount remaining to be accrued on the REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of the certificate at the beginning of the accrual
period which includes that day and (2) the daily portions of original issue
discount for all days during the accrual period prior to that day.
Market Discount. A certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a certificateholder generally will be required to allocate the portion
of each 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, the election will apply to all market
discount bonds acquired by the certificateholder on or after the first day of
the first taxable year to which the 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) in income as interest,
and to amortize premium, 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 the 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 the certificateholder owns or acquires. See "Taxation of Owners of REMIC
Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a certificate on a constant yield
method or as interest would be irrevocable, except with the approval of the IRS.
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
the market discount is less than 0.25% of the remaining stated redemption price
of the REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. This 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, the 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: (1) on the basis of a constant yield method,
(2) 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 (3) in the case of a REMIC Regular
Certificate issued with original issue discount, in an amount that bears the
same ratio to the total remaining market discount as the original issue discount
accrued in the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of the accrual
period. Moreover, the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual of market
discount. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect these 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 the 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 the certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during the taxable year and is, in general, allowed as a deduction not later
than the year in which the market discount is includible in income. If a holder
elects to include market discount in income currently as it accrues on all
market discount instruments acquired by the 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 the 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 a REMIC Regular Certificate may elect under Section
171of the Code to amortize the premium under the constant yield method over the
life of the certificate. If made, the election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, rather than as a separate interest deduction. The
OID Regulations also permit certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating the certificateholder as having made the election to amortize premium
generally. See "Taxation of Owners of REMIC Regular Certificates--Market
Discount" above. The Committee Report states that the same rules that apply to
accrual of market discount (which rules will require use of a Prepayment
Assumption in accruing market discount with respect to REMIC Regular
Certificates without regard to whether the certificates have original issue
discount) will also apply in amortizing bond premium under Section 171 of the
Code. The use of an assumption that there will be no prepayments may be
required.
Realized Losses. Under Section 166 of the Code, both corporate holders
of the REMIC Regular Certificates and non-corporate holders of the REMIC Regular
Certificates that acquire the certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a non-corporate 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 the 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 the certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the mortgage loans or the certificate underlying the REMIC
Certificates, as the case may be, until it can be established that the 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 that holder in the 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 this loss or
reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and some other transactions. See "--Prohibited
Transactions and Other Possible REMIC Taxes" below. Rather, the taxable income
or net loss of a REMIC is generally taken into account by the holder of the
REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates will
be subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the mortgage loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that the holder owned the REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on that day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased the certificate
from a prior holder of that certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds the REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that some modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased the REMIC Residual Certificate from a prior
holder of the certificate at a price greater than (or less than) the adjusted
basis (as defined below) the REMIC Residual Certificate would have had in the
hands of an original holder of the 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 the REMIC Residual Certificate will be taken
into account in determining the income of the holder for federal income tax
purposes. Although it appears likely that any of these payments would be
includible in income immediately upon its receipt, the IRS might assert that
these payments 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 these payments, holders of REMIC
Residual Certificates are encouraged to consult their tax advisors concerning
the treatment of these payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with the 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"
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 the REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect the REMIC Residual Certificateholders' after-tax rate of
return. This disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the mortgage loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any income from
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered by
the prospectus), amortization of any premium on the mortgage loans, bad debt
losses with respect to the mortgage loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). The aggregate basis will be allocated
among the mortgage loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any offered REMIC
Certificates will be determined in the manner described above under "--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount." The issue
price of a REMIC Certificate received in exchange for an interest in the
mortgage loans or other property will equal the fair market value of the
interests in the mortgage loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of the interests
in order to determine the basis of the REMIC in the mortgage loans and other
property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to mortgage loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include the market discount in income currently, as it accrues, on
a constant yield basis. See "--Taxation of Owners of REMIC Regular Certificates"
above, which describes a method for accruing discount income that is analogous
to that required to be used by a REMIC as to mortgage loans with market discount
that it holds.
A mortgage loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to the income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the mortgage
loans. Premium on any mortgage loan to which the election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any mortgage
loan originated on or before September 27, 1985. Instead, premium on such a
mortgage loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
the mortgage loan.
A REMIC will be allowed deductions for interest (including original
issue discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered by
this prospectus) 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 by this prospectus)
were indebtedness of the REMIC. Original issue discount will be considered to
accrue for this purpose as described above under "--Taxation of Owners of REMIC
Regular certificates--Original Issue Discount," except that the de minimis rule
and the adjustments for subsequent holders of REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered by this prospectus) described therein will
not apply.
If a class of REMIC Regular Certificates is issued with 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 that 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 clear, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
certificates--Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will
betaken 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 these 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, the 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 the REMIC
Residual Certificate, increased by amounts included in the income of the REMIC
Residual Certificateholder and decreased (but not below zero) by distributions
made, and by net losses allocated, to the REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent the net loss exceeds the
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of the calendar quarter (determined without regard
to the net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders are encouraged to 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 the REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds the adjusted basis, it will be treated
as gain from the sale of the REMIC Residual Certificate. Holders of REMIC
Residual Certificates may be entitled to distributions early in the term of the
related REMIC under circumstances in which their bases in the REMIC Residual
Certificates will not be sufficiently large that the distributions will be
treated as nontaxable returns of capital. Their bases in the REMIC Residual
Certificates will initially equal the amount paid for the REMIC Residual
Certificates and will be increased by their allocable shares of taxable income
of the REMIC. However, these bases increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with respect to which
the REMIC taxable income is allocated to the REMIC Residual Certificateholders.
To the extent the REMIC Residual Certificateholders' initial bases are less than
the distributions to the REMIC Residual Certificateholders, and increases in
initial bases either occur after the distributions or (together with their
initial bases) are less than the amount of the distributions, gain will be
recognized to the REMIC Residual Certificateholders on these distributions and
will be treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of the REMIC Residual Certificate to the REMIC Residual
Certificateholder and the adjusted basis the REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Certificate
for any calendar quarter will be the excess, if any, of (1) the daily portions
of REMIC taxable income allocable to the REMIC Residual Certificate over (2) the
sum of the "daily accruals" (as defined below) for each day during the quarter
that the REMIC Residual Certificate was held by the 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 the REMIC
Residual Certificate before the beginning of that quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS. Although it has not done so,
the Treasury 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 not considered to have "significant
value."
For REMIC Residual Certificateholders, an excess inclusion (1) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
investors in REMIC Certificates," below.
Furthermore, for purposes of the alternative minimum tax, excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and alternative minimum taxable income may not be less
than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the 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 the trust in proportion to the dividends received by the shareholders from
the 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 the
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and 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 the
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on the "non-economic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is non-economic unless, based on the Prepayment Assumption and on
any required or permitted clean up calls, or required liquidation provided for
in the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
non-economic residual interests will be subject to restrictions under the terms
of the related pooling and servicing agreement that are intended to reduce the
possibility of any such transfer being disregarded. These restrictions will
require each party to a transfer to provide an affidavit that no purpose of the
transfer is to impede the assessment or collection of tax, including
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine the transferee's historic payment of its debts and ability to continue
to pay its debts as they come due in the future. The IRS has issued final REMIC
regulations that add to the conditions necessary to assure that a transfer of a
non-economic residual interest would be respected. The additional conditions
require that in order to qualify as a safe harbor transfer of a residual, the
transferee represent that it will not cause the income "to be attributable to a
foreign permanent establishment or fixed base (within the meaning of an
applicable income tax treaty) of the transferee or another U.S. taxpayer" and
either (i) the amount received by the transferee be no less on a present value
basis than the present value of the net tax detriment attributable to holding
the residual interest reduced by the present value of the projected payments to
be received on the residual interest or (ii) the transfer is to a domestic
taxable corporation with specified large amounts of gross and net assets and
that meets certain other requirements where agreement is made that all future
transfers will be to taxable domestic corporations in transactions that qualify
for the same "safe harbor" provision. Eligibility for the safe harbor requires,
among other things, that the facts and circumstances known to the transferor at
the time of transfer not indicate to a reasonable person that the taxes with
respect to the residual interest will not be paid, with an unreasonably low cost
for the transfer specifically mentioned as negating eligibility. The regulations
generally apply to transfers of residual interests occurring on or after
February 4, 2000. Prior to purchasing a REMIC Residual Certificate, prospective
purchasers are encouraged to consider the possibility that a purported transfer
of the REMIC Residual Certificate by such a purchaser to another purchaser at
some future day may be disregarded in accordance with the above described rules
which would result in the retention of tax liability by that purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
assumptions, and the depositor will make no representation that a REMIC Residual
Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of REMIC Residual Certificates to foreign persons.
On May 11, 2004, the IRS issued final regulations relating to the
federal income tax treatment of "inducement fees" received by transferees of
noneconomic REMIC residual interests. The regulations provide tax accounting
rules for the inclusion of such fees in income over an appropriate period, and
clarify that inducement fees represent income from sources within the United
States. These rules apply to taxable years ending on or after May 11, 2004. On
the same date, the IRS issued administrative guidance addressing the procedures
by which transferees of such REMIC residual interests may obtain consent to
change the method of accounting for REMIC inducement fee income to one of the
methods provided in the regulations. Prospective purchasers of REMIC Residual
Certificates are encouraged to consult with their tax advisors regarding the
effect of these regulations and the related administrative guidance.
Mark-to-Market Rules. In general, all securities owned by a dealer,
except to the extent that the dealer has specifically identified a security as
held for investment, must be marked to market in accordance with the applicable
Code provision and the related regulations. However, the IRS has issued
regulations which provide that for purposes of this mark-to-market requirement,
a REMIC Residual Certificate is not treated as a security and thus may not be
marked to market.
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 these fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Except as stated in the
related prospectus supplement, these 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, (1) an amount equal to the
individual's, estate's or trust's share of the fees and expenses will be added
to the gross income of the holder and (2) the individual's, estate's or trust's
share of the fees and expenses will be treated as a miscellaneous itemized
deduction allowable subject to the limitation of Section 67 of the Code, which
permits these deductions only to the extent they exceed in the aggregate two
percent of 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 (1) 3% of the excess of the individual's adjusted gross
income over the amount or (2) 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 the holder's allocable portion of servicing fees and other
miscellaneous itemized deductions of the REMIC, even though an amount equal to
the amount of the fees and other deductions will be included in the holder's
gross income. Accordingly, these 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. Prospective
investors are encouraged to consult with their tax advisors prior to making an
investment in the 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 the REMIC Regular Certificate to the certificateholder,
increased by income reported by the certificateholder with respect to the REMIC
Regular Certificate (including original issue discount and market discount
income) and reduced (but not below zero) by distributions on the REMIC Regular
Certificate received by the certificateholder and by any amortized premium. The
adjusted basis of a REMIC Residual Certificate will be determined as described
under "--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net
Losses and Distributions." Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided the REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent the gain does
not exceed the excess, if any, of (1) the amount that would have been includible
in the seller's income with respect to the REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the certificate
based on the application of the Prepayment Assumption applicable to the
certificate, which rate is computed and published monthly by the IRS),
determined as of the date of purchase of the REMIC Regular Certificate, over (2)
the amount of ordinary income actually includible in the seller's income prior
to the sale. In addition, gain recognized on the sale of a REMIC Regular
Certificate by a seller who purchased the REMIC Regular Certificate at a market
discount will be taxable as ordinary income in an amount not exceeding the
portion of the discount that accrued during the period the REMIC Certificate was
held by the holder, reduced by any market discount included in income under the
rules described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium."
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which this
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 the certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in the 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 the
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires the REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of the sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to the REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Losses on the sale of a REMIC Residual Certificate in excess of a
threshold amount (which amount could need to be aggregated with similar or
previous losses) may require disclosure of such loss on an IRS Form 8886.
Investors are encouraged to consult with their tax advisors as to the need to
file such form.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. In the event a
REMIC engages in a prohibited transaction, the Code imposes a 100% tax on the
income derived by the REMIC from the prohibited transaction. In general, subject
to specified exceptions, a prohibited transaction means the disposition of a
mortgage loan, the receipt of income from a source other than a mortgage loan or
other permitted investments, the receipt of compensation for services, or gain
from the disposition of an asset purchased with the payments on the mortgage
loans for temporary investment pending distribution on the REMIC Certificates.
It is not anticipated that any REMIC will engage in any prohibited transactions
in which it would recognize a material amount of net income.
In addition, a contribution to a REMIC made after the day on which the
REMIC issues all of its interests could result in the imposition on the REMIC of
a tax equal to 100% of the value of the contributed property. Each pooling and
servicing agreement will include provisions designed to prevent the acceptance
of any contributions that would be subject to this 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.
It is not anticipated that any REMIC will recognize "net income from foreclosure
property" subject to federal income tax.
To the extent permitted by then applicable laws, any tax resulting from
a prohibited transaction, tax resulting from a contribution made after the
Closing Date, tax on "net income from foreclosure property" or state or local
income or franchise tax that may be imposed on the REMIC will be borne by the
related master servicer or trustee in either case out of its own funds, provided
that the master servicer or the trustee, as the case may be, has sufficient
assets to do so, and provided further that the tax arises out of a breach of the
master servicer's or the trustee's obligations, as the case may be, under the
related pooling and servicing agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by the master servicer
or the trustee will be charged against the related trust fund resulting in a
reduction in amounts payable to holders of the related REMIC Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO
CERTAIN ORGANIZATIONS. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (1) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) of the total anticipated excess
inclusions with respect to the REMIC Residual Certificate for periods after the
transfer and (2) 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 the 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 the transfer is through an agent for a disqualified organization, the tax
would instead be imposed on the agent. However, a transferor of a REMIC Residual
Certificate would in no event be liable for the 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 the affidavit is false. Moreover,
an entity will not qualify as a REMIC unless there are reasonable arrangements
designed to ensure that (1) residual interests in the entity are not held by
disqualified organizations and (2) information necessary for the application of
the tax described herein will be made available. Restrictions on the transfer of
REMIC Residual Certificates and other provisions that are intended to meet this
requirement will be included in the pooling and servicing agreement, and will be
discussed more fully in any prospectus supplement relating to the offering of
any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in the entity,
then a tax will be imposed on the entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by the disqualified organization and
(2) 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 the pass-through entity furnishes to the
pass-through entity (1) the holder's social security number and a statement
under penalties of perjury that the social security number is that of the
recordholder or (2) a statement under penalties of perjury that the record
holder is not a disqualified organization. For taxable years beginning after
December 31,1997, notwithstanding the preceding two sentences, in the case of a
REMIC Residual Certificate held by an "electing large partnership," all
interests in the partnership shall be treated as held by disqualified
organizations (without regard to whether the record holders of the partnership
furnish statements described in the preceding sentence) and the amount that is
subject to tax under the second preceding sentence is excluded from the gross
income of the partnership allocated to the partners (in lieu of allocating to
the partners a deduction for the tax paid by the partnership).
For these purposes, a "disqualified organization" means:
o 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),
o 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
o 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 the interest, be treated as a pass-through entity.
TERMINATION. A REMIC will terminate immediately after the distribution
date following receipt by the REMIC of the final payment in respect of the
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on the REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in the certificate, the REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of the difference, and the loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
The REMIC Administrator (or other party described in the related prospectus
supplement) will file REMIC federal income tax returns on behalf of the related
REMIC, and under the terms of the related Agreement will either (1) be
irrevocably appointed by the holders of the largest percentage interest in the
related REMIC Residual Certificates as their agent to perform all of the duties
of the "tax matters person" with respect to the REMIC in all respects or (2)
will be designated as and will act as the "tax matters person" with respect to
the related REMIC in all respects and will hold at least a nominal amount of
REMIC Residual Certificates.
The REMIC Administrator, as the tax matters person or as agent for the
tax matters person, subject to notice requirements and various restrictions and
limitations, generally will have the authority to act on behalf of the REMIC and
the REMIC Residual Certificateholders in connection with the administrative and
judicial review of items of income, deduction, gain or loss of the REMIC, as
well as the REMIC's classification. REMIC Residual Certificateholders generally
will be required to report these REMIC items consistently with their treatment
on the REMIC's tax return and may in some circumstances be bound by a settlement
agreement between the REMIC Administrator, as either tax matters person or as
agent for the tax matters person, and the IRS concerning any such REMIC item.
Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a REMIC Residual Certificateholder's return. Any
person that holds a REMIC Residual Certificate as a nominee for another person
may be required to furnish the REMIC, in a manner to be provided in Treasury
regulations, with the name and address of the 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 some 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 the information 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 would require information relating to the holder's
purchase price that the REMIC may not have, Treasury 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 REMIC Administrator or other party designated in the
related prospectus supplement.
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 if recipients of the payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from the backup withholding tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against the recipient's federal income tax. Furthermore, 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 identification requirements, including delivery of
a statement, signed by the certificateholder under penalties of perjury,
certifying that the certificateholder is not a United States person and
providing the name and address of the certificateholder. This statement is
generally made on IRS Form W-8BEN and must be updated whenever required
information has changed or within 3 calendar years after the statement is first
delivered. It is possible that the IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to the holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
Special rules apply to partnerships, estates and trusts, and in certain
circumstances certifications as to foreign status and other matters may be
required to be provided by partners and beneficiaries thereof.
In addition, in certain circumstances the foregoing rules will not
apply to exempt a United States shareholder of a controlled foreign corporation
from taxation on the United States shareholder's allocable portion of the
interest income received by the 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 are encouraged consult their tax advisors
concerning this question.
Except as 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.
NOTES
On or prior to the date of the related prospectus supplement with
respect to the proposed issuance of each series of notes, Thacher Proffitt &
Wood LLP, counsel to the depositor, will deliver its opinion to the effect that,
assuming compliance with all provisions of the indenture, owner trust agreement
and other related documents, for federal income tax purposes (1) the notes will
be treated as indebtedness and (2) the Issuer, as created pursuant to the terms
and conditions of the owner trust agreement, will not be characterized as an
association (or publicly traded partnership) taxable as a corporation or as a
taxable mortgage pool. For purposes of this tax discussion, references to a
"noteholder" or a "holder" are to the beneficial owner of a note.
STATUS AS REAL PROPERTY LOANS
Notes held by a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (2) notes held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code section 856(c)(4)(A) and interest on notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, as described above, except that (1)
income reportable on the notes is not required to be reported under the accrual
method unless the holder otherwise uses the accrual method and (2) the special
rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the notes. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates" and "--Sales of
REMIC Certificates."
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS. On or prior to the date of the
related prospectus supplement with respect to the proposed issuance of each
series of Grantor Trust Certificates, Thacher Proffitt & Wood LLP, counsel to
the depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related pooling and servicing agreement,
the related Grantor Trust Fund will be classified as a grantor trust under
subpart E, part I of subchapter J of Chapter 1 of the Code and not as a
partnership or an association taxable as a corporation.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, except as disclosed in the related
prospectus supplement, counsel to the depositor will deliver an opinion that, in
general, Grantor Trust Fractional Interest Certificates will represent interests
in (1) "loans . . . secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3) of the Code; and (3) "real estate assets" within the meaning
of Section 856(c)(4)(A) of the Code. In addition, counsel to the depositor will
deliver an opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting of mortgage
loans that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the
Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized. However, the policies underlying these sections (namely, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts) may suggest that this characterization is
appropriate. Counsel to the depositor will not deliver any opinion on these
questions. Prospective purchasers to which the characterization of an investment
in Grantor Trust Strip Certificates is material are encouraged to consult their
tax advisors regarding whether the Grantor Trust Strip Certificates, and the
income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which . .
..[are] principally secured by an interest in real property" within the meaning
of Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
Holders of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the mortgage loans (including amounts used to
pay reasonable servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses. Because
of stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable thereon
representing interest on the mortgage loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through some pass-through entities will be allowed a
deduction for the reasonable servicing fees and expenses only to the extent that
the aggregate of the holder's miscellaneous itemized deductions exceeds two
percent of the 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 (1) 3% of the excess of the individual's adjusted gross
income over the amount or (2) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
reportable by holders of Grantor Trust Fractional Interest Certificates who are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Further, certificateholders (other than corporations) subject to
the alternative minimum tax may not deduct miscellaneous itemized deductions in
determining the holder's alternative minimum taxable income. Although it is not
entirely clear, it appears that in transactions in which multiple classes of
Grantor Trust Certificates (including Grantor Trust Strip Certificates) are
issued, the fees and expenses should be allocated among the classes of Grantor
Trust Certificates using a method that recognizes that each such class benefits
from the related services. In the absence of statutory or administrative
clarification as to the method to be used, it currently is intended to base
information returns or reports to the IRS and certificateholders on a method
that allocates the 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 federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on the mortgage loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established "safe harbors." The servicing fees
paid with respect to the mortgage loans for a series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related prospectus supplement
will include information regarding servicing fees paid to the master servicer,
any subservicer or their respective affiliates necessary to determine whether
the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
some stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on the certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of the 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 the 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 the certificate, other than "qualified stated interest,"
if any, as well as the certificate's share of reasonable servicing fees and
other expenses. See "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest." In general, the amount of the income that accrues
in any month would equal the product of the holder's adjusted basis in the
Grantor Trust Fractional Interest Certificate at the beginning of the month (see
"Sales of Grantor Trust Certificates") and the yield of the Grantor Trust
Fractional Interest Certificate to the holder. This yield would be computed at
the rate (compounded based on the regular interval between distribution dates)
that, if used to discount the holder's share of future payments on the mortgage
loans, would cause the present value of those future payments to equal the price
at which the holder purchased the certificate. In computing yield under the
stripped bond rules, a certificateholder's share of future payments on the
mortgage loans will not include any payments made in respect of any ownership
interest in the mortgage loans retained by the depositor, the master servicer,
any subservicer or their respective affiliates, but will include the
certificateholder's share of any reasonable servicing fees and other expenses.
To the extent the Grantor Trust Fractional Interest Certificates
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, for taxable years beginning after August 5,
1997, Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments in
the accrual of original issue discount when prepayments do not conform to the
prepayment assumption. It is unclear whether those provisions would be
applicable to the Grantor Trust Fractional Interest Certificates that do not
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, or for taxable years beginning prior to
August 5, 1997 or whether use of a reasonable prepayment assumption may be
required or permitted without reliance on these rules. It is also uncertain, if
a prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Fractional Interest Certificate or, with respect to any holder, at the
time of purchase of the Grantor Trust Fractional Interest Certificate by that
holder. Certificateholders are advised to consult their own tax advisors
concerning reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates and, in particular, whether a prepayment
assumption should be used in reporting original issue discount.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the mortgage loans allocable to the
certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
the principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease the yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the mortgage loan that is allocable to the certificate and the portion of the
adjusted basis of the certificate that is allocable to the certificateholder's
interest in the mortgage loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
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 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, none of the depositor,
the master servicer or the trustee will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or any other rate and certificateholders should bear in mind that the
use of a representative initial offering price will mean that the 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 1.1286-1, some 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 (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the mortgage loans, the related prospectus supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the mortgage loans, then that 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 "Characteristics of Investments
in Grantor Trust Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the certificateholder will be required to
report its share of the interest income on the mortgage loans in accordance with
the certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in mortgage loans issued with original issue
discount.
The original issue discount, if any, on the mortgage loans will equal
the difference between the stated redemption price of the mortgage loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on the mortgage loan other than
"qualified stated interest." "Qualified stated interest" is interest that is
unconditionally payable at least annually at a single fixed rate, or at a
"qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on the mortgage
loan. In general, the issue price of a mortgage loan will be the amount received
by the borrower from the lender under the terms of the mortgage loan, less any
"points" paid by the borrower, and the stated redemption price of a mortgage
loan will equal its principal amount, unless the mortgage loan provides for an
initial below-market rate of interest or the acceleration or the deferral of
interest payments. The determination as to whether original issue discount will
be considered to be de minimis will be calculated using the same test described
in the REMIC discussion. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which the
rules will be applied with respect to those mortgage loans by the master
servicer or the trustee in preparing information returns to the
certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield.
Section1272(a)(6) of the Code requires that a prepayment assumption be made in
computing yield with respect to any pool of debt instruments the yield on which
may be affected by reason of prepayments. Accordingly, for certificates backed
by these pools, it is intended to base information reports and returns to the
IRS and certificateholders on the use of a prepayment assumption.
Certificateholders are advised to consult their own tax advisors concerning
whether a prepayment assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related prospectus supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to mortgage loans in the series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases the Grantor Trust Fractional Interest Certificate at a cost less than
the certificate's allocable portion of the aggregate remaining stated redemption
price of the mortgage loans held in the related trust fund will also be required
to include in gross income the certificate's daily portions of any original
issue discount with respect to the mortgage loans. However, each such daily
portion will be reduced, if the cost of the Grantor Trust Fractional Interest
Certificate to the purchaser is in excess of the certificate's allocable portion
of the aggregate "adjusted issue prices" of the mortgage loans held in the
related trust fund, approximately in proportion to the ratio the excess bears to
the certificate's allocable portion of the aggregate original issue discount
remaining to be accrued on the mortgage loans. The adjusted issue price of a
mortgage loan on any given day equals the sum of (1) the adjusted issue price
(or, in the case of the first accrual period, the issue price) of the mortgage
loan at the beginning of the accrual period that includes the day and (2) the
daily portions of original issue discount for all days during the accrual period
prior to the day. The adjusted issue price of a mortgage loan at the beginning
of any accrual period will equal the issue price of the mortgage loan, increased
by the aggregate amount of original issue discount with respect to the mortgage
loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on the mortgage loan in prior accrual periods of amounts included
in its stated redemption price.
In addition to its regular reports, the master servicer or the trustee,
except as provided in the related prospectus supplement, will provide to any
holder of a Grantor Trust Fractional Interest Certificate such information as
the holder may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
MARKET DISCOUNT. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have been purchased at a "market
discount," that is, in the case of a mortgage loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a mortgage loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of the discount that has accrued (under the rules described in the
next paragraph) through the month that has not previously been included in
income, but limited, in the case of the portion of the discount that is
allocable to any mortgage loan, to the payment of stated redemption price on the
mortgage loan that is received by (or, in the case of accrual basis
certificateholders, due to) the trust fund in that month. A certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the certificate to the holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, some rules
described in the Committee Report will apply. Under those rules, in each accrual
period market discount on the mortgage loans should accrue, at the
certificateholder's option: (1) on the basis of a constant yield method, (2) in
the case of a mortgage loan issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the mortgage loan as of the beginning of the accrual period, or
(3) in the case of a mortgage loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of the
discount income.
Because the mortgage loans will provide for periodic payments of stated
redemption price, the market discount may be required to be included in income
at a rate that is not significantly slower than the rate at which the discount
would be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be
de minimis and, if so, will be includible in income under de minimis rules
similar to those described above in "--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount" with the exception that it is
less likely that a prepayment assumption will be used for purposes of these
rules with respect to the mortgage loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the mortgage loans.
PREMIUM. If a certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, the certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of the premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as a
deduction as these payments are made (or, for a certificateholder using the
accrual method of accounting, when the payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
mortgage loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the mortgage
loan that is allocable to the certificate and the portion of the adjusted basis
of the certificate that is allocable to the mortgage loan. If a prepayment
assumption is used to amortize premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "Characterization of Investments in
Grantor Trust 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 are encouraged to consult their own tax advisors concerning the
method to be used in reporting income or loss with respect to the 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 Contingent Payment Rules" and
assumes that the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of the holder's adjusted basis in the Grantor Trust
Strip Certificate at the beginning of that month and the yield of the Grantor
Trust Strip Certificate to the holder. The yield would be calculated based on
the price paid for that Grantor Trust Strip Certificate by its holder and the
payments remaining to be made thereon at the time of the purchase, plus an
allocable portion of the servicing fees and expenses to be paid with respect to
the mortgage loans. See "Characterization of Investments in Grantor Trust
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 some categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of the discount when
prepayments do not conform to the prepayment assumption. To the extent the
Grantor Trust Strip Certificates represent an interest in any pool of debt
instruments the yield on which may be affected by reason of prepayments, those
provisions will apply to the Grantor Trust Strip Certificates for taxable years
beginning after August 5, 1997. It is unclear whether those provisions would be
applicable to the Grantor Trust Strip Certificates that do not represent an
interest in any such pool or for taxable years beginning prior to August 5,
1997, or whether use of a prepayment assumption may be required or permitted in
the absence of these provisions. 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. 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, none of the depositor, the master servicer or
the trustee will make any representation that the mortgage loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at any other rate
and certificateholders should bear in mind that the use of a representative
initial offering price will mean that the 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 are encouraged to
consult their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to the
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment, except possibly if prepayments occur at a
rate faster than the Prepayment Assumption. However, if a Grantor Trust Strip
Certificate is treated as an interest in discrete mortgage loans, or if the
Prepayment Assumption is not used, then when a mortgage loan is prepaid, the
holder of a Grantor Trust Strip Certificate should be able to recognize a loss
equal to the portion of the adjusted issue price of the Grantor Trust Strip
Certificate that is allocable to the mortgage loan.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT RULES. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations were
promulgated on June 14, 1996, regarding contingent payment debt instruments (the
"Contingent Payment Regulations"), but it appears that Grantor Trust Strip
Certificates, to the extent subject to Section 1272(a)(6) of the Code, as
described above, or due to their similarity to other mortgage-backed
securities(such as REMIC regular interests and debt instruments subject to
Section 1272(a)(6) of the Code) that are expressly excepted from the application
of the Contingent Payment Regulations, are or may be excepted from these
regulations. Like the OID Regulations, the Contingent Payment 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 Contingent Payment
Regulations were to apply, the holder of a Grantor Trust Strip Certificate would
be required to apply the "noncontingent bond method." Under the "noncontingent
bond method," the issuer of a Grantor Trust Strip Certificate determines a
projected payment schedule on which interest will accrue. Holders of Grantor
Trust Strip Certificates are bound by the issuer's projected payment schedule.
The projected payment schedule consists of all noncontingent payments and a
projected amount for each contingent payment based on the projected yield (as
described below) of the Grantor Trust Strip Certificate. The projected amount of
each payment is determined so that the projected payment schedule reflects the
projected yield. The projected amount of each payment must reasonably reflect
the relative expected values of the payments to be received by the holder of a
Grantor Trust Strip Certificate. The projected yield referred to above is a
reasonable rate, not less than the "applicable Federal rate" that, as of the
issue date, reflects general market conditions, the credit quality of the
issuer, and the terms and conditions of the mortgage loans. The holder of a
Grantor Trust Strip Certificate would be required to include as interest income
in each month the adjusted issue price of the Grantor Trust Strip Certificate at
the beginning of the period multiplied by the projected yield, and would add to,
or subtract from, the income any variation between the payment actually received
in that month and the payment originally projected to be made in that month.
Assuming that a prepayment assumption were used, if the Contingent
Payment Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders are encouraged to consult their
tax advisors concerning the possible application of the contingent payment rules
to the Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on the sale or exchange of
a Grantor Trust Certificate by an investor who holds the Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to the Grantor Trust
Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in some 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 Section 582(c) of the Code. Furthermore, a portion of any
gain that might otherwise be capital gain may be treated as ordinary income to
the extent that the Grantor Trust Certificate is held as part of a "conversion
transaction" within the meaning of Section 1258 of the Code. A conversion
transaction generally is one in which the taxpayer has taken two or more
positions in the same or similar property that reduce or eliminate market risk,
if substantially all of the taxpayer's return is attributable to the time value
of the taxpayer's net investment in the 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 the net capital gain
in total net investment income for that taxable year, for purposes of the rule
that limits the deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment income.
GRANTOR TRUST REPORTING. The master servicer or the trustee will
furnish to each holder of a Grantor Trust Fractional Interest Certificate with
each distribution a statement setting forth the amount of the distribution
allocable to principal on the underlying mortgage loans and to interest thereon
at the related pass-through rate. In addition, the master servicer or the
trustee will furnish, within a reasonable time after the end of each calendar
year, to each holder of a Grantor Trust Certificate who was a holder at any time
during that year, information regarding the amount of servicing compensation
received by the master servicer and subservicer (if any) and any other customary
factual information as the master servicer or 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 trust fund's
information reports of these items of income and expense. Moreover, these
information reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial certificateholders that bought
their certificates at the representative initial offering price used in
preparing the reports.
Except as disclosed in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the master servicer or the trustee.
BACKUP WITHHOLDING. In general, the rules described in
"--REMICS--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC
Regular certificates in "REMICS--Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, except as disclosed in the related prospectus supplement, be eligible for
exemption from U.S. withholding tax, subject to the conditions described in the
discussion, only to the extent the related mortgage loans were originated after
July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a certificateholder's trade or business in the United States, the Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
CALLABLE CLASSES
The tax consequences of holding or selling a Callable Class will be
discussed in the related Prospectus Supplement.
PENALTY AVOIDANCE
The summary of tax considerations contained herein was written to
support the promotion and marketing of the securities, and was not intended or
written to be used, and cannot be used, by a taxpayer for the purpose of
avoiding United States Federal income tax penalties that may be imposed. Each
taxpayer is encouraged to seek advice based on the taxpayer's particular
circumstances from an independent tax advisor.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
securities offered under this prospectus and the prospectus supplement. State
tax and local 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 are
encouraged to consult their own tax advisors with respect to the various state
and other tax consequences of investments in the securities offered under this
prospectus and the prospectus supplement.
ERISA CONSIDERATIONS
Sections 404 and 406 of ERISA impose fiduciary and prohibited
transaction restrictions on ERISA Plans and on various other retirement plans
and arrangements, including bank collective investment funds and insurance
company general and separate accounts in which ERISA Plans are invested. Section
4975 of the Code imposes essentially the same prohibited transaction
restrictions on Tax Favored Plans. ERISA and the Code prohibit a broad range of
transactions involving assets of Plans and persons having certain specified
relationships to a Plan, called Parties in Interest, unless a statutory or
administrative exemption is available with respect to any such transaction.
Some employee benefit plans, including governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject the ERISA requirements. Accordingly, assets of these plans may be
invested in the securities without regard to the ERISA considerations described
below, subject to the provisions of other applicable federal, state and local
law. Any such plan which is qualified and exempt from taxation under Sections
401(a) and 501(a) of the Code, however, is subject to the prohibited transaction
rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made for the exclusive benefit of Plan
participants and their beneficiaries and in accordance with the documents
governing the Plan. Any person who has discretionary authority or control with
respect to the management or disposition of a Plan's assets, or "Plan Assets,"
and any person who provides investment advice with respect to Plan Assets for a
fee is a fiduciary of the investing Plan. If the mortgage loans and other assets
included in the trust fund were to constitute Plan Assets, then any party
exercising management or discretionary control with respect to those Plan Assets
may be deemed to be a Plan "fiduciary," and thus subject to the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to any investing Plan. In
addition, the acquisition or holding of securities by or on behalf of a Plan or
with Plan Assets, as well as the operation of the trust fund, may constitute or
involve a prohibited transaction under ERISA and the Code unless a statutory or
administrative exemption is available. Further, ERISA and the Code prohibit a
broad range of transactions involving Plan Assets and Parties in Interest,
unless a statutory or administrative exemption is available. Some Parties in
Interest that participate in a prohibited transaction may be subject to a
penalty (or an excise tax) imposed under Section 502(i) of ERISA or Section 4975
of the Code, unless a statutory or administrative exemption is available with
respect to any transaction of this sort.
Some transactions involving the trust fund might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Plan that purchases the securities, if the mortgage loans and other assets
included in a trust fund are deemed to be assets of the Plan. The DOL has
promulgated 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,
including a trust fund, for purposes of applying the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code. Under the DOL Regulations, generally, when a Plan acquires
an "equity interest" in another entity (such as the trust fund), the underlying
assets of that entity may be considered to be Plan Assets unless an exception
applies. Exceptions contained in the DOL Regulations provide that Plan Assets
will not include an undivided interest in each asset of an entity in which the
Plan makes an equity investment if: (1) the entity is an operating company; (2)
the equity investment made by the Plan is either a "publicly-offered security"
that is "widely held," both as defined in the DOL Regulations, or a security
issued by an investment company registered under the Investment Company Act of
1940, as amended; or (3) Benefit Plan Investors do not own 25% or more in value
of any class of equity securities issued by the entity. In addition, the DOL
Regulations provide that the term "equity interest" means any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no "substantial equity features." Under the
DOL Regulations, Plan Assets will be deemed to include an interest in the
instrument evidencing the equity interest of a Plan (such as a certificate or a
note with "substantial equity features"), and, because of the factual nature of
some of the rules set forth in the DOL Regulations, Plan Assets may be deemed to
include an interest in the underlying assets of the entity in which a Plan
acquires an interest (such as the trust fund). Without regard to whether the
notes or certificates are characterized as equity interests, the purchase, sale
and holding of notes or certificates by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Issuer, the trustee
or any of their respective affiliates is or becomes a Party in Interest with
respect to the Plan. Neither Plans nor persons investing Plan Assets should
acquire or hold securities solely in reliance upon the availability of any
exception under the DOL Regulations.
CLASS EXEMPTIONS
The DOL has issued Prohibited Transaction Class Exemptions ("PTCEs")
which provide exemptive relief to parties to any transaction which satisfies the
conditions of the exemption. A partial listing of the PTCEs which may be
available for investments in securities follows. Each of these exemptions is
available only if specified conditions are satisfied and may provide relief for
some, but not all, of the prohibited transactions that a particular transaction
may cause. The prospectus supplement for a particular offering of securities may
tell you whether the securities themselves satisfy the conditions of these
exemptions. You should consult with your advisors regarding the specific scope,
terms and conditions of an exemption as it applies to you, as an investor,
before relying on that exemption's availability.
CLASS EXEMPTIONS FOR PURCHASES AND SALES OF SECURITIES.
The following exemptions may apply to a purchase or sale of securities
between a Plan, on the one hand, and a Party in Interest, on the other hand:
o PTCE 84-14, which exempts certain transactions approved on behalf of the Plan
by a qualified professional asset manager. o PTCE 86-128, which exempts certain
transactions between a Plan and certain broker-dealers. o PTCE 90-1, which
exempts certain transactions entered into by insurance company pooled separate
accounts in which Plans have
made investments.
o PTCE 91-38, which exempts certain transactions entered into by
bank collective investment funds in which Plans have made
investments.
o PTCE 96-23, which exempts certain transaction approved on behalf of a Plan by
an in-house investment manager.
These exemptions do not expressly address prohibited transactions that
might result from transactions incidental to the operation of a trust. The
issuer cannot assure you that a purchase or sale of securities in reliance on
one of these exemptions will not give rise to indirect, non-exempt prohibited
transactions.
CLASS EXEMPTIONS FOR PURCHASES AND SALES OF SECURITIES AND TRANSACTIONS
INCIDENTAL TO THE OPERATION OF THE TRUST.
The following exemptions may apply to a purchase or sale of securities
between a Plan, on the one hand, and a Party in Interest, on the other hand, and
may also apply to prohibited transactions that may result from transactions
incident to the operation of the trust:
o PTCE 95-60, which exempts certain transactions involving
insurance company general accounts.
o PTCE 83-1, which exempts certain transactions involving the
purchase of pass-through certificates in mortgage pool
investment trusts from, and the sale of such certificates to,
the pool sponsor, as well as transactions in connection with
the servicing and operation of the pool.
PROHIBITED TRANSACTION CLASS EXEMPTION 83-1. The U.S. Department of
Labor has issued an administrative exemption, Prohibited Transaction Class
Exemption 83-1 ("PTCE 83-1"), which, under certain conditions, exempts from the
application of the prohibited transaction rules of ERISA and the excise tax
provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a "mortgage pool" and the purchase, sale and
holding of "mortgage pool pass-through certificates." A "mortgage pool" is
defined as an investment pool, consisting solely of interest bearing obligations
secured by first or second mortgages or deeds of trust on single-family
residential property, property acquired in foreclosure and undistributed cash. A
"mortgage pool pass-through certificate" is defined as a certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass-through payments of principal and interest from the mortgage
loans.
For the exemption to apply, PTCE 83-1 requires that:
o the depositor and the trustee maintain a system of insurance
or other protection for the mortgage loans and the property
securing such mortgage loans, and for indemnifying holders of
certificates against reductions in pass-through payments due
to defaults in loan payments or property damage in an amount
at least equal to the greater of 1% of the aggregate principal
balance of the mortgage loans, or 1% of the principal balance
of the largest covered pooled mortgage loan;
o the trustee may not be an affiliate of the depositor;
o and the payments made and retained by the depositor in
connection with the trust fund, together with all funds
inuring to the depositor's benefit for administering the trust
fund, represent no more than "adequate consideration" for
selling the mortgage loans, plus reasonable compensation for
services provided to the trust fund.
In addition, if it is applicable, PTCE 83-1 exempts the initial sale of
certificates to a Plan with respect to which the depositor, the special hazard
insurer, the pool insurer, the master servicer, or other servicer, or the
trustee are or is a party in interest if the Plan does not pay more than fair
market value for such certificate and the rights and interests evidenced by such
certificate are not subordinated to the rights and interests evidenced by other
certificates of the same pool. PTCE 83-1 also exempts from the prohibited
transaction rules any transactions in connection with the servicing and
operation of the mortgage pool, provided that any payments made to the master
servicer in connection with the servicing of the trust fund are made in
accordance with a binding agreement, copies of which must be made available to
prospective investors.
In the case of any Plan with respect to which the depositor, the master
servicer, the special hazard insurer, the pool insurer, or the trustee is a
fiduciary, PTCE 83-1 will only apply if, in addition to the other requirements:
o the initial sale, exchange or transfer of certificates is
expressly approved by an independent fiduciary who has
authority to manage and control those Plan Assets being
invested in certificates;
o the Plan pays no more for the certificates than would be paid
in an arm's length transaction;
o no investment management, advisory or underwriting fee, sale
commission, or similar compensation is paid to the depositor
with regard to the sale, exchange or transfer of certificates
to the Plan;
o the total value of the certificates purchased by such Plan
does not exceed 25% of the amount issued; and
o at least 50% of the aggregate amount of certificates is
acquired by persons independent of the depositor, the trustee,
the master servicer, and the special hazard insurer or pool
insurer.
Before purchasing certificates, a fiduciary of a Plan should confirm
that the trust fund is a "mortgage pool," that the certificates constitute
"mortgage pool pass-through certificates," and that the conditions set forth in
PTCE 83-1 would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in PTCE 83-1, the Plan
fiduciary should consider the availability of any other prohibited transaction
exemptions. The Plan fiduciary also should consider its general fiduciary
obligations under ERISA in determining whether to purchase any certificates on
behalf of a Plan.
UNDERWRITER EXEMPTION
The DOL has issued Exemptions to some underwriters, which generally
exempt from the application of the prohibited transaction provisions of Section
406 of ERISA, and the excise taxes imposed on those prohibited transactions
pursuant to Section 4975(a) and (b) of the Code, some transactions, among
others, relating to the servicing and operation of mortgage pools and the
initial purchase, holding and subsequent resale of mortgage pass-through
certificates or other "securities" underwritten by an Underwriter, as defined
below, provided that the conditions set forth in the Exemption are satisfied.
For purposes of this section "ERISA Considerations", the term "Underwriter"
includes (1) the underwriter, (2) any person directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control with
the underwriter and (3) any member of the underwriting syndicate or selling
group of which a person described in (1) or (2) is a manager or co-manager with
respect to a class of securities.
GENERAL CONDITIONS OF EXEMPTION. The Exemption sets forth six general
conditions which must be satisfied for the Exemption to apply.
First, the acquisition of securities by a Plan or with Plan Assets must
be on terms that are at least as favorable to the Plan as they would be in an
arm's-length transaction with an unrelated party.
Second, the Exemption applies only to securities evidencing rights and
interests that are not subordinated to the rights and interests evidenced by
other securities of the same trust, unless none of the mortgage loans has a
Loan-to-Value Ratio at the date of issuance of the securities that exceeds 100%.
Third, the securities at the time of acquisition by a Plan or with Plan
Assets must be rated in one of the four highest generic rating categories by an
Exemption Rating Agency. However, the securities must be rated in one of the two
highest generic categories by an Exemption Rating Agency if the Loan-to-Value
Ratio of any one- to four-family residential mortgage loan or home equity loan
held in the trust exceeds 100% but does not exceed 125% at the date of issuance
of the securities, and in that case the Exemption will not apply: (1) to any of
the securities if any mortgage loan or other asset held in the trust (other than
a one- to four-family residential mortgage loan or home equity loan) has a
Loan-to-Value Ratio that exceeds 100% at the Closing Date or (2) to any
subordinate securities.
Fourth, the trustee cannot be an affiliate of any member of the
"Restricted Group" other than the Underwriter. The Restricted Group consists of
any Underwriter, the depositor, the master servicer, the special servicer, any
servicer, any counterparty to an "eligible swap" (as described below)and any
obligor with respect to assets included in the trust fund constituting more than
5% of the aggregate unamortized principal balance of the assets in the trust
fund as of the date of initial issuance of the securities.
Fifth, the sum of all payments made to and retained by the Underwriter
or Underwriters must represent not more than reasonable compensation for
underwriting the securities; the sum of all payments made to and retained by the
depositor pursuant to the assignment of the assets to the related trust fund
must represent not more than the fair market value of the obligations; and the
sum of all payments made to and retained by the master servicer, the special
servicer and any servicer must represent not more than reasonable compensation
for the person's services under the related Agreement and reimbursement of the
person's reasonable expenses in connection therewith.
Sixth, 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.
INSURANCE COMPANY GENERAL ACCOUNTS.
In the event that securities which are certificates, but not notes, do
not meet the requirements of the Exemption solely because they are subordinate
certificates or fail to meet a minimum rating requirements under the Exemption,
certain Plans may be eligible to purchase certificates pursuant to Sections I
and III of PTCE 95-60 which permits insurance company general accounts as
defined in PTCE 95-60 to purchase such certificates if they otherwise meet all
of the other requirements of the Exemption.
CERTAIN PERMITTED ASSETS.
The Exemption permits an interest rate swap or yield supplement
agreement to be held by the trust if it meets the conditions of the Exemption.
Permitted trust funds include owner-trusts, as well as grantor-trusts
and REMICs. Owner-trusts are subject to certain restrictions in their governing
documents to ensure that their assets may not be reached by creditors of the
depositor in the event of bankruptcy or other insolvency and must provide
certain legal opinions.
The Exemption also requires that the trust fund meet the following
requirements: (1) the trust fund must consist solely of assets of the type that
have been included in other investment pools; (2) securities evidencing
interests in the other investment pools must have been rated in one of the four
highest generic categories of one of the Exemption Rating Agencies for at least
one year prior to the acquisition of securities by or on behalf of a Plan or
with Plan Assets; and (3) securities evidencing interests in the other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any acquisition of securities by or on behalf of a Plan
or with Plan Assets.
A fiduciary of a Plan or any person investing Plan Assets to purchase a
security must make its own determination that the conditions set forth above
will be satisfied with respect to the security.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection
with the direct or indirect sale, exchange or transfer of securities in the
initial issuance of the securities or the direct or indirect acquisition or
disposition in the secondary market of securities by a Plan or with Plan Assets
or the continued holding of securities acquired by a Plan or with Plan Assets
pursuant to either of the foregoing. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the
acquisition or holding of a security on behalf of an "Excluded Plan" by any
person who has discretionary authority or renders investment advice with respect
to the assets of an Excluded Plan. For purposes of the securities, an Excluded
Plan is a Plan sponsored by any member of the Restricted Group.
If the specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of
securities in the initial issuance of securities between the depositor or an
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan Assets in the
securities is (a) a mortgagor with respect to 5% or less of the fair market
value of the trust fund assets or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
securities by a Plan or with Plan Assets and (3) the continued holding of
securities acquired by a Plan or with Plan Assets pursuant to either of the
foregoing, provided that: (i) the Plan is not an Excluded Plan, (ii) each Plan's
investment in each class of securities does not exceed 25% of the outstanding
securities in the class, (iii) after the Plan's acquisition of the securities,
no more than 25% of the assets over which the fiduciary has investment authority
are invested in securities of a trust fund containing assets which are sold or
serviced by the same entity and (iv) in the case of initial issuance (but not
secondary market transactions), at least 50% of each class of securities and at
least 50% of the aggregate interests in the trust fund are acquired by persons
independent of the Restricted Group.
Further, if the specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
trust fund. The depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the securities so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA (as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code)
for transactions in connection with the servicing, management and operation of
the trust fund, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the application of the
prohibited transaction provisions of 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 the restrictions are deemed to
otherwise apply merely because a person is deemed to be a Party in Interest with
respect to an investing Plan by virtue of providing services to the Plan (or by
virtue of having a specified relationship to such a person) solely as a result
of the Plan's ownership of securities.
The Exemption generally extends exemptive relief to mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing securities. With respect to the securities, the Exemption will generally
allow mortgage loans supporting payments to securityholders, and having a value
equal to no more than 25% of the total principal amount of the securities being
offered by a trust fund, to be transferred to the trust fund within the
Pre-Funding Period instead of requiring that all the mortgage loans be either
identified or transferred on or before the Closing Date. In general, the relief
applies to the purchase, sale and holding of securities which otherwise qualify
for the Exemption, provided that the following general conditions are met:
o as mentioned, the ratio of the amount allocated to the
pre-funding account to the total principal amount of the
securities being offered must be less than or equal to 25%;
o all additional mortgage loans transferred to the related trust
fund after the Closing Date must meet the same terms and
conditions for eligibility as the original mortgage loans used
to create the trust fund, which terms and conditions have been
approved by one of the Exemption Rating Agencies;
o the transfer of the additional mortgage loans to the trust
fund during the Pre-Funding Period must not result in the
securities to be covered by the Exemptions receiving a lower
credit rating from an Exemption Rating Agency upon termination
of the Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the securities by the
trust fund;
o solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for the mortgage loans
included in the related trust fund on the Closing Date and all
additional mortgage loans transferred to the related trust
fund after the Closing Date at the end of the Pre-Funding
Period must not be more than 100 basis points lower than the
rate for the mortgage loans which were transferred to the
trust fund on the Closing Date;
o either:
(1) the characteristics of the additional mortgage
loans transferred to the related trust fund after the Closing
Date must be monitored by an insurer or other credit support
provider which is independent of the depositor; or
(2) an independent accountant retained by the
depositor must provide the depositor with a letter (with
copies provided to the Exemption Rating Agency rating the
securities, the Underwriter and the trustee) stating whether
or not the characteristics of the additional mortgage loans
transferred to the related trust fund after the Closing Date
conform to the characteristics described in the prospectus or
prospectus supplement and/or agreement. In preparing the
letter, the independent accountant must use the same type of
procedures as were applicable to the mortgage loans which were
transferred to the trust fund as of the Closing Date;
o the Pre-Funding Period must end no later than three months or
90 days after the Closing Date or earlier in some
circumstances if the pre-funding accounts falls below the
minimum level specified in the Agreement or an event of
default occurs;
o amounts transferred to any pre-funding accounts and/or
capitalized interest account used in connection with the
pre-funding may be invested only in investments which are
permitted by the Exemption Rating Agencies rating the
securities and must:
(1) be direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by,
the United States or any agency or instrumentality thereof
(provided that the obligations are backed by the full faith
and credit of the United States); or
(2) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by one
of the Exemption Rating Agencies ("ERISA Permitted
Investments");
o the prospectus or prospectus supplement must describe the
duration of the Pre-Funding Period;
o the trustee (or any agent with which the trustee contracts to
provide trust services) must be a substantial financial
institution or trust company experienced in trust activities
and familiar with its duties, responsibilities and liabilities
with ERISA. The trustee, as legal owner of the trust fund,
must enforce all the rights created in favor of
securityholders of the trust fund, including employee benefit
plans subject to ERISA.
REVOLVING POOL FEATURES.
The Exemption only covers certificates backed by "fixed" pool of loans
which require that all the loans must be transferred to the trust fund or
identified at closing (or transferred within the Pre-Funding Period, if
pre-funding meeting the conditions described above is used). Accordingly,
certificates issued by trust funds which feature revolving pools of assets will
not be eligible for a purchase by Plans. However, securities which are notes
backed by revolving pools of assets may be eligible for purchase by Plans
pursuant to certain other prohibited transaction exemptions. See discussion
below in "ERISA Considerations Relating to Notes."
OTHER EXEMPTIONS
Insurance companies contemplating the investment of general account
assets in the securities are encouraged to consult with their legal advisors
with respect to the applicability of Section 401(c) of ERISA.
ERISA CONSIDERATIONS RELATING TO NOTES
Under the DOL Regulations, the assets of the trust fund would be
treated as "plan assets" of a Plan for the purposes of ERISA and the Code only
if the Plan acquires an "equity interest" in the trust fund and none of the
exceptions contained in the DOL Regulations is applicable. An equity interest is
defined under the DOL Regulations as an interest other than an instrument which
is treated as indebtedness under applicable local law and which has no
substantial equity features. Assuming that the notes are treated as indebtedness
without substantial equity features for purposes of the DOL Regulations, then
such notes will be eligible for purchase by Plans. However, without regard to
whether the notes are treated as an "equity interest" for such purposes, the
acquisition or holding of notes by or on behalf of a Plan could be considered to
give rise to a prohibited transaction if the trust fund or any of its affiliates
is or becomes a party in interest or disqualified person with respect to such
Plan, or in the event that a note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. There can be no assurance that
the trust fund or any of its affiliates will not be or become a party in
interest or a disqualified person with respect to a Plan that acquires notes.
The Exemption permits trust funds which are grantor trusts,
owner-trusts or REMICs to issue notes, as well as certificates, provided a legal
opinion is received to the effect that the noteholders have a perfected security
interest in the trust fund's assets. The exemptive relief provided under the
Exemption for any prohibited transactions which could be caused as a result of
the operation, management or servicing of the trust fund and its assets would
not be necessary with respect to notes with no substantial equity features which
are issued as obligations of the trust fund. Nevertheless, because other
prohibited transactions might be involved, the Exemption would provide
prohibited transaction exemptive relief, provided that the same conditions of
the Exemption described above relating to certificates are met with respect to
the notes. The same limitations of such exemptive relief relating to
acquisitions of certificates by fiduciaries with respect to Excluded Plans would
also be applicable to the notes as described herein.
In the event that the Exemption is not applicable to the notes, one or
more other prohibited transactions exemptions may be available to Plans
purchasing or transferring the notes depending in part upon the type of Plan
fiduciary making the decision to acquire the notes and the circumstances under
which such decision is made. These exemptions include, but are not limited to,
Prohibited Transaction Class Exemption 90-1 (regarding investments by insurance
company pooled separate accounts), Prohibited Transaction Class Exemption 91-38
(regarding investments by bank collective investments funds), PTCE 84-14
(regarding transactions effected by "qualified professional asset managers"),
PTCE 95-60 (regarding investments by insurance company general accounts) and
PTCE 96-23 (regarding transactions effected by "in-house asset managers")
(collectively, the "Investor-Based Exemptions"). However, even if the conditions
specified in these Investor-Based Exemptions are met, the scope of the relief
provided under such Exemptions might or might not cover all acts which might be
construed as prohibited transactions.
In the event that the Exemption is not applicable to the notes, there
can be no assurance that any class of notes will be treated as indebtedness
without substantial equity features for purposes of the DOL Regulations. There
is increased uncertainty regarding the characterization of debt instruments that
do not carry an investment grade rating. Consequently, in the event of a
withdrawal or downgrade to below investment grade of the rating of a class of
notes, the subsequent transfer of such notes or any interest therein to a Plan
trustee or other person acting on behalf of a Plan, or using Plan Assets to
effect such transfer, will be restricted. Unless otherwise stated in the related
prospectus supplement, by acquiring a note, each purchaser will be deemed to
represent that either (1) it is not acquiring the note with Plan Assets; or (2)
(A) either (x) none of the issuer, the depositor any underwriter, the trustee,
the master servicer, any other servicer or any of their affiliates is a party in
interest with respect to such purchaser that is an ERISA plan or (y) PTCE 90-1,
PTCE 91-38, PTCE 84-14, PTCE 95-60, PTCE 96-23 or some other prohibited
transaction exemption is applicable to the acquisition and holding of the note
by such purchaser and (B) the notes are rated investment grade or better and
such person believes that the notes are properly treated as indebtedness without
substantial equity features for purposes of the DOL Regulations, and agrees to
so treat the notes. Alternatively, regardless of the rating of the notes, such
person may provide the trustee with an opinion of counsel, which opinion of
counsel will not be at the expense of the issuer, the depositor, the trustee,
the master servicer or any other servicer, which opines that the purchase,
holding and transfer of such note or interest therein is permissible under
applicable law, will not constitute or result in a non-exempt prohibited
transaction under ERISA or Section 4975 of the Code and will not subject the
issuer, the depositor, the trustee, the master servicer or any other servicer to
any obligation in addition to those undertaken in the indenture.
EACH PROSPECTUS SUPPLEMENT WILL CONTAIN INFORMATION CONCERNING
CONSIDERATIONS RELATING TO ERISA AND THE CODE THAT ARE APPLICABLE TO THE RELATED
SECURITIES. BEFORE PURCHASING SECURITIES IN RELIANCE ON THE EXEMPTION, THE
INVESTOR-BASED EXEMPTIONS OR ANY OTHER EXEMPTION, A FIDUCIARY OF A PLAN SHOULD
ITSELF CONFIRM THAT REQUIREMENTS SET FORTH IN SUCH EXEMPTION WOULD BE SATISFIED.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO
PURCHASE SECURITIES OF ANY SERIES OR CLASS ARE ENCOURAGED TO CONSULT WITH ITS
COUNSEL WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975
OF THE CODE OF THE ACQUISITION AND OWNERSHIP OF SUCH SECURITIES.
CALLABLE SECURITIES
With respect to classes of securities which were eligible for exemptive
relief under the Exemption and were issued as a Callable Class, the exercise of
the Call would be covered under the Exemption. However, with respect to classes
of exchangeable securities and Callable Classes which were not eligible for
exemptive relief under the Exemption when purchased, the exchange, purchase or
sale of such securities pursuant to the exercise of exchange rights or call
rights may give rise to prohibited transactions if a Plan and a party in
interest with respect to such Plan are involved in the transaction. However, one
or more Investor-Based Exemptions discussed above may be applicable to these
transactions.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code nonetheless will be subject to federal income taxation to the
extent that its income is "unrelated business taxable income" within the meaning
of Section 512 of the Code. All "excess inclusion" of a REMIC allocated to a
REMIC Residual Certificate and held by such an investor will be considered
"unrelated business taxable income" and thus will be subject to federal income
tax. See "Federal Income Tax Consequences--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions."
CONSULTATION WITH COUNSEL
There can be no assurance that the Exemptions or any other DOL
exemption will apply with respect to any particular Plan that acquires the
securities or, even if all the conditions specified therein were satisfied, that
any such exemption would apply to transactions involving the trust fund.
Prospective Plan investors are encouraged to consult with their legal counsel
concerning the impact of ERISA and the Code and the potential consequences to
their specific circumstances prior to making an investment in the securities.
Neither the depositor, the trustees, the master servicer nor any of their
respective affiliates will make any representation to the effect that the
securities satisfy all legal requirements with respect to the investment therein
by Plans generally or any particular Plan or to the effect that the securities
are an appropriate investment for Plans generally or any particular Plan.
BEFORE PURCHASING AN OFFERED SECURITY IN RELIANCE ON THE EXEMPTION, OR
AN INVESTOR-BASED EXEMPTION OR ANY OTHER EXEMPTION, A FIDUCIARY OF A PLAN OR
OTHER PLAN ASSET INVESTOR SHOULD ITSELF CONFIRM THAT (A) ALL THE SPECIFIC AND
GENERAL CONDITIONS SET FORTH IN THE EXEMPTION, AN INVESTOR-BASED EXEMPTION OR
OTHER EXEMPTION, WOULD BE SATISFIED AND (B) IN THE CASE OF A SECURITY PURCHASED
UNDER THE EXEMPTION, THE SECURITY CONSTITUTES A "SECURITY" FOR PURPOSES OF THE
EXEMPTION. IN ADDITION TO MAKING ITS OWN DETERMINATION AS TO THE AVAILABILITY OF
THE EXEMPTIVE RELIEF PROVIDED IN THE EXEMPTION, AND INVESTOR-BASED EXEMPTION OR
OTHER EXEMPTION, THE PLAN FIDUCIARY SHOULD CONSIDER ITS GENERAL FIDUCIARY
OBLIGATIONS UNDER ERISA IN DETERMINING WHETHER TO PURCHASE THE SECURITIES ON
BEHALF OF A PLAN.
A governmental plan as defined in Section 3(32) of ERISA is not subject
to ERISA, or Code Section 4975. However, such governmental plan may be subject
to federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or a Code Section 4975. A fiduciary of a governmental plan
should make its own determination as to the propriety of such investment under
applicable fiduciary or other investment standards, and the need for the
availability of any exemptive relief under any similar law.
LEGAL INVESTMENT MATTERS
Each class of certificates offered by this prospectus 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. If so
specified in the related prospectus supplement, each such class that is rated in
one of the two highest rating categories by at least one Rating Agency will
constitute "mortgage related securities" for purposes of 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 the 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 the legislation only
to the extent provided therein. Some States have enacted legislation which
overrides the preemption provisions of SMMEA. SMMEA provides, however, that in
no event will the enactment of any such legislation affect the validity of any
contractual commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of the securities, so long
as the contractual commitment was made or the securities acquired prior to the
enactment of the 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 the
securities, and national banks may purchase the 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 applicable to all depository institutions, setting
forth guidelines for and significant restrictions on investments in "high-risk
mortgage securities." The policy statement has been adopted by the Federal
Reserve Board, the Office of the Comptroller of the Currency, the FDIC and the
OTS with an effective date of February 10, 1992. The policy statement generally
indicates that a mortgage derivative product will be deemed to be high risk if
it exhibits greater price volatility than a standard fixed rate thirty-year
mortgage security. According to the policy statement, prior to purchase, a
depository institution will be required to determine whether a mortgage
derivative product that it is considering acquiring is high-risk, and if so that
the proposed acquisition would reduce the institution's overall interest rate
risk. Reliance on analysis and documentation obtained from a securities dealer
or other outside party without internal analysis by the institution would be
unacceptable. There can be no assurance as to which classes of offered
securities 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 the securities by insolvent,
undercapitalized or otherwise "troubled" institutions. According to the
bulletin, such "high-risk" mortgage derivative securities include securities
having specified characteristics, which may include some classes of offered
securities. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment
in specified types of securities, which may include some classes of offered
securities. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
Any class of securities that is not rated in one of the two highest
rating categories by at least one Rating Agency, and any other class of
securities specified in the related prospectus supplement, will not constitute
"mortgage related securities" for purposes of SMMEA. Prospective investors in
these classes of securities, in particular, should consider the matters
discussed in the following paragraph.
There may be other restrictions on the ability of investors either to
purchase some classes of offered securities or to purchase any class of offered
securities representing more than a specified percentage of the investors'
assets. The depositor will make no representations as to the proper
characterization of any class of offered securities 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 are encouraged to consult with their own legal advisors
in determining whether and to what extent the offered securities of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to the investor.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
certificates will be applied by the depositor to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the mortgage loans
and/or mortgage securities in the respective mortgage pools and to pay other
expenses. The depositor expects that it will make additional sales of securities
similar to the offered securities from time to time, but the timing and amount
of any such additional offerings will be dependent upon a number of factors,
including the volume of mortgage loans purchased by the depositor, prevailing
interest rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The certificates offered by this prospectus 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 depositor from the sale.
As to any offering of securities, in addition to the method of
distribution as described in the prospectus supplement and this base prospectus,
the distribution of any class of the offered securities may be effected through
one or more resecuritization transactions, in accordance with Rule 190(b).
The depositor intends that offered securities will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
offered securities of a particular series may be made through a combination of
two or more of these methods. The methods are as follows:
o By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
o By placements by the depositor with institutional investors
through dealers; and
o By direct placements by the depositor with institutional
investors.
If underwriters are used in a sale of any offered securities (other
than in connection with an underwriting on a best efforts basis), the securities
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. The
underwriters may be broker-dealers affiliated with the depositor whose
identities and relationships to the depositor will be as set forth in the
related prospectus supplement. The managing underwriter or underwriters with
respect to the offer and sale of the offered securities of a particular series
will be set forth on the cover of the prospectus supplement relating to the
series and the members of the underwriting syndicate, if any, will be named in
the prospectus supplement.
In connection with the sale of the offered securities, underwriters may
receive compensation from the depositor or from purchasers of the certificates
in the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the offered securities may be deemed to be
underwriters in connection with the certificates, and any discounts or
commissions received by them from the depositor and any profit on the resale of
offered securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the
sale of offered securities of any series will provide that the obligations of
the underwriters will be subject to conditions precedent, that the underwriters
will be obligated to purchase all such securities if any are purchased (other
than in connection with an underwriting on a best efforts basis) and that, in
limited circumstances, the depositor will indemnify the several underwriters and
the underwriters will indemnify the depositor against specified civil
liabilities, including liabilities under the Securities Act or will contribute
to payments required to be made in respect thereof.
The prospectus supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of the
offering and any agreements to be entered into between the depositor and
purchasers of offered securities of the series.
The depositor anticipates that the securities offered by this
prospectus and the prospectus supplement will be sold primarily to institutional
investors or sophisticated non-institutional investors. Purchasers of offered
securities, including dealers, may, depending on the facts and circumstances of
the purchases, be deemed to be "underwriters" within the meaning of the
Securities Act in connection with reoffers and sales by them of the
certificates. Holders of offered securities are encouraged to consult with their
legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Legal matters in connection with the securities of each series,
including both federal income tax matters and the legality of the securities
being offered, will be passed upon for the depositor by Thacher Proffitt & Wood
LLP, New York, New York.
FINANCIAL INFORMATION
With respect to each series, a new trust fund will be formed, and no
trust fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series. Accordingly, no
financial statements with respect to any trust fund will be included in this
prospectus or in the related prospectus supplement.
RATING
It is a condition to the issuance of any class of offered securities
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates and mortgage-backed notes
address the likelihood of receipt by the holders thereof of all collections on
the underlying mortgage assets to which the holders are entitled. These ratings
address the structural, legal and issuer-related aspects associated with the
certificates and notes, the nature of the underlying mortgage assets and the
credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and mortgage-backed notes do not represent any assessment of the
likelihood of principal prepayments by borrowers or of the degree by which the
prepayments might differ from those originally anticipated. As a result,
securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped interest securities in extreme cases might fail to recoup
their initial investments.
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.
AVAILABLE INFORMATION
The depositor is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports and other information
with the Commission. Reports and other information filed by the depositor can be
inspected and copied at the Public Reference Room maintained by the Commission
at 100 F Street NE, Washington, DC 20549, and its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison, 14th Floor, Chicago,
Illinois 60661; New York Regional Office, 233 Broadway, New York, New York
10279. Copies of the material can also be obtained from the Public Reference
Section of the Commission, 100 F Street NE, Washington, DC 20549, at prescribed
rates and electronically through the Commission's Electronic Data Gathering,
Analysis and Retrieval system at the Commission's Website (http://www.sec.gov).
Information about the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at (800) SEC-0330. Exchange Act
reports as to any series filed with the Commission will be filed under the
issuing entity's name. The depositor does not intend to send any financial
reports to securityholders.
This prospectus does not contain all of the information set forth in
the registration statement (of which this prospectus forms a part) and exhibits
thereto which the depositor has filed with the Commission under the Securities
Act and to which reference is hereby made.
REPORTS TO SECURITYHOLDERS
The master servicer or another designated person will be required to
provide periodic unaudited reports concerning each trust fund to all registered
holders of offered securities of the related series with respect to each trust
fund as are required under the Exchange Act and the Commission's related rules
and regulations, and under the terms of the applicable agreements.
As to each issuing entity, so long as it is required to file reports
under the Exchange Act, those reports will be made available as described above
under "Available Information".
INCORPORATION OF INFORMATION BY REFERENCE
There are incorporated into this prospectus and in the related
prospectus supplement by reference all documents, including but not limited to
the financial statements and reports filed or caused to be filed or incorporated
by reference by the depositor with respect to a trust fund pursuant to the
requirements of Sections 13(a) or 15(d) of the Exchange Act, prior to the
termination of the offering of the offered securities of the related series. All
documents subsequently filed by the depositor pursuant to Sections 13(a) or
15(d) of the Exchange Act in respect of any offering prior to the termination of
the offering of the offered securities shall also be deemed incorporated by
reference into this prospectus and the related prospectus supplement.
The depositor will provide or cause to be provided without charge to
each person to whom this prospectus is delivered in connection with the offering
of one or more classes of offered securities, upon written or oral request of
the person, a copy of any or all the reports incorporated in this prospectus by
reference, in each case to the extent the reports relate to one or more of such
classes of the offered securities, other than the exhibits to the documents,
unless the exhibits are specifically incorporated by reference in the documents.
Requests should be directed in writing to MILA Mortgage Acceptance, Inc., 6021
244th Street SW, Mountlake Terrace, WA 98043 or by telephone at (800) 332-6452.
The depositor has determined that its financial statements will not be material
to the offering of any offered securities.
GLOSSARY
ACCRUAL SECURITY -- A security with respect to which some or all of its
accrued interest will not be distributed as interest but rather an amount equal
to that interest will be added to the principal balance thereof on each
distribution date for the period described in the related prospectus supplement.
AFFILIATED SELLER -- MILA, Inc., the parent of the depositor, and their
respective affiliates.
AGREEMENT -- An owner trust agreement, servicing agreement, indenture
or pooling and servicing agreement.
ARM LOAN -- A mortgage loan with an adjustable interest rate.
BANKRUPTCY AMOUNT - The amount of Bankruptcy Losses that may be
allocated to the credit enhancement of the related series.
BANKRUPTCY CODE -- Title 11 of the United States Code, as amended from
time to time.
BANKRUPTCY LOSS -- A Realized Loss attributable to certain actions
which may be taken by a bankruptcy court in connection with a mortgage loan,
including a reduction by a bankruptcy court of the principal balance of or the
mortgage rate on a mortgage loan or an extension of its maturity.
BENEFICIAL OWNER -- A person acquiring an interest in any DTC
Registered Security.
BENEFIT PLAN INVESTORS -- Plans, as well as any "employee benefit plan"
(as defined in Section 3(3) or ERISA) which is not subject to Title I of ERISA,
such as governmental plans (as defined in Section 3(32) of ERISA) and church
plans (as defined in Section 3(33) of ERISA) which have not made an election
under Section 410(d) of the Code, and any entity whose underlying assets include
Plan Assets by reason of a Plan's investment in the entity.
BUYDOWN ACCOUNT -- With respect to a buydown mortgage loan, the
custodial account where the Buydown Funds are placed.
BUYDOWN FUNDS -- With respect a buydown mortgage loan, the amount
contributed by the seller of the mortgaged property or another source and placed
in the Buydown Account.
BUYDOWN PERIOD -- The period during which funds on a buydown mortgage
loan are made up for from the Buydown Account.
CALL CLASS -- A class of securities which entitles the holder thereof
to direct the trustee to redeem a Callable class of securities.
CALLABLE CLASS -- A class of securities of a series which is
redeemable, directly or indirectly, at the direction of the holder of the
related Call Class, as provided in the related prospectus supplement. A Callable
Class may have a "lock-out period" during which such securities cannot be called
and generally will be called only if the market value of the assets in the trust
fund for such Callable Class exceeds the outstanding principal balance of such
assets.
CERCLA -- The federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
CLEARSTREAM - Clearstream Banking, societe anonyme, formerly known as
Cedelbank SA.
CLOSING DATE -- With respect to any series of securities, the date on
which the securities are issued.
CODE -- The Internal Revenue Code of 1986.
COMMISSION -- The Securities and Exchange Commission.
COMMITTEE REPORT -- The Conference Committee Report accompanying the
Tax Reform Act of 1986.
CONSERVATION ACT -- The Asset Conservation, Lender Liability and
Deposit Insurance Act of 1996.
CONTRACT -- Manufactured housing conditional sales contracts and
installment loan agreements each secured by a Manufactured Home.
CONTRIBUTIONS TAX -- With respect to specific contributions to a REMIC
made after the Closing Date, a tax on the REMIC equal to 100% of the value of
the contributed property.
COOPERATIVE -- With respect to a cooperative mortgage loan, the
corporation that owns the related apartment building.
CRIME CONTROL ACT -- The Comprehensive Crime Control Act of 1984.
DEFAULTED MORTGAGE LOSS -- A Realized Loss other than a Special Hazard
Loss, Extraordinary Loss or other losses resulting from damage to a mortgaged
property, Bankruptcy Loss or Fraud Loss.
DEFERRED INTEREST -- If an adjustment to the mortgage rate on a
mortgage loan has caused the amount of accrued interest on the mortgage loan in
any month to exceed the scheduled monthly payment on the mortgage loan, the
resulting amount of interest that has accrued but is not then payable;
DELETED MORTGAGE LOAN -- A mortgage loan which has been removed from
the related trust fund.
DESIGNATED SELLER TRANSACTION -- A series of securities where the
related mortgage loans are provided either directly or indirectly to the
depositor by one or more Sellers identified in the related prospectus
supplement.
DETERMINATION DATE -- The close of business on the date on which the
amount of each distribution to securityholders will be determined, which shall
be stated in each prospectus supplement.
DIDMC -- The Depository Institutions Deregulation and Monetary Control
Act of 1980.
DISTRIBUTION ACCOUNT -- One or more separate accounts for the
collection of payments on the related mortgage loans and/or mortgage securities
constituting the related trust fund, which may be a Master Servicer Collection
Account.
DOL -- The U.S. Department of Labor.
DOL REGULATIONS -- Regulations by the DOL promulgated at 29
C.F.R.ss.2510.3-101.
DTC - The Depository Trust Company.
DTC REGISTERED SECURITY -- Any security initially issued through the
book-entry facilities of the DTC.
ELIGIBLE ACCOUNT -- An account maintained with a federal or state
chartered depository institution (i) the short-term obligations of which are
rated by each of the Rating Agencies in its highest rating at the time of any
deposit therein, or (ii) insured by the FDIC (to the limits established by the
FDIC), the uninsured deposits in which account are otherwise secured such that,
as evidenced by an opinion of counsel (obtained by and at the expense of the
person requesting that the account be held pursuant to this clause (ii))
delivered to the trustee prior to the establishment of the account, the
securityholders will have a claim with respect to the funds in the account and a
perfected first priority security interest against any collateral (which shall
be limited to Permitted Instruments) securing the funds that is superior to
claims of any other depositors or general creditors of the depository
institution with which the account is maintained or (iii) a trust account or
accounts maintained with a federal or state chartered depository institution or
trust company with trust powers acting in its fiduciary capacity or (iv) an
account or accounts of a depository institution acceptable to the Rating
Agencies (as evidenced in writing by the Rating Agencies that use of any such
account as the Distribution Account will not have an adverse effect on the
then-current ratings assigned to the classes of the securities then rated by the
Rating Agencies). Eligible Accounts may or may not bear interest.
EQUITY CERTIFICATES -- With respect to any series of notes, the
certificate or certificates representing a beneficial ownership interest in the
related issuer.
ERISA -- The Employee Retirement Income Security Act of 1974, as
amended.
ERISA PLANS -- Employee pension and welfare benefit plans subject to
Sections 404 and 406 of ERISA.
EXEMPTION -- An individual prohibited transactions exemption issued by
the DOL to an underwriter, as amended by Prohibited Transaction Exemption
("PTE") 97-34, 62 Fed. Reg. 39021 (July 21,1997), PTE 2000-58, 65 Fed. Reg.
67765 (November 13, 2000), and PTE 2002-41, 67 Fed. Reg. 54487 (August 22,
2002).
EXEMPTION RATING AGENCY -- Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., Moody's Investors Service, Inc., or Fitch, Inc.
EXCHANGE ACT -- The Securities Exchange Act of 1934, as amended.
EXTRAORDINARY LOSS -- Any Realized Loss occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks.
FRAUD LOSS -- A Realized Loss incurred on a defaulted mortgage loan as
to which there was fraud in the origination of the mortgage loan.
FRAUD LOSS AMOUNT - The amount of Fraud Losses that may be allocated to
the credit enhancement of the related series.
FTC RULE -- The so-called "Holder-in-Due-Course" Rule of the Federal
Trade Commission.
GARN-ST GERMAIN ACT -- The Garn-St Germain Depository Institutions Act
of 1982.
GINNIE MAE -- The Government National Mortgage Association.
GLOBAL SECURITIES -- The certificated securities registered in the name
of DTC, its nominee or another depository representing interests in the class or
classes specified in the related prospectus supplement which are held in
book-entry form.
GRANTOR TRUST CERTIFICATE -- A certificate representing an interest in
a Grantor Trust Fund.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATE -- A Grantor Trust
Certificate representing an undivided equitable ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund,
together with interest on the Grantor Trust Certificates at a pass-through rate.
GRANTOR TRUST STRIP CERTIFICATE -- A certificate representing ownership
of all or a portion of the difference between interest paid on the mortgage
loans constituting the related Grantor Trust Fund (net of normal administration
fees and any retained interest of the depositor) and interest paid to the
holders of Grantor Trust Fractional Interest Certificates issued with respect to
the Grantor Trust Fund. A Grantor Trust Strip Certificate may also evidence a
nominal ownership interest in the principal of the mortgage loans constituting
the related Grantor Trust Fund.
GRANTOR TRUST FUND -- A trust fund as to which no REMIC election will
be made and which qualifies as a "grantor trust" within the meaning of Subpart
E, part I of subchapter J of the Code.
HIGH COST LOANS -- Mortgage loans subject to the Homeownership Act,
which amended TILA to provide new requirements applicable to loans that exceed
certain interest rate and/or points and fees thresholds.
HIGH LTV LOANS -- Mortgage loans with Loan-to-Value Ratios in excess of
80% and as high as 150% and which are not be insured by a Primary Insurance
Policy.
HOMEOWNERSHIP ACT --The Home Ownership and Equity Protection Act of
1994.
HOUSING ACT -- The National Housing Act of 1934, as amended.
INDEX -- With respect to an ARM Loan, the related index, which will be
specified in the related prospectus supplement and may include one of the
following indexes: (1) the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of either six months or one year, (2) the weekly
auction average investment yield of U.S. Treasury bills of six months, (3) the
daily Bank Prime Loan rate made available by the Federal Reserve Board, (4) the
cost of funds of member institutions for the Federal Home Loan Bank of San
Francisco, (5) the interbank offered rates for U.S. dollar deposits in the
London market, each calculated as of a date prior to each scheduled interest
rate adjustment date which will be specified in the related prospectus
supplement or (6) any other index described in the related prospectus
supplement.
INSURANCE PROCEEDS -- Proceeds received under any hazard, title,
primary mortgage, FHA or other insurance policy that provides coverage with
respect to a particular mortgaged property or the related mortgage loan (other
than proceeds applied to the restoration of the property or released to the
related borrower in accordance with the customary servicing practices of the
master servicer (or, if applicable, a special servicer) and/or the terms and
conditions of the related mortgage.
INTERMEDIARY -- An institution that is not a participant in the DTC but
clears through or maintains a custodial relationship with a participant.
IRS -- The Internal Revenue Service.
ISSUE PREMIUM -- The excess of the issue price of a REMIC Regular
Certificate over its stated redemption price.
ISSUER -- With respect to a series of notes, the Delaware statutory
trust or other trust, created pursuant to the owner trust agreement, that issues
the notes.
LIQUIDATION PROCEEDS -- (1) All amounts, other than Insurance Proceeds
received and retained in connection with the liquidation of defaulted mortgage
loans or property acquired in respect thereof, by foreclosure or otherwise,
together with the net operating income (less reasonable reserves for future
expenses) derived from the operation of any mortgaged properties acquired by the
trust fund through foreclosure or otherwise and (2) all proceeds of any mortgage
loan or mortgage security purchased (or, in the case of a substitution, amounts
representing a principal adjustment) by the master servicer, the depositor, a
Seller or any other person pursuant to the terms of the related pooling and
servicing agreement or servicing agreement as described under "The Mortgage
Pools--Representations by Sellers," "Servicing of Mortgage Loans--Realization
Upon and Sale of Defaulted Mortgage Loans," "--Assignment of Trust Fund Assets"
above and "The Agreements--Termination."
LOAN-TO-VALUE RATIO -- With respect to any mortgage loan at any given
time is the ratio (expressed as a percentage) of the then outstanding principal
balance of the mortgage loan plus the principal balance of any senior mortgage
loan to the Value of the related mortgaged property.
MANUFACTURED HOME -- Manufactured homes within the meaning of 42 United
States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air conditioning, and electrical systems
contained therein; except that the term shall include any structure which meets
all the requirements of this paragraph except the size requirements and with
respect to which the manufacturer voluntarily files a certification required by
the Secretary of Housing and Urban Development and complies with the standards
established under this chapter."
MASTER SERVICER COLLECTION ACCOUNT -- One or more separate accounts
established by a master servicer, into which each of the related servicers are
required to remit collections of payments on the related mortgage loans included
in the related trust fund.
NET MORTGAGE RATE -- With respect to a mortgage loan, the mortgage rate
net of the per annum rate or rates applicable to the calculation of servicing
and administrative fees and any retained interest of the depositor.
NONRECOVERABLE ADVANCE -- An advance which, in the good faith judgment
of the master servicer or a servicer, as applicable, will not be recoverable
from recoveries on the related mortgage loan or another specifically identified
source.
NOTE MARGIN -- With respect to an ARM Loan, the fixed percentage set
forth in the related mortgage note, which when added to the related Index,
provides the mortgage rate for the ARM Loan.
OID REGULATIONS -- The rules governing original issue discount that are
set forth in Sections 1271-1273 and 1275 of the Code and in the related Treasury
regulations.
OTS -- The Office of Thrift Supervision.
PARTIES IN INTEREST -- With respect to a Plan, persons who have
specified relationships to the Plans, either "Parties in Interest" within the
meaning of ERISA or "Disqualified Persons" within the meaning of Section 4975 of
the Code.
PERCENTAGE INTEREST -- With respect to a security of a particular
class, the percentage obtained by dividing the initial principal balance or
notional amount of the security by the aggregate initial amount or notional
balance of all the securities of the class.
PERMITTED INVESTMENTS -- United States government securities and other
investment grade obligations specified in the related pooling and servicing
agreement or the related servicing agreement and indenture.
PLAN ASSETS -- "Plan assets" of a Plan, within the meaning of the DOL
Regulations.
PLANS -- ERISA Plans and Tax Favored Plans.
PREPAYMENT ASSUMPTION -- With respect to a REMIC Regular Certificate or
a Grantor Trust Certificate, the prepayment assumption used in pricing the
initial offering of that security.
PREPAYMENT INTEREST SHORTFALL -- With respect to any mortgage loan with
a prepayment in part or in full the excess, if any, of interest accrued and
otherwise payable on the related mortgage loan over the interest charged to the
borrower (net of servicing and administrative fees and any retained interest of
the depositor).
PRIMARY INSURANCE COVERED LOSS -- With respect to a mortgage loan
covered by a Primary Insurance Policy, the amount of the related loss covered
pursuant to the terms of the Primary Insurance Policy, which will generally
consist of the unpaid principal amount of the mortgage loan and accrued and
unpaid interest on the mortgage loan and reimbursement of specific expenses,
less (1) rents or other payments collected or received by the insured (other
than the proceeds of hazard insurance) that are derived from the related
mortgaged property, (2) hazard insurance proceeds in excess of the amount
required to restore the related mortgaged property and which have not been
applied to the payment of the mortgage loan, (3) amounts expended but not
approved by the primary insurer, (4) claim payments previously made on the
mortgage loan and (5) unpaid premiums and other specific amounts.
PRIMARY INSURANCE POLICY -- A primary mortgage guaranty insurance
policy.
PRIMARY INSURER -- An issuer of a Primary Insurance Policy.
PROTECTED ACCOUNT -- One or more separate accounts established by each
servicer servicing the mortgage loans, for the collection of payments on the
related mortgage loans included in the related trust fund.
PTCE -- Prohibited Transaction Class Exemption.
QUALIFIED SUBSTITUTE MORTGAGE LOAN -- A mortgage loan substituted for a
Deleted Mortgage Loan, meeting the requirements described under "The Mortgage
Pools-- Representations by Sellers" in this prospectus.
RATING AGENCY -- A "nationally recognized statistical rating
organization" within the meaning of Section 3(a)(41) of the Exchange Act.
REALIZED LOSS -- Any loss on a mortgage loan attributable to the
mortgagor's failure to make any payment of principal or interest as required
under the mortgage note.
RECORD DATE -- The close of business on the last business day of the
month preceding the month in which the applicable distribution date occurs.
RELIEF ACT -- The Servicemembers Relief Act, as amended.
REMIC -- A real estate mortgage investment conduit as defined in
Sections 860A through 860G of the Code.
REMIC ADMINISTRATOR -- The trustee, the master servicer or another
specified party who administers the related REMIC.
REMIC CERTIFICATES -- Certificates evidencing interests in a trust fund
as to which a REMIC election has been made.
REMIC PROVISIONS -- Sections 860A through 860G of the Code.
REMIC REGULAR CERTIFICATE -- A REMIC Certificate designated as a
"regular interest" in the related REMIC.
REMIC REGULAR CERTIFICATEHOLDER -- A holder of a REMIC Regular
Certificate.
REMIC RESIDUAL CERTIFICATE -- A REMIC Certificate designated as a
"residual interest" in the related REMIC.
REMIC RESIDUAL CERTIFICATEHOLDER -- A holder of a REMIC Residual
Certificate.
REMIC REGULATIONS -- The REMIC Provisions and the related Treasury
regulations.
REO MORTGAGE LOAN -- A mortgage loan where title to the related
mortgaged property has been obtained by the trustee or to its nominee on behalf
of securityholders of the related series.
RICO -- The Racketeer Influenced and Corrupt Organizations statute.
SECURITIES ACT -- The Securities Act of 1933, as amended.
SELLER -- The seller of the mortgage loans or mortgage securities
included in a trust fund to the depositor with respect a series of securities,
who shall be an Affiliated Seller or an Unaffiliated Seller.
SINGLE FAMILY PROPERTY -- An attached or detached one-family dwelling
unit, two-to four-family dwelling unit, condominium, townhouse, row house,
individual unit in a planned-unit development and other individual dwelling
units.
SMMEA -- The Secondary Mortgage Market Enhancement Act of 1984.
SPECIAL HAZARD AMOUNT - The amount of Special Hazard Losses that may be
allocated to the credit enhancement of the related series.
SPECIAL HAZARD LOSS -- (1) 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 (2) losses from partial
damage caused by reason of the application of the co-insurance clauses contained
in hazard insurance policies.
STRIP SECURITY -- A security which will be entitled to (1) principal
distributions, with disproportionate, nominal or no interest distributions or
(2) interest distributions, with disproportionate, nominal or no principal
distributions.
TAX FAVORED PLANS -- Plans that meet the definition of "plan" in
Section 4975(e)(1) of the Code, including tax-qualified retirement plans
described in Section 401(a) of the Code and individual retirement accounts and
annuities described in Section 408 of the Code.
TILA -- The Federal Truth-in-Lending Act.
TITLE V -- Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, enacted in March 1980.
TITLE VIII -- Title VIII of the Garn-St Germain Act.
UNAFFILIATED SELLERS -- Banks, savings and loan associations, mortgage
bankers, mortgage brokers, investment banking firms, the Resolution Trust
Corporation, the FDIC and other mortgage loan originators or sellers not
affiliated with the depositor.
UNITED STATES PERSON -- A citizen or resident of the United States, a
corporation or partnership (including an entity treated as a corporation or
partnership for federal income tax purposes) created or organized in, or under
the laws of, the United States or any state thereof or the District of Columbia
(except, in the case of a partnership, to the extent provided in regulations),or
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. To the extent prescribed in regulations by the Secretary
of the Treasury, which have not yet been issued, a trust which was in existence
on August 20, 1996 (other than a trust treated as owned by the grantor under
subpart E of part I of subchapter J of chapter 1 of the Code), and which was
treated as a United States person on August 20, 1996 may elect to continue to be
treated as a United States person notwithstanding the previous sentence.
VALUE -- With respect to a mortgaged property securing a single family,
multifamily, commercial or mixed-use loan, the lesser of (x) the appraised value
determined in an appraisal obtained at origination of the mortgage loan, if any,
or, if the related mortgaged property has been appraised subsequent to
origination, the value determined in the subsequent appraisal and (y) the sales
price for the related mortgaged property (except in circumstances in which there
has been a subsequent appraisal). However, in the case of refinanced, modified
or converted single family, multifamily, commercial or mixed-use loans, the
"Value" of the related mortgaged property will be equal to the lesser of (x) the
appraised value of the related mortgaged property determined at origination or
in an appraisal, if any, obtained at the time of refinancing, modification or
conversion and (y) the sales price of the related mortgaged property or, if the
mortgage loan is not a rate and term refinance mortgage loan and if the
mortgaged property was owned for a relatively short period of time prior to
refinancing, modification or conversion, the sum of the sales price of the
related mortgaged property plus the added value of any improvements. With
respect to a new Manufactured Home, the "Value" is no greater than the sum of a
fixed percentage of the list price of the unit actually billed by the
manufacturer to the dealer (exclusive of freight to the dealer site), including
"accessories" identified in the invoice, plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit, and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. With respect to a used
Manufactured Home, the "Value" is the least of the sale price, the appraised
value, and the National Automobile Dealer's Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a Manufactured Home
is based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable. An appraisal for purposes of determining the Value of a mortgaged
property may include an automated valuation.
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING OF AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-___ IN THIS
PROSPECTUS SUPPLEMENT. The certificates offered hereby represent an interest
solely in MILA Mortgage Acceptance, Inc. Trust Series ____-_ and do not
represent interests in or obligations of the sponsor, depositor, or any of their
affiliates.
Distributions on the offered certificates will be made on the 25th day of each
month, or, if such day is not a business day, on the next succeeding business
day, beginning in [__].
Subject to Completion, Dated February [__], 2006 [Version 1]
Prospectus Supplement (To Prospectus dated _____________, ____)
$_______________ (Approximate)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-__
MILA Mortgage Acceptance, Inc. Trust Series ____-__
Issuing Entity
[NAME OF MASTER SERVICER]
Master Servicer
[NAME OF SPONSOR]
Sponsor
MILA Mortgage Acceptance, Inc.
Depositor
- --------------------------------------------------------------------------------
THE TRUST
The trust will consist primarily of a mortgage pool of one- to four-family
[fixed-rate] residential mortgage loans. The trust will be represented by ______
classes of certificates, ______ of which are offered under this prospectus
supplement.
CREDIT ENHANCEMENT
o the offered certificates will have credit enhancement in the form of
subordination
The price to investors will vary from time to time and will be determined at the
time of sale. The proceeds to the depositor from the offering are expected to be
approximately ___% of the aggregate principal balance of the offered
certificates, less expenses which are estimated to be $_______. SEE "METHOD OF
DISTRIBUTION" IN THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS 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.
[NAME OF UNDERWRITER]
Underwriter
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of this
series of certificates.
The depositor's principal offices are located at 6021 244th Street SW, Mountlake
Terrace, WA 98043 and its phone number is (800) 332-6452.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT................................................
TRANSACTION STRUCTURE...........................................................
RISK FACTORS....................................................................
THE MORTGAGE POOL...............................................................
STATIC POOL INFORMATION.........................................................
MORTGAGE LOAN ORIGINATION.......................................................
ADDITIONAL INFORMATION..........................................................
YIELD ON THE CERTIFICATES.......................................................
MARKET INTEREST RATE AND SUBORDINATION YIELD CONSIDERATIONS.....................
ASSUMED MORTGAGE LOAN CHARACTERISTICS...........................................
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES...................................
YIELD SENSITIVITY OF THE SUBORDINATE CERTIFICATES...............................
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES..
DESCRIPTION OF THE CERTIFICATES.................................................
POOLING AND SERVICING AGREEMENT.................................................
FEDERAL INCOME TAX CONSEQUENCES.................................................
METHOD OF DISTRIBUTION..........................................................
SECONDARY MARKET................................................................
LEGAL OPINIONS..................................................................
LEGAL PROCEEDINGS...............................................................
AFFILIATIONS, RELATIONSHIPS AND RELATED TRANSACTIONS............................
RATINGS.........................................................................
LEGAL INVESTMENT................................................................
ERISA CONSIDERATIONS............................................................
GLOSSARY........................................................................
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A BRIEF DESCRIPTION OF THE IMPORTANT FEATURES OF THE
OFFERED CERTIFICATES BUT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF
THE OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS. A GLOSSARY IS INCLUDED AT THE END OF THIS
PROSPECTUS SUPPLEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED IN THE GLOSSARY AT
THE END OF THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO THEM IN THE
GLOSSARY AT THE END OF THE PROSPECTUS.
Issuing Entity........................ MILA Mortgage Acceptance, Inc. Trust
Series ____-_.
Title of Series....................... MILA Mortgage Acceptance, Inc., Mortgage
Pass-Through Certificates, Series ____-_.
Cut-off Date.......................... __________ __, ____.
Closing Date.......................... On or about __________ __, ____.
Originator............................ [Name of Originator].
Sponsor............................... [Name of Sponsor].
Depositor............................. MILA Mortgage Acceptance, Inc., an
affiliate of MILA, Inc.
Master Servicer....................... [Name of Master Servicer].
Trustee............................... [Name of Trustee].
Distribution Dates.................... Distributions on the offered certificates
will be made on the ___ day of each
month, or, if such day is not a business
day, on the next succeeding business day,
beginning in _____________ ____.
Offered Certificates The classes of offered certificates and
their pass-through rates and certificate
principal balances or notional amounts
are set forth in the table below.
- -------------------------------------------------------------------------------------------------------------
CLASS PASS-THROUGH RATE CERTIFICATE PRINCIPAL INITIAL RATING DESIGNATION
BALANCE(1)
- -------------------------------------------------------------------------------------------------------------
A-1..................... _____% $______________ (___/___)
A-2..................... _____% $______________ (___/___)
A-3..................... _____% $______________ (___/___)
A-4..................... _____% $______________ (___/___)
A-5..................... _____% $______________ (___/___)
A-6..................... _____% $______________ (___/___)
X....................... _____% $_____________ (2) (___/___)
B-1..................... _____% $______________ (___/___)
B-2..................... _____% $______________ (___/___)
B-3..................... _____% $______________ (___/___)
R....................... _____% $ 100 (___/___)
- ----------------------
(1) Approximate.
(2) Approximate initial notional amount.
NOTE:
The certificates offered hereby represent interests solely in MILA Mortgage
Acceptance, Inc. Trust Series ____-_ and do not represent interests in or
obligations of the sponsor, depositor, or any of their affiliates.
THE TRUST
The depositor will establish a trust with respect to the Series ____-_
Certificates, pursuant to a pooling and servicing agreement dated as of
__________ __, ____ among the depositor, the master servicer and the trustee.
There are _____ classes of certificates representing the trust.
SEE "DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
The certificates represent in the aggregate the entire beneficial ownership
interest in the trust. Distributions of interest and/or principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described below.
THE ORIGINATOR
Approximately [__]% of the mortgage loans in the aggregate, were originated by
[Name of Originator]. The remainder of the mortgage loans were originated by
various originators, none of which have originated more than 10% (measured by
aggregate principal balance) of the mortgage loans in the aggregate.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
[fixed-rate] mortgage loans secured by first liens on residential real
properties. The mortgage loans have an aggregate principal balance of
approximately $__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____.
Range of mortgage rates
(approximate): _____% to _____%.
Weighted average mortgage rate
(approximate): ______%.
Weighted average remaining
term to stated maturity months. ___ years and ___
months.
Range of principal balances $__________ to
(approximate): $____________.
Average principal balance: $_____________.
Range of loan-to-value ratios
(approximate): ____% to ____%.
Weighted average loan-to-value ______%.
ratio (approximate):
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
REMOVAL AND SUBSTITUTION OF A MORTGAGE LOAN
The trustee will acknowledge the sale, transfer and assignment of the trust fund
to it by the depositor and receipt of, subject to further review and the
exceptions, the mortgage loans. If the trustee finds that any mortgage loan is
defective on its face due to a breach of the representations and warranties with
respect to that loan made in the transaction agreements, the trustee shall
promptly notify the sponsor of such defect. The sponsor must then correct or
cure any such defect within 90 days from the date of notice from the trustee of
the defect and if the sponsor fails to correct or cure such defect within such
period and such defect materially and adversely affects the interests of the
certificateholders in the related mortgage loan, the sponsor will, in accordance
with the terms of the pooling and servicing agreement, within 90 days of the
date of notice, provide the trustee with a substitute mortgage loan (if within
two years of the closing date); provided that, if such defect would cause the
mortgage loan to be other than a "qualified mortgage" as defined in Section
860G(a)(3) of the Internal Revenue Code, any such cure or substitution must
occur within 90 days from the date such breach was discovered.
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table above in this prospectus supplement. The pass-through rates
on each class of offered certificates (other than the Class X Certificates) are
fixed and shown in the table above.
The pass-through rate on the Class X Certificates is variable. Investors in the
Class X Certificates should fully consider the risk that a rapid rate of
prepayments on the mortgage loans that have net mortgage rates higher than ____%
could result in the failure of these investors to fully recover their
investments.
[The Class PO Certificates are not entitled to interest payments and their yield
is extremely sensitive to the rate of prepayments on the mortgage loans.]
DISTRIBUTIONS ON THE CERTIFICATES
INTEREST DISTRIBUTIONS
Distributions on each distribution date will be made to the extent of the
available distribution amount.
Distributions in respect of interest will be made (1) on each distribution date
to the holders of the senior certificates and, on the first distribution date,
to the holders of the residual certificates, in an aggregate amount equal to the
senior interest distribution amount and (2) on each distribution date to the
holders of the subordinate certificates, in an aggregate amount equal to the
subordinate interest distribution amount, to the extent of the portion of the
available distribution amount remaining after distribution of the senior
interest distribution amount and the senior principal distribution amount.
All distributions of interest will be based on a 360 day year consisting of
twelve 30 day months. Except as otherwise described in this prospectus
supplement, on any distribution date, distributions of the interest distribution
amount for a class of certificates will be made, to the extent provided in this
prospectus supplement, on a pari passu basis, based on the certificate principal
balance or notional amount, as applicable, of the certificates of each such
class.
Distributions of the subordinate interest distribution amount on each
distribution date will be made first, to the holders of the Class B 1
Certificates, second to the holders of the Class B 2 Certificates, third to the
holders of the Class B 3 Certificates, and then to the holders of the remaining
classes of subordinate certificates, in each case to the extent of available
funds and in each case to the extent of the interest distribution amount for
these certificates for the distribution date.
PRINCIPAL DISTRIBUTIONS
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Distributions in respect of principal will be made on each distribution date to
the holders of the class or classes of the Class A Certificates then entitled to
distributions in respect of principal, and on the first distribution date to the
holders of the residual certificates, in an aggregate amount equal to the senior
principal distribution amount.
Holders of the Class X Certificates are not entitled to receive any
distributions allocable to principal.
The senior percentage initially will equal approximately _____%, and will in no
event exceed 100%.
PRIORITY OF PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES AND THE RESIDUAL
CERTIFICATES
Distributions of the senior principal distribution amount on the Class A
Certificates and the residual certificates on each distribution date will be
made as follows:
(1) First, concurrently, to the holders of each class of the residual
certificates on the distribution date in ________ ____, an amount equal to the
entire certificate principal balance thereof;
(2) Second, to the holders of the lockout certificates, the lockout
distribution percentage of the senior principal distribution amount, until the
certificate principal balance thereof has been reduced to zero;
(3) Third, to the holders of the Class A 1 Certificates, until the
certificate principal balance thereof has been reduced to zero;
(4) Fourth, to the holders of the Class A 2 Certificates, until the
certificate principal balance thereof has been reduced to zero;
(5) Fifth, to the holders of the Class A 3 Certificates, until the
certificate principal balance thereof has been reduced to zero;
(6) Sixth, to the holders of the Class A 4 Certificates, until the
certificate principal balance thereof has been reduced to zero;
(7) Seventh, to the holders of the Class A 5 Certificates, until the
certificate principal balance thereof has been reduced to zero;
(8) Eighth, to the holders of the Lockout Certificates, until the
certificate principal balance thereof has been reduced to zero.
Notwithstanding the foregoing priorities, upon the reduction of the certificate
principal balances of the subordinate certificates to zero, the priority of
distributions of principal among the Class A Certificates will be disregarded
and distributions allocable to principal will be paid on each succeeding
distribution date to holders of the Class A Certificates, on a pro rata basis,
based on the certificate principal balances thereof.
PRINCIPAL DISTRIBUTION ON THE SUBORDINATE CERTIFICATES
Holders of each class of subordinate certificates will be entitled to receive on
each distribution date, to the extent of the portion of the available
distribution amount remaining after distribution of the senior interest
distribution amount, the senior principal distribution amount and the
subordinate interest distribution amount, distributions allocable to principal
in reduction of the certificate principal balances.
All mortgagor prepayments not otherwise distributable to the senior certificates
will be allocated on a pro rata basis among the class of Class B Certificates
with the highest payment priority then outstanding and each other class of Class
B Certificates for which certain loss levels established for such class in the
agreement have not been exceeded. The related loss level on any distribution
date would be satisfied as to any Class B-2, Class B-3, Class B-4, Class B-5 or
Class B-6 Certificates, respectively, only if the sum of the current percentage
interests in the mortgage pool evidenced by such class and each class, if any,
subordinate thereto were at least equal to the sum of the initial percentage
interests in the mortgage pool evidenced by such class and each class, if any,
subordinate thereto.
For purposes of all principal distributions described above and for calculating
the subordinate percentage, the applicable certificate principal balance for any
distribution date shall be determined after the allocation of losses on the
mortgage loans in the mortgage pool to be made on such distribution date.
As stated above under "Principal Distributions on the Senior Certificates", for
each distribution date occurring prior to the distribution date in ________
____, the senior prepayment percentage will equal 100%, and until the earlier of
such date and the date on which the Class A Certificates are paid in full, no
distributions based on principal prepayments or, in some instances, net
liquidation proceeds, on the mortgage loans will be distributed to the
subordinate certificates. Thereafter, unless the certificate principal balances
of the senior certificates have been reduced to zero, the subordinate prepayment
percentage may continue to be 0% or otherwise be disproportionately small
relative to the subordinate percentage.
Distributions of the subordinate principal distribution amount on each
distribution date will be made as follows: first to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of subordinate certificates, in each case to the extent of available
funds and in each case to the extent of the portion of the subordinate principal
distribution amount payable in respect of each such class of subordinate
certificates for such distribution date.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of subordination as described under "Description of the
Certificates--Allocation of Losses; Subordination" in this prospectus
supplement.
ADVANCES
Each servicer will make cash advances with respect to delinquent payments of
scheduled interest and principal on the mortgage loans for which it acts as
servicer, in general, to the extent that such servicer reasonably believes that
such cash advances can be repaid from future payments on the related mortgage
loans. If the related servicer fails to make any required advances, the master
servicer may be obligated to do so, as described in this prospectus supplement.
These cash advances are only intended to maintain a regular flow of scheduled
interest and principal payments on the certificates and are not intended to
guarantee or insure against losses.
SERVICING FEE
With respect to each mortgage loan, the amount of the annual master servicing
fee that shall be paid to the master servicer is, for a period of one full
month, equal to one-twelfth of the product of (a) [___]% and (b) the outstanding
principal balance of the mortgage loan. Such fee shall be payable monthly,
computed on the basis of the same principal amount and period respecting which
any related interest payment on a mortgage loan is computed. The obligation to
pay the master servicing fee is limited to, and the master servicing fee is
payable from the interest portion of such monthly payments collected. The master
servicer will pay the trustee fee and the servicing fees from its fee.
OPTIONAL TERMINATION
At its option, the master servicer may purchase all of the mortgage loans,
together with any properties in respect thereof acquired on behalf of the trust,
and thereby effect termination and early retirement of the certificates, after
the aggregate principal balance of the mortgage loans (and properties acquired
in respect thereof) remaining in the trust has been reduced to less than [10%]
of the aggregate principal balance of the mortgage loans as of __________ __,
____. SEE "POOLING AND SERVICING AGREEMENT--TERMINATION" IN THIS PROSPECTUS
SUPPLEMENT.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust as a real estate mortgage investment
conduit for federal income tax purposes.
SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT.
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates receive the following ratings from [______________ and
__________________]:
OFFERED CERTIFICATES [RA] [RA]
- -------------------- ----- -----
Class A-1 through Class
A6 [___] [___]
Class X [___] [___]
Class B-1 [___] [___]
Class B2 [___] [___]
Class B3 [___] [___]
Class R [___] [___]
- ---------------------
[(1) Not rated.]
SEE "YIELD ON THE CERTIFICATES" AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND
"YIELD CONSIDERATIONS" IN THE PROSPECTUS.
LEGAL INVESTMENT
The offered certificates (other than the Class ___ and Class ___ Certificates)
will constitute "mortgage related securities" for purposes of SMMEA. The Class
___ Certificates and the Class ___ Certificates will not constitute "mortgage
related securities" for purposes of SMMEA.
SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
The offered certificates (other than the Class R Certificates) may be purchased
by persons investing assets of employee benefit plans or individual retirement
accounts, subject to important considerations. Plans are encouraged to consult
with their legal advisors before investing in the offered certificates.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT.
TRANSACTION STRUCTURE
RISK FACTORS
You should carefully consider, among other things, the following
factors in connection with the purchase of the offered certificates:
[APPROPRIATE RISK FACTORS FROM THE FOLLOWING LIST AS NECESSARY]
THE OFFERED CERTIFICATES WILL HAVE LIMITED LIQUIDITY, SO YOU MAY BE UNABLE TO
SELL YOUR SECURITIES OR MAY BE FORCED TO SELL THEM AT A DISCOUNT FROM THEIR FAIR
MARKET VALUE
There can be no assurance that a secondary market for the offered
certificates of any series will develop or, if it does develop, that it will
provide offered certificateholders with liquidity of investment or that it will
continue for the life of the offered certificates of any series. The prospectus
supplement for any series of offered certificates may indicate that an
underwriter specified therein intends to establish a secondary market in the
offered certificates, however no underwriter will be obligated to do so. As a
result, any resale prices that may be available for any offered certificate in
any market that may develop may be at a discount from the initial offering price
or the fair market value thereof. The offered certificates will not be listed on
any securities exchange.
CREDIT ENHANCEMENT IS LIMITED; THE FAILURE OF CREDIT ENHANCEMENT TO COVER LOSSES
ON THE TRUST FUND ASSETS MAY RESULT IN LOSSES ALLOCATED TO THE OFFERED
CERTIFICATES
With respect to the offered certificates, credit enhancement will be
provided in limited amounts to cover various types of losses on the underlying
mortgage loans. Credit enhancement will be provided in one or more of the forms
referred to in this prospectus supplement, including: subordination of any
subordinate securities of the same series; a financial guaranty insurance
policy; a letter of credit; a purchase obligation; a mortgage pool insurance
policy; a special hazard insurance policy; overcollateralization; a reserve
fund; a cash flow agreement; or any combination thereof. SEE "SUBORDINATION" AND
"DESCRIPTION OF CREDIT ENHANCEMENT" IN THE PROSPECTUS. 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, credit enhancement may provide only very
limited coverage as to some types of losses or risks, and may provide no
coverage as to 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, they will be borne by the holders of
the related offered certificates in the order described in this prospectus
supplement. The depositor, the master servicer or other specified person will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of offered certificates, if each
applicable rating agency indicates that the then-current rating(s) thereof will
not be adversely affected. The ratings of any series of offered certificates by
any applicable rating agencies may be lowered following the initial issuance
thereof as a result of the downgrading of the obligations of any applicable
credit support provider, or as a result of losses on the related mortgage loans
in excess of the levels contemplated by the rating agencies at the time of their
initial rating analysis. Neither the depositor, the master servicer nor any of
their respective affiliates will have any obligation to replace or supplement
any credit enhancement, or to take any other action to maintain any rating(s) of
any series of offered certificates. SEE "DESCRIPTION OF CREDIT
ENHANCEMENT--REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT" IN THE PROSPECTUS.
THE RATINGS ON THE OFFERED CERTIFICATES ARE NOT A RECOMMENDATION TO BUY, SELL OR
HOLD THE OFFERED CERTIFICATES AND ARE SUBJECT TO WITHDRAWAL AT ANY TIME, WHICH
MAY RESULT IN LOSSES ON THE OFFERED CERTIFICATES.
It is a condition to the issuance of the offered certificates that each
class of offered certificates be rated in one of the four highest rating
categories by a nationally recognized statistical rating agency. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time. No person is obligated to
maintain the rating on any offered certificate, and, accordingly, there can be
no assurance that the ratings assigned to any offered certificate on the date on
which the offered certificates are initially issued will not be lowered or
withdrawn by a rating agency at any time thereafter. In the event any rating is
revised or withdrawn, the liquidity or the market value of the related offered
certificates may be adversely affected. SEE "RATINGS" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
STATUTORY AND JUDICIAL LIMITATIONS ON FORECLOSURE PROCEDURES MAY DELAY RECOVERY
IN RESPECT OF THE MORTGAGED PROPERTY AND, IN SOME INSTANCES, LIMIT THE AMOUNT
THAT MAY BE RECOVERED BY THE FORECLOSING LENDER, RESULTING IN LOSSES ON THE
MORTGAGE LOANS THAT MIGHT BE ALLOCATED TO THE OFFERED CERTIFICATES.
Foreclosure procedures may vary from state to state. Two primary
methods of foreclosing a mortgage instrument are judicial foreclosure, involving
court proceedings, and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. A foreclosure action is subject to most of
the delays and expenses of other lawsuits if defenses are raised or
counterclaims are asserted. Delays may also result from difficulties in locating
necessary defendants. Non-judicial foreclosures may be subject to delays
resulting from state laws mandating the recording of notice of default and
notice of sale and, in some states, notice to any party having an interest of
record in the real property, including junior lienholders. Some states have
adopted "anti-deficiency" statutes that limit the ability of a lender to collect
the full amount owed on a loan if the property sells at foreclosure for less
than the full amount owed. In addition, United States courts have traditionally
imposed general equitable principles to limit the remedies available to lenders
in foreclosure actions that are perceived by the court as harsh or unfair. The
effect of these statutes and judicial principles may be to delay and/or reduce
distributions in respect of the offered certificates. SEE "LEGAL ASPECTS OF
MORTGAGE LOANS--FORECLOSURE ON MORTGAGE LOANS" IN THE PROSPECTUS.
THE VALUE OF THE MORTGAGE LOANS MAY BE AFFECTED BY, AMONG OTHER THINGS, A
DECLINE IN REAL ESTATE VALUES AND CHANGES IN THE BORROWERS' FINANCIAL CONDITION,
WHICH MAY RESULT IN LOSSES ON THE OFFERED CERTIFICATES.
No assurance can be given that values of the mortgaged properties have
remained or will remain at their levels on the dates of origination of the
related mortgage loans. If the residential real estate market should experience
an overall decline in property values so that the outstanding balances of the
mortgage loans, and any secondary financing on the mortgaged properties, in a
particular mortgage pool become equal to or greater than the value of the
mortgaged properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In particular, mortgage loans with high loan-to-value ratios will be
affected by any decline in real estate values. Any decrease in the value of the
mortgage loans may result in the allocation of losses which are not covered by
credit enhancement to the offered certificates.
THE MORTGAGE LOANS WERE UNDERWRITTEN TO NON-CONFORMING UNDERWRITING STANDARDS,
WHICH MAY RESULT IN LOSSES OR SHORTFALLS TO BE INCURRED ON THE OFFERED
CERTIFICATES
The mortgage loans were underwritten generally in accordance with
underwriting standards which are primarily intended to provide for single family
"non-conforming" mortgage loans. A "non-conforming" mortgage loan means a
mortgage loan which is ineligible for purchase by Fannie Mae or Freddie Mac due
to either credit characteristics of the related mortgagor or documentation
standards in connection with the underwriting of the related mortgage loan that
do not meet the Fannie Mae or Freddie Mac underwriting guidelines for "A" credit
mortgagors. These credit characteristics include mortgagors whose
creditworthiness and repayment ability do not satisfy such Fannie Mae or Freddie
Mac underwriting guidelines and mortgagors who may have a record of credit
write-offs, outstanding judgments, prior bankruptcies and other credit items
that do not satisfy such Fannie Mae or Freddie Mac underwriting guidelines.
These documentation standards may include mortgagors who provide limited or no
documentation in connection with the underwriting of the related mortgage loan.
Accordingly, mortgage loans underwritten under the sponsor's non-conforming
credit underwriting standards are likely to experience rates of delinquency,
foreclosure and loss that are higher, and may be substantially higher, than
mortgage loans originated in accordance with the Fannie Mae or Freddie Mac
underwriting guidelines. Any resulting losses, to the extent not covered by
credit enhancement, will affect the yield to maturity of the offered
certificates.
THE MORTGAGE LOANS HAVE VARIABLE PAYMENTS, WHICH MAY RESULT IN LOSSES WITH
RESPECT TO THESE MORTGAGE LOANS
Some of the types of loans included in the mortgage pool may involve
additional uncertainties not present in traditional types of loans. In the case
of mortgage loans that are subject to negative amortization, due to the addition
to principal balance of deferred interest, the principal balances of these
mortgage loans could be increased to an amount equal to or in excess of the
value of the underlying mortgaged properties, thereby increasing the likelihood
of default. In the case of buydown loans, the increase in the monthly payment by
the mortgagor during and following the buydown period may result in an increased
risk of default on a buydown loan. Some of the mortgage loans 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. In some
instances, mortgagors may not be able to make their loan payments as payments
increase and thus the likelihood of default will increase.
This is a consideration with respect to revolving credit loans, since
additional draws may be made by the mortgagor in the future up to the applicable
credit limit. Although revolving credit loans are generally subject to
provisions whereby the credit limit may be reduced as a result of a material
adverse change in the mortgagor's economic circumstances, the servicer or master
servicer generally will not monitor for these changes and may not become aware
of them until after the mortgagor has defaulted. Under extreme circumstances, a
mortgagor may draw his entire credit limit in response to personal financial
needs resulting from an adverse change in circumstances. For a series of offered
certificates backed by the trust balances of revolving credit loans, even though
the trust balance of a revolving credit loan will not increase as a result of
draws after the offered certificates are issued, the foregoing considerations
are relevant because the trust balance will share pro rata in any losses
incurred on a revolving credit loan.
Any risks associated with the variable payments of the mortgage loans
may affect the yield to maturity of the offered certificates to the extent of
losses caused by these risks which are not covered by credit enhancement are
allocated to the offered certificates.
THE MORTGAGE LOANS ARE SECURED BY JUNIOR LIENS, WHICH MAY RESULT IN LOSSES WITH
RESPECT TO THESE MORTGAGE LOANS
The mortgage loan are secured by second liens on the related mortgaged
properties. As to mortgage loans secured by second mortgages, the proceeds from
any liquidation, insurance or condemnation proceedings will be available to
satisfy the outstanding balance of these mortgage loans only to the extent that
the claims of the senior mortgages have been satisfied in full, including any
related foreclosure costs. In addition, the holder of a mortgage loan secured by
a junior mortgage may not foreclose on the mortgaged property unless it
forecloses subject to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages to the senior mortgagees at or prior
to the foreclosure sale or undertake the obligation to make payments on the
senior mortgages in the event the mortgagor is in default. The trust fund will
not have any source of funds to satisfy the senior mortgages or make payments
due to the senior mortgagees, although the master servicer or servicer may, at
its option, advance these amounts to the extent deemed recoverable and prudent.
In the event that proceeds from a foreclosure or similar sale of the related
mortgaged property are insufficient to satisfy all senior liens and the mortgage
loan in the aggregate, the trust fund, as the holder of the junior lien, and,
accordingly, holders of one or more classes of the offered certificates, to the
extent not covered by credit enhancement, are likely to (1) incur losses in
jurisdictions in which a deficiency judgment against the borrower is not
available, and (2) incur losses if any deficiency judgment obtained is not
realized upon. In addition, the rate of default of second mortgage loans may be
greater than that of mortgage loans secured by first liens on comparable
properties.
SOME OF THE MORTGAGE LOANS ARE HIGH BALANCE MORTGAGE LOANS
________ mortgage loans, constituting _____% of the mortgage loans,
have a principal balance of over $_______________ as of the cut-off date.
Investors are urged to consider the risk that the prepayment, loss and
delinquency experience on these mortgage loans may have a disproportionate
effect on the mortgage loans as a whole. A prepayment of these mortgage loans
may result in a substantial reduction of the weighted average life of the senior
certificates. A loss of the entire principal balance of these mortgage loans may
result in a substantial realized loss, which maybe allocated to the offered
certificates.
THE MORTGAGE LOANS ARE CONCENTRATED IN THE STATE OF [NAME OF STATE], WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
Approximately ___% of the mortgage loans are in the state of [Name of
State.] [Mortgage loans secured by properties located in the State of California
are more likely to incur defaults or losses as a result of physical damage to
the properties resulting from natural causes such as earthquake, mudslide and
wildfire, as compared to mortgage loans secured by properties located in other
locations.] Investors should note that some geographic regions of the United
States from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency than will be experienced on mortgage loans generally. For example, a
region's economic condition and housing market may be directly, or indirectly,
adversely affected by natural disasters or civil disturbances such as
earthquakes, hurricanes, floods, eruptions or riots. The economic impact of any
of these types of events may also be felt in areas beyond the region immediately
affected by the disaster or disturbance. The mortgage loans securing the offered
certificates may be concentrated in these regions, and any concentration may
present risk considerations in addition to those generally present for similar
mortgage-backed securities without this concentration. Moreover, as described
below, any mortgage loan for which a breach of a representation or warranty
exists will remain in the related trust fund in the event that a sponsor is
unable, or disputes its obligation, to repurchase the mortgage loan and the
breach does not also constitute a breach of any representation made by any other
person. In this event, any resulting losses will be borne by the related form of
credit enhancement, to the extent available. Any risks associated with mortgage
loan concentration may affect the yield to maturity of the offered certificates
to the extent losses caused by these risks which are not covered by [credit
enhancement] are allocated to the offered certificates.
SOME OF THE MORTGAGE LOANS PROVIDE FOR BALLOON PAYMENTS AT MATURITY, WHICH MAY
RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO THESE MORTGAGE LOANS
Approximately ___% of the mortgage loans are balloon loans. These
mortgage loans will require substantial payments of principal and interest (that
is, balloon payments) at their stated maturity. Mortgage loans of this type
involve a greater degree of risk than self-amortizing loans because the ability
of a mortgagor to make a balloon payment typically will depend upon its ability
either to fully refinance the loan or to sell the related mortgaged property at
a price sufficient to permit the mortgagor to make the balloon payment. The
ability of a mortgagor to accomplish either of these goals will be affected by a
number of factors, including the value of the related mortgaged property, the
level of available mortgage rates at the time of sale or refinancing, the
mortgagor's equity in the related mortgaged property, prevailing general
economic conditions, the availability of credit for loans secured by comparable
real properties. Any risks associated with the balloon loans may affect the
yield to maturity of the offered certificates to the extent losses caused by
these risks which are not covered by credit enhancement are allocated to the
offered certificates.
SOME OF THE MORTGAGE LOANS HAVE AN INITIAL INTEREST ONLY PERIOD, WHICH MAY
RESULT IN INCREASED DELINQUENCIES AND LOSSES WITH RESPECT TO THESE MORTGAGE
LOANS
Approximately ____%, ____%, ____%, ____% and ____% of the sample
mortgage loans (by aggregate outstanding principal balance of the sample
mortgage loans as of the cut-off date) have initial interest only periods of
thirty months, three years, five years, seven years and ten years, respectively.
During this period, the payment made by the related borrower will be less than
it would be if the mortgage loan amortized. In addition, the mortgage loan
balance will not be reduced by the principal portion of scheduled monthly
payments during this period. As a result, no principal payments will be made to
the offered certificates from these mortgage loans during their interest only
period except in the case of a prepayment.
After the initial interest only period, the scheduled monthly payment
on these mortgage loans will increase, which may result in increased
delinquencies by the related borrowers, particularly if interest rates have
increased and the borrower is unable to refinance. In addition, losses may be
greater on these mortgage loans as a result of the mortgage loan not amortizing
during the early years of these mortgage loans. Although the amount of principal
included in each scheduled monthly payment for a traditional mortgage loan is
relatively small during the first few years after the origination of a mortgage
loan, in the aggregate the amount can be significant. Any resulting
delinquencies and losses, to the extent not covered by credit enhancement, will
be allocated to the offered certificates.
Mortgage loans with an initial interest only period are relatively new
in the mortgage marketplace. The performance of these mortgage loans may be
significantly different than mortgage loans that fully amortize. In particular,
there may be a higher expectation by these borrowers of refinancing their
mortgage loans with a new mortgage loan, in particular one with an initial
interest only period, which may result in higher or lower prepayment speeds than
would otherwise be the case. In addition, the failure to build equity in the
property by the related mortgagor may affect the delinquency and prepayment of
these mortgage loans.
THE MORTGAGE LOANS MAY HAVE LIMITED RECOURSE TO THE RELATED BORROWER, WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
Some or all of the mortgage loans included in the trust fund will be
nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those mortgage loans, recourse in the event of mortgagor
default will be limited to the specific real property and other assets, if any,
that were pledged to secure the mortgage loan. However, even with respect to
those mortgage loans that provide for recourse against the mortgagor and its
assets generally, there can be no assurance that enforcement of the recourse
provisions will be practicable, or that the other assets of the mortgagor will
be sufficient to permit a recovery in respect of a defaulted mortgage loan in
excess of the liquidation value of the related mortgaged property. Any risks
associated with mortgage loans with no or limited recourse may affect the yield
to maturity of the offered certificates to the extent losses caused by these
risks which are not covered by credit enhancement are allocated to the offered
certificates.
THE MORTGAGE LOANS HAVE HIGH COMBINED LOAN-TO-VALUE RATIOS, SO THAT THE RELATED
BORROWER HAS LITTLE OR NO EQUITY IN THE RELATED MORTGAGED PROPERTY, WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
The mortgage loans have combined loan-to-value ratios in excess of
100%. These mortgage loans were originated with a limited expectation of
recovering any amounts from the foreclosure of the related mortgaged property
and are underwritten with an emphasis on the creditworthiness of the related
borrower.
If these mortgage loans go into foreclosure and are liquidated, there
may be no amounts recovered from the related mortgaged property because the
value of the collateral with respect to such mortgage loan may be less than the
amount of the mortgage loan. Unless the value of the property increases or the
principal amount of the related senior liens have been reduced so as to reduce
the current combined loan-to-value ratio of the related mortgage loan to below
100%, there may be no recovery from the related mortgaged property in the event
of foreclosure. Any resulting losses, to the extent not covered by credit
enhancement, may affect the yield to maturity of the offered certificates.
THE MORTGAGE LOANS PROVIDE FOR REVOLVING LINES OF CREDIT, WHICH MAY RESULT IN
LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
With respect to revolving credit loans, except for some programs under
which the draw period is less than the full term thereof, required minimum
monthly payments are generally equal to or not significantly larger than the
amount of interest currently accruing on its balance, and therefore are not
expected to significantly amortize the outstanding principal amount of these
mortgage loans prior to maturity, which amount may include substantial draws
recently made. As a result, a borrower will generally be required to pay a
substantial principal amount at the maturity of a revolving credit loan. The
ability of a borrower to make this payment may be dependent on the ability to
obtain refinancing of the balance due on the revolving credit loan or to sell
the related mortgaged property. Furthermore, revolving credit loans generally
have adjustable rates that are subject to much higher maximum rates than
typically apply to adjustable rate first lien mortgage loans, and which may be
as high as applicable usury limitations. Mortgagors under revolving credit loans
are generally qualified based on an assumed payment which reflects either the
initial interest rate or a rate significantly lower than the maximum rate. An
increase in the interest rate over the mortgage rate applicable at the time the
revolving credit loan was originated may have an adverse effect on the ability
of the mortgagor to pay the required monthly payment. In addition, an increase
in prevailing market interest rates may reduce the borrower's ability to obtain
refinancing and to pay the balance of a revolving credit loan at its maturity.
VIOLATION OF VARIOUS FEDERAL, STATE AND LOCAL LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS
Applicable federal, state and local laws generally regulate interest
rates and other charges, require specific disclosures, prohibit unfair and
deceptive practices, regulate debt collection, and require licensing of the
originators of the mortgage loans and contracts. Depending on the provisions of
the applicable law and the specified facts and circumstances involved,
violations of those laws, policies and principles may limit the ability to
collect all or part of the principal of or interest on the mortgage loans and
may entitle the borrower to a refund of amounts previously paid. SEE "LEGAL
ASPECTS OF MORTGAGE LOANS" IN THE PROSPECTUS. To the extent these laws and
regulations result in losses on the mortgage loans, the yield to maturity of the
offered certificates, to the extent not covered by credit enhancement, may be
affected.
THE RATE OF PREPAYMENTS ON THE TRUST FUND ASSETS AND THE PURCHASE PRICE YOU PAID
FOR THE OFFERED CERTIFICATES MAY CAUSE YOUR YIELD TO BE LOWER THAN ANTICIPATED
The yield to maturity of the offered certificates of each series will
depend on, among other things, the rate and timing of principal payments
(including prepayments, liquidations due to defaults, and repurchases due to
conversion of adjustable rate loans to fixed interest rate loans or breaches of
representations and warranties), or draws (if applicable) on the related
mortgage loans and the price paid by offered certificateholders. The yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
(or draws if applicable) on the related mortgage loans. The yield to maturity on
interest only offered certificates will be extremely sensitive to the rate of
prepayments (or draws if applicable) on the related mortgage loans. In addition,
the yield to maturity on other types of classes of offered certificates,
including offered certificates with an accrual feature, offered certificates
with an interest rate which fluctuates based on an index or inversely with an
index or other classes in a series including more than one class of offered
certificates, may be relatively more sensitive to the rate of prepayment (or
draws if applicable) on the related mortgage loans than other classes of offered
certificates. In addition, to the extent amounts in any funding account have not
been used to purchase additional mortgage loans, holders of the offered
certificates may receive an additional prepayment. 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" IN THE PROSPECTUS.
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES WILL
BE AFFECTED BY PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the
Class A Certificates will depend, in general, on the rate and timing of
principal payments (including prepayments and collections upon defaults,
liquidations and repurchases) on the mortgage loans and the allocation thereof
to pay principal on these certificates as provided in this prospectus
supplement. The rate and timing of distributions allocable to principal on the
other classes of offered certificates, other than the Class X Certificates, will
depend in general, on the rate and timing of principal payments (including
prepayments and collections upon defaults, liquidations and repurchases) on all
of the mortgage loans and the allocation thereof to pay principal on these
certificates as provided in this prospectus supplement. As is the case with
mortgage pass-through certificates generally, the offered certificates are
subject to substantial inherent cash-flow uncertainties because the mortgage
loans may be prepaid at any time. However, with respect to approximately _____%
of the mortgage loans, by aggregate principal balance as of ________ __, ____, a
prepayment may subject the related mortgagor to a prepayment charge, which may
act as a deterrent to prepayment of the mortgage loan. SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
Generally, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease. A decrease in the prepayment rates on
the mortgage loans will result in a reduced rate of return of principal to
investors in the Class A Certificates at a time when reinvestment at higher
prevailing rates would be desirable. A decrease in the prepayment rates on all
of the mortgage loans will result in a reduced rate of return of principal to
investors in the other classes of offered certificates, other than the Class X
Certificates, at a time when reinvestment at higher prevailing rates would be
desirable.
Conversely, when prevailing interest rates are declining, prepayment
rates on mortgage loans tend to increase. An increase in the prepayment rates on
the mortgage loans will result in a greater rate of return of principal to
investors in the related Class A Certificates, at time when reinvestment at
comparable yields may not be possible. An increase in the prepayment rates on
all of the mortgage loans will result in a greater rate of return of principal
to investors in the other classes of offered certificates, other than the Class
X Certificates, at a time when reinvestment at comparable yields may not be
possible.
Prior to the distribution date in _______ ____, the subordinate
certificates will be entitled to receive distributions allocable to principal
based on a disproportionately small percentage of principal prepayments on the
mortgage loans, and the Class A Certificates will be entitled to receive
distributions allocable to principal based on a disproportionately large
percentage (which may be 100%) of principal prepayments on the mortgage loans.
To the extent that no principal prepayments or a disproportionately small
percentage of prepayments are distributed on the subordinate certificates, the
subordination afforded to the Class A Certificates, in the absence of losses
allocated to the Class A Certificates, will be increased.
For further information regarding the effect of principal prepayments
on the weighted average lives of the offered certificates, see "YIELD ON THE
CERTIFICATES" in this prospectus supplement, including the table entitled
"PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF THE PREPAYMENT ASSUMPTION" in this prospectus supplement].
THE MORTGAGE LOANS MAY HAVE ENVIRONMENTAL RISKS, WHICH MAY RESULT IN INCREASED
LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
To the extent the master servicer for a mortgage loan acquires title to
any related mortgaged property with contaminated with or affected by hazardous
wastes or hazardous substances, these mortgage loans may incur losses. SEE
"SERVICING OF MORTGAGE LOANS--REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE
LOANS" AND "LEGAL ASPECTS OF MORTGAGE LOANS--ENVIRONMENTAL LEGISLATION" IN THE
PROSPECTUS. To the extent these environmental risks result in losses on the
mortgage loans, the yield to maturity of the offered certificates, to the extent
not covered by credit enhancement, may be affected.
THE [CLASS ___ CERTIFICATES] ARE ERISA-RESTRICTED, WHICH BY RESTRICTING THE
MARKET, MAY AFFECT THE LIQUIDITY OF THE OFFERED CERTIFICATES
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of plans. Due to the complexity of
regulations that govern these plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the offered certificates of any
series. SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE
PROSPECTUS.
[SOME MORTGAGE LOANS ARE DELINQUENT AS OF THE CUT-OFF DATE, WHICH MAY PRESENT A
GREATER RISK OF LOSS WITH RESPECT TO THESE MORTGAGE LOANS
Approximately ____% of the mortgage loans, by aggregate principal
balance as of ________ __, ____, were thirty days or more but less than sixty
days delinquent in their monthly payments as of _______ __, ____. Approximately
____% of the mortgage loans, by aggregate principal balance as of ________ __,
____, were sixty days or more but less than ninety days delinquent in their
monthly payments as of the _________ __, ____. However, investors in the
mortgage loans should realize that approximately _____% of the mortgage loans,
by aggregate principal balance as of ________ __, ____, have a first payment
date occurring on or after _________ __, ____ and, therefore, these mortgage
loans could not have been delinquent as of ________ __, ____].
[THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON A VARIETY OF
FACTORS
The yield to maturity on the offered certificates, particularly the
Class X Certificates, will depend, in general, on:
o........the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the related
mortgage loans and the allocation thereof to reduce the certificate
principal balance or notional amount of the offered certificates, as
well as other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans.
In general, if the offered certificates, other than the Class X
Certificates, are purchased at a premium and principal distributions 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 the offered certificates, other than the Class X Certificates,
are purchased at a discount and principal distributions occur at a rate slower
than that anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the offered certificates
were determined based on a number of assumptions, including a prepayment
assumption of ____% of the standard prepayment assumption, and weighted average
lives corresponding thereto. No representation is made that the mortgage loans
will prepay at this rate or at any other rate, or that the mortgage loans will
prepay at the same rate. The yield assumptions for the offered certificates will
vary as determined at the time of sale. SEE "YIELD ON THE CERTIFICATES" IN THIS
PROSPECTUS SUPPLEMENT].
[THE MULTIPLE CLASS STRUCTURE OF THE OFFERED CERTIFICATES CAUSES THE YIELD OF
SOME CLASSES TO BE PARTICULARLY SENSITIVE TO CHANGES IN THE RATES OF PREPAYMENT
OF THE RELATED MORTGAGE LOANS AND OTHER FACTORS
CLASS X CERTIFICATES: The Class X Certificates will receive a portion of the
interest payments ONLY from mortgage loans that have net mortgage rates higher
than ____%. Therefore, the yield on the Class X Certificates will be extremely
sensitive to the rate and timing of principal prepayments and defaults on the
mortgage loans. Investors in the Class X Certificates should be aware that
mortgage loans with higher mortgage rates may prepay faster than mortgage loans
with lower mortgage rates. If the mortgage loans that have net mortgage rates
higher than ____% are prepaid at a rate faster than an investor assumed at the
time of purchase, the yield to investors in the Class X Certificates will be
adversely affected. Investors in the Class X Certificates should fully consider
the risk that a rapid rate of prepayments on the mortgage loans that have net
mortgage rates higher than ____% could result in the failure of these investors
to fully recover their investments.
[CLASS PO CERTIFICATES: The Class PO Certificates are extremely sensitive to the
rate of prepayments on the mortgage loans. A slower than expected rate of
principal prepayments may result in a negative yield to investors in the Class
PO Certificates.]
SUBORDINATE CERTIFICATES: The weighted average lives of, and the yield to
maturity on, the Class B-1 Certificates, the Class B-2 Certificates and the
Class B-3 Certificates will be progressively more sensitive, in increasing order
of their numerical class designations, to losses due to defaults on the mortgage
loans (and the timing thereof), to the extent these losses are not covered by
subordinate certificates with a higher numerical class designation (including
covered by the Class B-4, Class B-5 and Class B-6 Certificates which are not
offered by this prospectus supplement). Furthermore, as described in this
prospectus supplement, the timing of receipt of principal and interest by any
class of subordinate certificates may be adversely affected by losses even if
this class does not ultimately bear this loss].
[THE RESIDUAL CERTIFICATES WILL RECEIVE LIMITED DISTRIBUTIONS OF PRINCIPAL AND
INTEREST AND MAY HAVE SIGNIFICANT TAX LIABILITIES
Holders of the Class R Certificates are entitled to receive
distributions of principal and interest as described in this prospectus
supplement, but the holders of the Class R Certificates are not expected to
receive any distributions after the first distribution date. In addition,
holders of the Class R Certificates will have tax liabilities with respect to
their certificates during the early years of the term of the trust that
substantially exceed the principal and interest payable during or prior to that
time. SEE "FEDERAL INCOME TAX CONSEQUENCES" BELOW AND IN THE PROSPECTUS AND
"YIELD ON THE CERTIFICATES--ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO
THE RESIDUAL CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT].
[VIOLATION OF VARIOUS FEDERAL, STATE AND LOCAL LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS
Applicable state and local laws generally regulate interest rates and
other charges, require specific disclosure, and require licensing of the
originator. In addition, other state and local laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require specific disclosures to the borrowers
regarding the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of
public assistance or the exercise of any right under the Consumer
Credit Protection Act, in the extension of credit; and
o the Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience.
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these federal or state laws,
policies and principles may limit the ability of the trust to collect all or
part of the principal of or interest on the mortgage loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the originator to damages and administrative enforcement. SEE "LEGAL ASPECTS OF
THE MORTGAGE LOANS" IN THE PROSPECTUS.
The originator will represent that as of the closing date, each
mortgage loan is in compliance with applicable federal and state laws and
regulations. In the event of a breach of this representation, it will be
obligated to cure the breach or repurchase or replace the affected mortgage loan
in the manner described in the prospectus].
FICO SCORES MENTIONED IN THIS PROSPECTUS SUPPLEMENT ARE NOT AN INDICATOR OF
FUTURE PERFORMANCE OF BORROWERS.
Investors should be aware that FICO scores are based on past payment
history of the borrower. Investors should not rely on FICO scores as an
indicator of future borrower performance. See "Loan Program -- FICO Scores" in
the base prospectus.
THE MORTGAGE POOL
GENERAL
References to percentages of the mortgage loans unless otherwise noted
are calculated based on the aggregate principal balance of the mortgage loans as
of the Cut-off Date.
The mortgage pool will consist of approximately _____ conventional,
one- to four-family, [fixed-rate,] fully-amortizing mortgage loans secured by
first liens on mortgaged properties and having an aggregate principal balance as
of the Cut-off Date of approximately $___________, after application of
scheduled payments due on or before the Cut-off Date whether or not received and
subject to a permitted variance of plus or minus __%. The mortgage loans have
original terms to maturity of not greater than [30] years.
The mortgage loans are secured by first mortgages or deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties consisting of one- to four-family dwelling units,
townhouses, individual condominium units and individual units in planned unit
developments. The mortgage loans to be included in the mortgage pool will be
acquired by the depositor from the Originator.
SEE "--UNDERWRITING STANDARDS; REPRESENTATIONS" IN THIS PROSPECTUS
SUPPLEMENT. THE ORIGINATOR WILL ACT AS THE MASTER SERVICER FOR THE MORTGAGE
LOANS ORIGINATED BY IT PURSUANT TO THE AGREEMENT.
All of the mortgage loans have scheduled monthly payments due on the
Due Date. Each mortgage loan will contain a customary "due-on-sale" clause.
Approximately _____% of the mortgage loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on prepayments.
Generally, these mortgage loans provide for payment of a prepayment charge on
partial or full prepayments made within one year, five years or other period as
provided in the related mortgage note from the date of origination of the
mortgage loan. The amount of the prepayment charge is as provided in the related
mortgage note, and the prepayment charge will generally apply if, in any
twelve-month period during the first year, five years or other period as
provided in the related mortgage note from the date of origination of the
mortgage loan, the Mortgagor prepays an aggregate amount exceeding __% of the
original principal balance of the mortgage loan. With respect to _____% of the
mortgage loans, the amount of the prepayment charge will generally be equal to
___ months' advance interest calculated on the basis of the mortgage rate in
effect at the time of the prepayment on the amount prepaid in excess of __% of
the original principal balance of the mortgage loan for a period of five years
and one year, respectively. The _____________ will be entitled to all prepayment
charges received on the mortgage loans, and these amounts will not be available
for distribution on the Certificates. The Master Servicer may, in its
discretion, waive the collection of any otherwise applicable prepayment charge
or reduce the amount thereof actually collected, and accordingly, there can be
no assurance that the prepayment charges will have any effect on the prepayment
performance of the mortgage loans.
The average principal balance of the mortgage loans at origination was
approximately $______. No mortgage loan had a principal balance at origination
of greater than approximately $_______ or less than approximately $______. The
average principal balance of the mortgage loans as of the Cut-off Date was
approximately $______. No mortgage loan had a principal balance as of the
Cut-off Date of greater than approximately $_______ or less than approximately
$______.
As of the Cut-off Date, the mortgage loans had mortgage rates ranging
from approximately _____% per annum to approximately ______% per annum and the
weighted average mortgage rate was approximately _____% per annum. The weighted
average remaining term to stated maturity of the mortgage loans will be
approximately __ years and __ months as of the Cut-off Date. None of the
mortgage loans will have a first Due Date prior to ________ ____ or after
_________ ____, or will have a remaining term to maturity of less than __ years
and __ months or greater than __ years as of the Cut-off Date. The latest
maturity date of any mortgage loan is ________
- ----.
The weighted average loan-to-value ratio at origination of the mortgage
loans was approximately ______%. No loan-to-value ratio at origination was
greater than approximately _____% or less than approximately ____%.
No mortgage loan will be more than 30 days delinquent as of the Cut-off
Date. A loan is considered to be delinquent when a payment due on any due date
remains unpaid as of the close of business on the last business day immediately
prior to the next monthly due date. The determination as to whether a loan falls
into this category is made as of the close of business on the last business day
of each month.
STATIC POOL INFORMATION
[Static pool information material to this offering may be found at
__________________________.] [The [Sponsor] does not have any material static
pool information with respect to any mortgage loans of the same type as those
included in the trust fund originated by it prior to January 1, 2006, because
all or substantially all of these mortgage loans originated by the [Sponsor]
prior to that time were sold on a servicing released basis, and such information
may not be obtained without unreasonable effort or expense. With respect to any
of these mortgage loans originated by the [Sponsor] on or after January 1, 2006,
the static pool information provided does not include any information with
respect to any mortgage loan which was sold on a servicing released basis,
except to the extent the purchaser of that loan or another third-party has
agreed to provide that information back to the [Sponsor] and has actually
provided it to the [Sponsor] with indemnification.]
[Information provided through the Internet address above will not be
deemed to be a part of this prospectus or the registration statement for the
securities offered hereby if it relates to any prior securities pool or vintage
formed before January 1, 2006, or with respect to the mortgage pool (if
applicable) any period before January 1, 2006.]
MORTGAGE LOAN ORIGINATION
GENERAL
Approximately [__]% of the mortgage loans in the aggregate were
originated by [Name of Originator], a New York corporation, referred to herein
as [Name of Originator]. All of the mortgage loans originated by [Name of
Originator] will be serviced by [Name of Servicer]. The remainder of the
mortgage loans were originated by various originators, none of which have
originated more than 10% of the mortgage loans in the aggregate.
[NAME OF ORIGINATOR]
[Name of Originator] has been an originator of mortgage loans since
_______, ____ and has originated Mortgage Loans of the type backing the
certificates offered hereby since ____. [Name of Originator] currently has an
origination portfolio of approximately $[__], of which approximately $[__] is
secured by one- to four-family residential real properties and individual
condominium units.
[The following table describes the size, composition and growth of
[Name of Originator]' total residential mortgage loan production over the past
three years and recent stub-period.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Residential Mortage
Loans..............
Approximately [__]% of the mortgage loans have been originated
generally in accordance with credit, appraisal and underwriting standards
acceptable to [Name of Originator], which are referred to herein as the
Underwriting Standards. The Underwriting Standards are applied in accordance
with applicable federal and state laws and regulations.
UNDERWRITING STANDARDS; REPRESENTATIONS
[Description of the Originator's Underwriting Standards.]
ADDITIONAL INFORMATION
The description in this prospectus supplement of the mortgage pool and
the mortgaged properties is based upon the mortgage pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before this date. Prior to the issuance of the Certificates,
mortgage loans may be removed from the mortgage pool as a result of incomplete
documentation or otherwise if the Depositor deems this removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the mortgage pool prior to the issuance of the
Certificates unless including these mortgage loans would materially alter the
characteristics of the mortgage pool as described in this prospectus supplement.
The Depositor believes that the information set forth in this prospectus
supplement will be representative of the characteristics of the mortgage pool as
it will be constituted at the time the Certificates are issued, although the
range of mortgage rates and maturities and other characteristics of the mortgage
loans may vary. In no event, however, will more than 5% (by principal balance at
the Cut- off Date) of the mortgage loans deviate from the characteristics of the
mortgage loans set forth in this prospectus supplement.
If, as of the Closing Date, any material pool characteristic differs by
5% or more from the description in this prospectus supplement, revised
disclosure will be provided either in a supplement or in a Current Report on
Form 8-K.
YIELD ON THE CERTIFICATES
DELAY IN DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The effective yield to holders of the offered certificates of each
class will be less than the yields otherwise produced by their respective
Pass-Through Rates and purchase prices because (1) on the first distribution
date one month's interest is payable even though __ days will have elapsed from
the date on which interest begins to accrue, (2) on each succeeding distribution
date the interest payable is the interest accrued during the month preceding the
month of the distribution date, which ends __ days prior to the distribution
date and (3) during each Interest Accrual Period (other than the first Interest
Accrual Period), interest accrues on a Certificate Principal Balance or Notional
Amount that is less than the Certificate Principal Balance or Notional Amount of
the class actually outstanding for the first __ days of this Interest Accrual
Period.
SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of the principal prepayment, instead of
for a full month. When a partial principal prepayment is made on a mortgage
loan, the mortgagor is not charged interest on the amount of the prepayment for
the month in which the prepayment is made. In addition, the application of the
Relief Act to any mortgage loan will adversely affect, for an indeterminate
period of time, the ability of the Master Servicer to collect full amounts of
interest on the mortgage loan. SEE "LEGAL ASPECTS OF THE MORTGAGE
LOANS--SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940" IN THE PROSPECTUS. The
Master Servicer is obligated to pay from its own funds only those interest
shortfalls attributable to full and partial prepayments by the mortgagors on the
mortgage loans master serviced by it, but only to the extent of its aggregate
Servicing Fee for the related Due Period. SEE "POOLING AND SERVICING
AGREEMENT--SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES" in this
prospectus supplement. Accordingly, the effect of (1) any principal prepayments
on the mortgage loans, to the extent that any resulting Prepayment Interest
Shortfall exceeds any Compensating Interest or (2) any shortfalls resulting from
the application of the Relief Act, will be to reduce the aggregate amount of
interest collected that is available for distribution to holders of the
Certificates. Any resulting shortfalls will be allocated among the Certificates
as provided in this prospectus supplement under "DESCRIPTION OF THE
CERTIFICATES--INTEREST DISTRIBUTIONS".
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on each class of offered certificates
(other than the Class X Certificates), the aggregate amount of distributions on
each class of offered certificates and the yield to maturity of each class of
offered certificates will be related to the rate and timing of payments of
principal on the mortgage loans. The rate of principal payments on the mortgage
loans will in turn be affected by the amortization schedules of the mortgage
loans and by the rate of principal prepayments on the mortgage loans (including
for this purpose payments resulting from refinancings, liquidations of the
mortgage loans due to defaults, casualties, condemnations and repurchases,
whether optional or required, by the Depositor, the Sponsor, the Originator or
the Master Servicer, as the case may be). The mortgage loans generally may be
prepaid by the mortgagors at any time; however, as described under "The Mortgage
Pool" in this prospectus supplement, with respect to approximately _____% of the
mortgage loans, by aggregate principal balance as of the Cut-off Date, a
prepayment may subject the related mortgagor to a prepayment charge. All of the
mortgage loans contain due-on-sale clauses. As described under "Description of
the Certificates--Principal Distributions on the Senior Certificates" in this
prospectus supplement, prior to the distribution date in ________ ____, all
principal prepayments on the mortgage loans will be allocated to the Senior
Certificates (other than the Class X Certificates). Thereafter, as further
described in this prospectus supplement, during some periods, subject to loss
and delinquency criteria described in this prospectus supplement, the Senior
Prepayment Percentage may continue to be disproportionately large (relative to
the Senior Percentage) and the percentage of principal prepayments payable to
the Subordinate Certificates may continue to be disproportionately small.
Prepayments, liquidations and repurchases of the mortgage loans will
result in distributions in respect of principal to the holders of the class or
classes of offered certificates then entitled to receive these principal
distributions that otherwise would be distributed over the remaining terms of
the mortgage loans. SEE "MATURITY AND PREPAYMENT CONSIDERATIONS" IN THE
PROSPECTUS. Since the rates of payment of principal on the mortgage loans will
depend on future events and a variety of factors (as described more fully in
this prospectus supplement and in the prospectus under "YIELD CONSIDERATIONS"
and "MATURITY AND PREPAYMENT CONSIDERATIONS"), no assurance can be given as to
the rate of principal prepayments. The extent to which the yield to maturity of
any class of offered certificates (other than the Class X Certificates) may vary
from the anticipated yield will depend upon the degree to which they are
purchased at a discount or premium and the degree to which the timing of
payments on the offered certificates is sensitive to prepayments on the mortgage
loans. Further, an investor should consider, in the case of any offered
certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the mortgage loans could result in an actual yield
to an investor that is lower than the anticipated yield and, in the case of any
offered certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to the
investor that is lower than the anticipated yield. In general, the earlier a
prepayment of principal on the mortgage loans, the greater will be the effect on
the investor's yield to maturity. As a result, the effect on an investor's yield
of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the offered certificates would not be fully offset by a subsequent like
reduction (or increase) in the rate of principal payments.
The effect of principal prepayments, liquidations and purchases on
yield will be particularly significant in the case of the Interest Only
Certificates. Such a class will likely be sold at a substantial premium to its
principal balance and any faster than anticipated rate of prepayments will
adversely affect the yield to its holders. The yield to maturity on the Class X
Certificates will therefore be extremely sensitive to prepayments on the
mortgage loans generally, and most sensitive to prepayments on mortgage loans
with relatively high mortgage rates. Extremely rapid prepayments may result in
the failure of such Certificateholders to recoup their original investment. SEE
"--YIELD SENSITIVITY OF THE CLASS X CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
It is highly unlikely that the mortgage loans will prepay at any
constant rate until maturity or that all of the mortgage loans will prepay at
the same rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the offered certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
Because principal distributions are paid to some classes of offered
certificates before other classes, holders of classes of offered certificates
having a later priority of payment bear a greater risk of losses (because the
offered certificates will represent an increasing percentage interest in the
trust fund during the period prior to the commencement of distributions of
principal thereon) than holders of classes having earlier priorities for
distribution of principal. In particular with respect to the Lockout
Certificates, as described under "Description of the Certificates--Principal
Distributions on the Senior Certificates" in this prospectus supplement, during
some periods, no principal payments or a disproportionately small portion of the
Senior Principal Distribution Amount will be distributed on the Lockout
Certificates, and during other periods, a disproportionately large portion of
the Senior Principal Distribution Amount will be distributed on the Lockout
Certificates. Unless the Certificate Principal Balances of the Class A
Certificates (other than the Lockout Certificates) have been reduced to zero,
the Lockout Certificates will not be entitled to receive any distributions of
principal payments prior to the distribution date in ________ ____.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the mortgage rates on the
mortgage loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
mortgage rates on the mortgage loans, the rate of prepayment on the mortgage
loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
mortgage loans during any period or over the life of the Certificates. SEE
"YIELD CONSIDERATIONS" AND "MATURITY AND PREPAYMENT CONSIDERATIONS" IN THE
PROSPECTUS.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. In addition, default rates generally are
higher for mortgage loans used to refinance an existing mortgage loan. In the
event of a mortgagor's default on a mortgage loan, there can be no assurance
that recourse beyond the specific mortgaged property pledged as security for
repayment will be available. SEE "THE MORTGAGE POOL--UNDERWRITING STANDARDS;
REPRESENTATIONS" IN THIS PROSPECTUS SUPPLEMENT.
MARKET INTEREST RATE AND SUBORDINATION YIELD CONSIDERATIONS
Because the mortgage rates on the mortgage loans and the Pass-Through
Rates on the offered certificates (other than the Class X Certificates) are
fixed, these rates will not change in response to changes in market interest
rates. Accordingly, if mortgage market interest rates or market yields for
securities similar to these offered certificates were to rise, the market value
of these offered certificates may decline.
As described under "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF
LOSSES; SUBORDINATION", amounts otherwise distributable to holders of the
Subordinate Certificates may be made available to protect the holders of the
Senior Certificates against interruptions in distributions due to mortgagor
delinquencies, to the extent not covered by P&I Advances, and amounts otherwise
distributable to holders of the Subordinate Certificates with a higher numerical
class designation may be made available to protect the holders of Subordinate
Certificates with a lower numerical class designation against interruptions in
distributions. Delinquencies may affect the yield to investors on the
Subordinate Certificates, and, even if subsequently cured, will affect the
timing of the receipt of distributions by the holders of the Subordinate
Certificates. In addition, a larger than expected rate of delinquencies or
losses will affect the rate of principal payments on each class of the
Subordinate Certificates if it delays the scheduled reduction of the Senior
Prepayment Percentage, triggers an increase of the Senior Prepayment Percentage
to [100]% or triggers a lockout of one or more classes of Subordinate
Certificates from distributions of portions of the Subordinate Principal
Distribution Amount. SEE "DESCRIPTION OF THE CERTIFICATES--PRINCIPAL
DISTRIBUTIONS ON THE SENIOR CERTIFICATES" AND "--PRINCIPAL DISTRIBUTIONS ON THE
SUBORDINATE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the amount of time that will elapse
from the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average life of the
offered certificates of each class will be influenced by the rate at which
principal on the mortgage loans is paid, which may be in the form of scheduled
payments or prepayments (including prepayments of principal by the mortgagor as
well as amounts received by virtue of condemnation, insurance or foreclosure
with respect to the mortgage loans), and the timing thereof.
Except as otherwise described under "DESCRIPTION OF THE
CERTIFICATES--PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES" in this
prospectus supplement, distributions of principal will be made to the classes of
Class A Certificates according to the priorities described in this prospectus
supplement, rather than on a Pro rata basis among the Class A Certificates,
unless the Certificate Principal Balances of the Subordinate Certificates have
been reduced to zero. The timing of commencement of principal distributions and
the weighted average life of each class of Class A Certificates will be affected
by the rates of prepayment on the mortgage loans experienced both before and
after the commencement of principal distributions on each class of Class A
Certificates. Moreover, because the Lockout Certificates do not receive (unless
the Certificate Principal Balances of the Class A Certificates, other than the
Lockout Certificates, have been reduced to zero) any portion of principal
payments prior to the distribution date occurring in ________ ____ and
thereafter will receive (unless the Certificate Principal Balances of the Class
A Certificates, other than the Lockout Certificates, have been reduced to zero)
a disproportionately small or large portion of principal payments, the weighted
average life of the Lockout Certificates will be longer or shorter than would
otherwise be the case, and the effect on the market value of the Lockout
Certificates of changes in market interest rates or market yields for similar
securities may be greater or lesser than for the other classes of Class A
Certificates entitled to principal distributions.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the Prepayment Assumption No representation is made that the mortgage loans in
the mortgage pool will prepay at the above-described rates or any other rate.
CPR refers to the Constant Prepayment Rate model, which assumes that the
outstanding principal balance of a pool of mortgage loans prepays at a specified
constant annual rate or CPR. In generating monthly cash flows, this rate is
converted to an equivalent constant monthly rate. To assume __% CPR or any other
CPR percentage is to assume that the stated percentage of the outstanding
principal balance of the pool is prepaid over the course of a year.
The tables following the next paragraph indicate the percentage of the
initial Certificate Principal Balance of the indicated classes of Certificates
that would be outstanding after each of the dates shown at various constant
percentages of the Prepayment Assumption and the corresponding weighted average
life of the indicated class of Certificates. The table is based on the following
modeling assumptions (the "Structuring Assumptions"):
(1) the mortgage pool consists of ____ mortgage loans with the characteristics
set forth in the table below,
(2) distributions on the indicated Certificates are received, in cash, on the
___ day of each month, commencing in ________ ____,
(3) the mortgage loans prepay at the constant percentages of the Prepayment
Assumption indicated,
(4) no defaults or delinquencies occur in the payment by mortgagors of principal
and interest on the mortgage loans and no shortfalls due to the application of
the Relief Act are incurred,
(5) none of the Depositor, the Sponsor, the Originator, the Master Servicer or
any other person purchases from the trust fund any mortgage loan pursuant to any
obligation or option under the Agreement (except as indicated in footnote (2) in
the tables),
(6) scheduled monthly payments on the mortgage loans are received on the first
day of each month commencing in ________ ____, and are computed prior to giving
effect to any prepayments received in the prior month,
(7) prepayments representing payment in full of individual mortgage loans are
received on the last day of each month commencing in _______ ____, and include
30 days' interest,
(8) the scheduled monthly payment for each mortgage loan is calculated based on
its principal balance, mortgage rate and remaining term to maturity so that the
mortgage loan will amortize in amounts sufficient to repay the remaining
principal balance of the mortgage loan by its remaining term to maturity,
(9) the Certificates are purchased on _______ __, ____ and
(10) the Servicing Fee Rate is ____% per annum and the Trustee's Fee Rate is
_____% per annum.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL BALANCE AS OF THE MORTGAGE ORIGINAL TERM REMAINING TERM
CUT-OFF DATE RATE TO MATURITY (MONTHS) TO MATURITY (MONTHS)
- --------------------------- -------- -------------------- --------------------
$ %
$ %
$ %
$ %
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the table below. Any
discrepancy may have an effect upon the percentages of the initial Certificate
Principal Balances outstanding (and the weighted average lives) of the classes
of Certificates set forth in the table. In addition, to the extent that the
actual mortgage loans included in the mortgage pool have characteristics that
differ from those assumed in preparing the table below, the classes of
Certificates set forth below may mature earlier or later than indicated by the
table below. Based on the foregoing Structuring Assumptions, the table below
indicates the weighted average life of each class of the Class A Certificates
and the Subordinate Certificates and sets forth the percentage of the initial
Certificate Principal Balance of each of these Certificates that would be
outstanding after each of the dates shown, at various percentages of the
Prepayment Assumption. Neither the prepayment model used in this prospectus
supplement nor any other prepayment model or assumption purports 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 included in the trust fund. Variations in the prepayment
experience and the balance of the mortgage loans that prepay may increase or
decrease the percentages of initial Certificate Principal Balance (and weighted
average lives) shown in the following table. Variations may occur even if the
average prepayment experience of all of the mortgage loans equals any of the
specified percentages of the Prepayment Assumption.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CERTIFICATES
----------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- --------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-2 CERTIFICATES
----------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- ----------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-3 CERTIFICATES
----------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- ----------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-4 CERTIFICATES
----------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- ----------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-5 CERTIFICATES
----------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- ----------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-6 CERTIFICATES
----------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- ----------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS B-1, CLASS B-2, AND CLASS B-3 CERTIFICATES
------------------------------------------------
PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150% 175% 200%
DISTRIBUTION DATE --- --- --- ---- ---- ---- ---- ----
- --------------------
Initial Percentage....................... 100% 100% 100% 100% 100% 100% 100% 100%
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year).......................
(Month, day, year) and thereafter........
Weighted Average
Life in
years (to Maturity)*.....................
- ----------------------
(*) The weighted average life of a Certificate is determined by (i)
multiplying the net reduction, if any, of the 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 reductions of
the Certificate Principal Balance described in (i) above.
There is no assurance that prepayments of the mortgage loans will
conform to any of the levels of the Prepayment Assumption indicated in the table
above or to any other level, or that the actual weighted average life of any
class of Certificates will conform to any of the weighted average lives set
forth in the table above. Furthermore, the information contained in the table
with respect to the weighted average life of each specified class of
Certificates is not necessarily indicative of the weighted average life that
might be calculated or projected under different or varying prepayment
assumptions.
The characteristics of the mortgage loans will differ from those
assumed in preparing the table above. In addition, it is unlikely that any
mortgage loan will prepay at any constant percentage of the Prepayment
Assumption until maturity or that all of the mortgage loans will prepay at the
same rate. The timing of changes in the rate of prepayments may significantly
affect the actual yield to maturity to investors, even if the average rate of
principal prepayments is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity of the Class X Certificates will be extremely
sensitive to the prepayment, repurchase and default experience on the mortgage
loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments on the mortgage loans will have a materially negative effect
on the yield to maturity of the Class X Certificates, and principal prepayments
on mortgage loans with higher mortgage rates will have a greater negative impact
on the yield to maturity of the Class X Certificates than principal prepayments
on mortgage loans with lower mortgage rates. There can be no assurance that the
mortgage loans will prepay at any particular rate. Prospective investors in the
Class X Certificates should fully consider the associated risks, including the
risk that they may not fully recover their initial investment.
The following table indicates the sensitivity of the yield of the Class
X Certificates to various rates of prepayment on the mortgage loans and the
corresponding pre-tax yield on a corporate bond equivalent basis. The table set
forth below has been prepared based on the modeling Structuring Assumptions.
PRE-TAX YIELD TO MATURITY ON THE CLASS X CERTIFICATES AT VARIOUS PERCENTAGES OF
THE PREPAYMENT ASSUMPTION
0% 25% 50% 75% 100% 125% 150%
----- ----- ----- ----- ----- ----- -----
On the basis of a constant prepayment rate of approximately ___% of the
Prepayment Assumption and the purchase price assumed above, the yield to
maturity of the Class X Certificates would be approximately __%. If the actual
prepayment rate were to exceed this rate, initial investors in the Class X
Certificates would not fully recover their initial investment.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on the Class X Certificates, would cause the discounted
present value of these assumed stream of cash flows to equal the assumed
purchase price of the Class X Certificates, and by converting the monthly rates
to corporate bond equivalent rates. This calculation does not take into account
shortfalls in collection of interest due to prepayments (or other liquidations)
on the mortgage loans or the interest rates at which investors may be able to
reinvest funds received by them as distributions on the Class X Certificates and
consequently does not purport to reflect the return on any investment in the
Class X Certificates when the reinvestment rates are considered.
The characteristics of the mortgage loans will differ from those
assumed in preparing the table above. There can be no assurance that the cash
flows on the Class X Certificates will correspond to those used to determine the
pre-tax yields shown above or that the aggregate purchase price of the Class X
Certificates will be as assumed. It is unlikely that any mortgage loan will
prepay at the specified percentages of the Prepayment Assumption until maturity
or that all of the mortgage loans will prepay at the same rate. The timing of
changes in the rate of prepayments may significantly affect the actual yield to
maturity to investors, even if the average rate of principal prepayments is
consistent with the expectations of investors. The portion of interest payments
on the mortgage loans distributable to the Class X Certificates will vary from
mortgage loan to mortgage loan, and will be greater with respect to mortgage
loans with higher mortgage rates. Accordingly, the yield on the Class X
Certificates will be lower than indicated in the applicable table above with
respect to any particular average prepayment rate if mortgage loans with higher
mortgage rates prepay faster than mortgage loans with lower mortgage rates,
assuming no variation in mortgage loan principal balance. Moreover, the variable
Pass-Through Rate on the Class X Certificates will generally decrease as the
Certificate Principal Balances of Class A Certificates with lower fixed
Pass-Through Rates decline. There can be no assurance that the mortgage loans
will prepay at any of the rates shown in the table or at any other particular
rate, or that mortgage loans with relatively high mortgage rates will prepay at
the same rate as the mortgage loans generally. Investors must make their own
decisions as to the appropriate prepayment assumptions to be used in deciding
whether to purchase the Class X Certificates.
YIELD SENSITIVITY OF THE SUBORDINATE CERTIFICATES
If the Certificate Principal Balances of the Class B-6 Certificates,
Class B-5 Certificates, Class B-4 Certificates, Class B-3 Certificates and Class
B-2 Certificates have been reduced to zero, the yield to maturity on the Class
B-1 Certificates will become extremely sensitive to losses on the mortgage loans
(and the timing thereof) that are covered by subordination, because the entire
amount of losses on the mortgage loans will be allocated to the Class B-1
Certificates. If the Certificate Principal Balances of the Class B-6
Certificates, Class B-5 Certificates, Class B-4 Certificates and Class B-3
Certificates have been reduced to zero, the yield to maturity on the Class B-2
Certificates will become extremely sensitive to losses on the mortgage loans
(and the timing thereof) that are covered by subordination, because the entire
amount of losses on the mortgage loans will be allocated to the Class B-2
Certificates. If the Certificate Principal Balances of the Class B-6
Certificates, Class B-5 Certificates and Class B-4 Certificates have been
reduced to zero, the yield to maturity on the Class B-3 Certificates will become
extremely sensitive to losses on the mortgage loans (and the timing thereof)
that are covered by subordination, because the entire amount of losses on the
mortgage loans will be allocated to the Class B-3 Certificates. The initial
undivided interest in the trust fund evidenced by the Class B-1 Certificates,
the Class B-2 Certificates, the Class B-3 Certificates, the Class B-4
Certificates, the Class B-5 Certificates and the Class B-6 Certificates is
approximately ____%, approximately ____%, approximately ____%, approximately
____%, approximately ____% and approximately ____%, respectively. Investors in
the Subordinate Certificates should fully consider the risk that Realized Losses
on the mortgage loans could result in the failure of these investors to fully
recover their investments. For additional considerations relating to the yield
on the Subordinate Certificates, see "YIELD CONSIDERATIONS" and "MATURITY AND
PREPAYMENT CONSIDERATIONS" in the prospectus.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES
The 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 will 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 or prior to any such period. In
addition, holders of Residual Certificates will 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 pool.
The Residual Certificateholders are encouraged to consult their own tax
advisors as to the effect of taxes and the receipt of any payments made to these
holders in connection with the transfer of the Residual Certificates on
after-tax rates of return on the Residual Certificates. SEE "FEDERAL INCOME TAX
CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series ____-___ Certificates will consist of ________ classes of
certificates. Only the offered certificates are offered by this prospectus
supplement.
The Certificates represent in the aggregate the entire beneficial
ownership interest in a trust fund consisting primarily of a mortgage pool of
mortgage loans and an aggregate principal balance as of the Cut- off Date, after
application of scheduled payments due whether or not received, of approximately
$___________, subject to a permitted variance as described in this prospectus
supplement under "The Mortgage Pool".
Each class of the offered certificates will have the approximate
initial Certificate Principal Balance or Notional Amount, as applicable, as set
forth on the cover hereof and will have the Pass-Through Rate determined as
provided under "Summary--Pass-Through Rate" and "--Interest Distributions" in
this prospectus supplement. The Residual Certificates also represent the right
to receive additional distributions in respect of the trust fund on any
distribution date after all required payments of principal and interest have
been made on this date in respect of the other classes of Certificates, although
it is not anticipated that funds will be available for any additional
distribution. The Class B-4 Certificates, Class B-5 Certificates and Class B-6
Certificates have in the aggregate an initial Certificate Principal Balance of
approximately $__________ and a fixed Pass-Through Rate for each distribution
date of ____% per annum. The Class B-4 Certificates, the Class B-5 Certificates
and the Class B-6 Certificates, which are not being offered by this prospectus
supplement, will be sold by the depositor to _________________________ on the
Closing Date.
The Class A Certificates will be issued, maintained and transferred on
the book-entry records of DTC and its participants in minimum denominations of
$_____ and integral multiples of $____ in excess thereof. The Class X
Certificates and the Subordinate Certificates will be issued in registered,
certificated form, in minimum percentage interests corresponding to initial
Certificate Principal Balances or notional amounts, as applicable, of $______
and integral multiples of $_____ in excess thereof, except that one Certificate
of each of these classes may be issued evidencing an amount equal to either (1)
the sum of an otherwise authorized denomination thereof plus the remainder of
the aggregate initial Certificate Principal Balance or Notional Amount, as
applicable, for the class or (2) the remainder. The Residual Certificates will
be offered in registered, certificated form, in minimum denominations of $___
and integral multiples thereof.
The Book-Entry Certificates will initially be represented by one or
more global certificates registered in the name of a nominee of DTC. The
depositor has been informed by DTC that DTC's nominee will be Cede & Co. No
person acquiring an interest in any class of the Book-Entry Certificates will be
entitled to receive a certificate representing such person's interest, except as
set forth below under "--Definitive Certificates". Unless and until definitive
certificates are issued under the limited circumstances described in this
prospectus supplement, all references to actions by certificateholders with
respect to the Book-Entry Certificates shall refer to actions taken by DTC upon
instructions from its participants and all references in this prospectus
supplement to distributions, notices, reports and statements to
certificateholders with respect to the Book-Entry Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the Book-Entry Certificates, for distribution to
Certificate Owners in accordance with DTC procedures. SEE "--REGISTRATION OF THE
BOOK-ENTRY CERTIFICATES" AND "--DEFINITIVE CERTIFICATES" IN THIS PROSPECTUS
SUPPLEMENT.
The Class X Certificates, the Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Residual Certificates and the
definitive certificates will be transferable and exchangeable at the offices of
the Trustee. The Subordinate Certificates and the Residual Certificates may not
be purchased by or transferred to a Plan except upon delivery of a certification
of facts or an opinion of counsel, as provided in this prospectus supplement.
SEE "--RESTRICTIONS ON TRANSFER OF THE SUBORDINATE CERTIFICATES AND THE RESIDUAL
CERTIFICATES" AND "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT. Transfer
of the Residual Certificates will be subject to additional restrictions and
transfer of the Residual Certificates to any non-United States person will be
prohibited, in each case as described under "Federal Income Tax
Consequences--Special Tax Considerations Applicable to Residual Certificates" in
this prospectus supplement and under "Federal Income Tax
Consequences--REMICs--Tax On Transfers of REMIC Residual Certificates to Certain
Organizations" and "--Taxation of Owners of Residual Certificates--Noneconomic
REMIC Residual Certificates" in the prospectus. No service charge will be
imposed for any registration of transfer or exchange, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
All distributions to holders of the Certificates, other than the final
distribution on any class of Certificates, will be made on each distribution
date by or on behalf of the Trustee to the persons in whose names the
Certificates are registered at the close of business on the related Record Date.
Distributions will be made either (a) by check mailed to the address of each
certificateholders as it appears in the Certificate Register or (b) upon written
request to the Trustee at least five business days prior to the relevant Record
Date by any holder of Certificates having an aggregate initial Certificate
Principal Balance or Notional Amount, as applicable, that is in excess of the
lesser of (1) $5,000,000 or (2) two-thirds of the initial aggregate Certificate
Principal Balance or Notional Amount, as applicable, of the class of
Certificates, by wire transfer in immediately available funds to the account of
the certificateholders specified in the request. The final distribution on any
class of Certificates will be made in like manner, but only upon presentment and
surrender of the class at the corporate trust office of the Trustee or any other
location specified in the notice to certificateholders of the final
distribution.
REGISTRATION OF THE BOOK-ENTRY CERTIFICATES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic book entries, thereby eliminating the need for
physical movement of certificates.
Certificate Owners that are not participants or indirect participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Book-Entry Certificates may do so only through participants
and indirect participants. In addition, Certificate Owners will receive all
distributions of principal of and interest on the Book-Entry Certificates from
the Trustee through DTC and DTC participants. The Trustee will forward payments
to DTC in same day funds and DTC will forward payments to participants in next
day funds settled through the New York Clearing House. Each participant will be
responsible for disbursing the payments. Unless and until definitive
certificates are issued, it is anticipated that the only certificateholders of
the Book-Entry Certificates will be Cede & Co., as nominee of DTC. Certificate
Owners will not be recognized by the Trustee as certificateholders, as such term
is used in the Agreement and Certificate Owners will be permitted to exercise
the rights of certificateholders only indirectly through DTC and its
participants.
Under the Rules, DTC is required to make book-entry transfers of
Book-Entry Certificates among participants and to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates.
Participants and indirect participants with which Certificate Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit these payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess definitive certificates, the Rules provide a mechanism by which
Certificate Owners through their participants and indirect participants will
receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of certain banks, the ability of a
Certificate Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to
Book-Entry Certificates, may be limited due to the absence of physical
certificates for the Book-Entry Certificates. In addition, under a book-entry
format, Certificate Owners may experience delays in their receipt of payments
since distribution will be made by the Trustee to Cede & Co., as nominee for
DTC.
Under the Rules, DTC will take action permitted to be taken by a
certificateholders under the Agreement only at the direction of one or more
participants to whose DTC account the Book-Entry Certificates are credited.
Additionally, under the Rules, DTC will take actions with respect to specified
voting rights only at the direction of and on behalf of participants whose
holdings of Book-Entry Certificates evidence these specified voting rights. DTC
may take conflicting actions with respect to voting rights, to the extent that
participants whose holdings of Book-Entry Certificates evidence voting rights,
authorize divergent action.
The Depositor, the Master Servicer and the Trustee will have no
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Book-Entry Certificates held by Cede &
Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (1) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as clearing agency with respect to
the Book-Entry Certificates and the Depositor is unable to locate a qualified
successor, (2) the Depositor, at its option, elects to terminate the book-entry
system through DTC, or (3) after the occurrence of an Event of Default,
Certificate Owners representing in the aggregate not less than 51% of the voting
rights of the Book-Entry Certificates advise the Trustee and DTC through
participants, in writing, that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the Certificate Owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Certificate Owners through
participants of the availability of definitive certificates. Upon surrender by
DTC of the definitive certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as definitive certificates issued in the respective
principal amounts owned by individual Certificate Owners, and thereafter the
Trustee will recognize the holders of definitive certificates as
certificateholders under the Agreement. definitive certificates will be issued
in minimum denominations of $______, except that any beneficial ownership
represented by a Book-Entry Certificate in an amount less than $______
immediately prior to the issuance of a definitive certificate shall be issued in
a minimum denomination equal to the amount of the beneficial ownership.
PASS-THROUGH RATES
The Pass-Through Rate for each class of Certificates (other than the
Class X Certificates and the Class PO Certificates) is ____% per annum. The
Pass-Through Rate applicable to the calculation of the Interest Distribution
Amount for the Class X Certificates for any distribution date is the rate per
annum expressed as the percentage equivalent of a fraction, the numerator of
which is equal to (1) (A) the amount of interest accrued on the mortgage loans
for the immediately preceding calendar month at the Net Mortgage Rate minus (B)
the aggregate amount of interest payable on the Certificates (other than the X
Certificates), and the denominator of which is equal to (2) the Notional Amount
of the Class X Certificates. The initial variable Pass-Through Rate for the
Class IO Certificates is approximately ______% per annum.
INTEREST DISTRIBUTIONS
Distributions on each distribution date will be made to the extent of
the Available Distribution Amount.
Distributions in respect of interest will be made (1) on each
distribution date to the holders of the Senior Certificates and, on the first
distribution date, to the holders of the Residual Certificates, in an aggregate
amount equal to the Senior Interest Distribution Amount and (2) on each
distribution date to the holders of the Subordinate Certificates, in an
aggregate amount equal to the Subordinate Interest Distribution Amount, to the
extent of the portion of the Available Distribution Amount remaining after
distribution of the Senior Interest Distribution Amount and the Senior Principal
Distribution Amount.
All distributions of interest will be based on a 360-day year
consisting of twelve 30-day months. Except as otherwise described in this
prospectus supplement, on any distribution date, distributions of the Interest
Distribution Amount for a class of Certificates will be made, to the extent
provided in this prospectus supplement, on a pari passu basis, based on the
Certificate Principal Balance or Notional Amount, as applicable, of the
Certificates of each such class.
Distributions of the Subordinate Interest Distribution Amount on each
distribution date will be made first, to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of Subordinate Certificates, in each case to the extent of available
funds and in each case to the extent of the Interest Distribution Amount for
these Certificates for the distribution date.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Distributions in respect of principal will be made on each distribution
date to the holders of the class or classes of the Class A Certificates then
entitled to distributions in respect of principal, and on the first distribution
date to the holders of the Residual Certificates, in an aggregate amount equal
to the Senior Principal Distribution Amount.
Holders of the Class A Certificates then entitled to distributions in
respect of principal will be entitled to receive on each distribution date, and
holders of the Residual Certificates will be entitled to receive on the first
distribution date, distributions allocable to principal in reduction of the
Certificate Principal Balances of the Class A Certificates, and on the first
distribution date the Residual Certificates, equal to the sum of the following:
(1) the product of (A) the then applicable Senior Percentage and (B) the
aggregate of the following amounts:
(2) the principal portion of all scheduled monthly payments on the mortgage
loans due during the related Due Period, whether or not received;
(3) the principal portion of all proceeds received in respect of the repurchase
of a mortgage loan (or, in the case of a substitution, amounts received
representing a principal adjustment) as required by the Agreement during the
related Prepayment Period; and
(4) the principal portion of all other unscheduled collections (other than
amounts described in clauses (2) and (3) hereof), including insurance proceeds
and liquidation proceeds, received during the related Prepayment Period, to the
extent applied as recoveries of principal;
(5) the product of (A) the then applicable Senior Prepayment Percentage and (B)
the aggregate of all full and partial principal prepayments received during the
related Prepayment Period;
(6) with respect to the net liquidation proceeds received and allocable to
principal of any mortgage loan that was finally liquidated during the related
Prepayment Period, the lesser of (a) the then applicable Senior Prepayment
Percentage multiplied by these net liquidation proceeds and (b) the then
applicable Senior Percentage multiplied by the Scheduled Principal Balance of
the mortgage loan at the time of liquidation; and
(7) any amounts allocable to principal for any previous distribution date
(calculated pursuant to the three preceding clauses) that remain undistributed,
to the extent that any of these amounts are not attributable to Realized Losses
that were allocated to the Subordinate Certificates.
Holders of the Class X Certificates are not entitled to receive any
distributions allocable to principal.
The Senior Percentage initially will equal approximately _____%, and
will in no event exceed 100%.
The disproportionate allocation of unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates (other than the Class X Certificates) while, in the absence of
Realized Losses, increasing the respective percentage interest in the principal
balance of the mortgage loans evidenced by the Subordinate Certificates.
Increasing the respective percentage interest in the trust fund 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.
If on any distribution date the allocation to the Class A Certificates
of full and partial principal prepayments and other amounts in the percentage
required above would reduce the aggregate outstanding Certificate Principal
Balance of the Class A Certificates below zero, the Senior Prepayment Percentage
for the distribution date will be limited to the percentage necessary to reduce
the aggregate Certificate Principal Balance of the Class A Certificates to zero.
For purposes of all principal distributions described above and for
calculating the Senior Percentage, the Subordinate Percentage and the Senior
Prepayment Percentage, the applicable Certificate Principal Balance for any
distribution date shall be determined after the allocation of losses on the
mortgage loans in the mortgage pool to be made on such distribution date as
described under "--Allocation of Losses; Subordination" below.
PRIORITY OF PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES AND THE RESIDUAL
CERTIFICATES
Distributions of the Senior Principal Distribution Amount on the Class
A Certificates and the Residual Certificates on each distribution date will be
made as follows:
(1) First, concurrently, to the holders of each class of the Residual
Certificates on the distribution date in ________ ____, an amount equal to the
entire Certificate Principal Balance thereof;
(2) Second, to the holders of the Lockout Certificates, the Lockout Distribution
Percentage of the Senior Principal Distribution Amount, until the Certificate
Principal Balance thereof has been reduced to zero;
(3) Third, to the holders of the Class A-1 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(4) Fourth, to the holders of the Class A-2 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(5) Fifth, to the holders of the Class A-3 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(6) Sixth, to the holders of the Class A-4 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(7) Seventh, to the holders of the Class A-5 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(8) Eighth, to the holders of the Lockout Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
Notwithstanding the foregoing priorities, upon the reduction of the
Certificate Principal Balances of the Subordinate Certificates to zero, the
priority of distributions of principal among the Class A Certificates will be
disregarded and distributions allocable to principal will be paid on each
succeeding distribution date to holders of the Class A Certificates, on a Pro
rata basis, based on the Certificate Principal Balances thereof.
PRINCIPAL DISTRIBUTION ON THE SUBORDINATE CERTIFICATES
Holders of each class of Subordinate Certificates will be entitled to
receive on each distribution date, to the extent of the portion of the Available
Distribution Amount remaining after distribution of the Senior Interest
Distribution Amount, the Senior Principal Distribution Amount and the
Subordinate Interest Distribution Amount, distributions allocable to principal
in reduction of the Certificate Principal Balances thereof equal to the sum of
the following:
(1) the product of (A) the then applicable related Class B Percentage and (B)
the aggregate of the following amounts:
(2) the principal portion of all scheduled monthly payments on the mortgage
loans due during the related Due Period, whether or not received;
(3) the principal portion of all proceeds received in respect of the repurchase
of a mortgage loan (or, in the case of a substitution, amounts received
representing a principal adjustment) as required by the Agreement during the
related Prepayment Period; and
(4) the principal portion of all other unscheduled collections (other than
amounts described in clauses (2) and (3) hereof), including insurance proceeds
and liquidation proceeds, received during the related Prepayment Period, to the
extent applied as recoveries of principal;
(5) the portion allocable to such class of Subordinate Certificates, as
described below, of the product of (A) the then applicable Subordinate
Prepayment Percentage and (B) the aggregate of all full and partial principal
prepayments received during the related Prepayment Period;
(6) the portion allocable to such class of Subordinate Certificates, as
described below, of net liquidation proceeds received and allocable to principal
of any mortgage loan that was finally liquidated during the related Prepayment
Period, to the extent of the amount, if any, by which such net liquidation
proceeds exceed the amount distributable to the Class A Certificates in respect
of such net liquidation proceeds pursuant to clause (3) of the definition of
Senior Principal Distribution Amount; and
(7) any amounts allocable to principal for any previous distribution date
(calculated pursuant to the three preceding clauses) that remain undistributed,
to the extent that any of these amounts are not attributable to Realized Losses
that were allocated to classes of the Subordinate Certificates bearing a higher
numerical class designation.
All mortgagor prepayments not otherwise distributable to the Senior
Certificates will be allocated on a pro rata basis among the class of Class B
Certificates with the highest payment priority then outstanding and each other
class of Class B Certificates for which certain loss levels established for such
class in the Agreement have not been exceeded. The related loss level on any
distribution date would be satisfied as to any Class B-2, Class B-3, Class B-4,
Class B-5 or Class B-6 Certificates, respectively, only if the sum of the
current percentage interests in the Mortgage Pool evidenced by such class and
each class, if any, subordinate thereto were at least equal to the sum of the
initial percentage interests in the Mortgage Pool evidenced by such class and
each class, if any, subordinate thereto.
For purposes of all principal distributions described above and for
calculating the Subordinate Percentage, the applicable Certificate Principal
Balance for any distribution date shall be determined after the allocation of
losses on the mortgage loans in the mortgage pool to be made on such
distribution date as described under "--Allocation of Losses; Subordination"
below.
As stated above under "--Principal Distributions on the Senior
Certificates", for each distribution date occurring prior to the distribution
date in ________ ____, the Senior Prepayment Percentage will equal 100%, and
until the earlier of such date and the date on which the Class A Certificates
are paid in full, no distributions based on principal prepayments or, in some
instances, net liquidation proceeds, on the mortgage loans will be distributed
to the Subordinate Certificates. Thereafter, unless the Certificate Principal
Balances of the Senior Certificates have been reduced to zero, the Subordinate
Prepayment Percentage may continue to be 0% or otherwise be disproportionately
small relative to the Subordinate Percentage. SEE "--PRINCIPAL DISTRIBUTIONS ON
THE SENIOR CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
Distributions of the Subordinate Principal Distribution Amount on each
distribution date will be made as follows: first to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of Subordinate Certificates, in each case to the extent of available
funds and in each case to the extent of the portion of the Subordinate Principal
Distribution Amount payable in respect of each such class of Subordinate
Certificates for such distribution date.
P&I ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance or cause to be advanced on or before each distribution date
its own funds, or funds in the Distribution Account that are not included in the
Available Distribution Amount for such distribution date, in an amount equal to
the P&I Advances for such distribution date.
P&I Advances are required to be made only to the extent they are deemed
by the Master Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making P&I Advances
is to maintain a regular cash flow to the certificateholders, rather than to
guarantee or insure against losses. The Master Servicer will not be required to
make any P&I Advances with respect to reductions in the amount of the monthly
payments on the mortgage loans due to bankruptcy proceedings or the application
of the Relief Act.
All P&I Advances will be reimbursable to the Master Servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which the unreimbursed P&I Advance was made. In addition, any P&I Advances
previously made in respect of any mortgage loan that are deemed by the Master
Servicer to be nonrecoverable from related late collections, insurance proceeds
or liquidation proceeds may be reimbursed to the Master Servicer out of any
funds in the Distribution Account prior to the distributions on the
Certificates. In the event the Master Servicer fails in its obligation to make
any such advance, the Trustee will be obligated to make any such advance, to the
extent required in the Agreement.
TABLE OF FEES AND EXPENSES
The following table indicates the fees and expenses to be paid from the
cash flows from the mortgage loans and other assets of the trust fund, while the
Certificates are outstanding.
All fees are expressed in basis points, at an annualized rate, applied
to the outstanding aggregate principal balance of the mortgage loans.
ITEM FEE PAID FROM
- ---------------------------- ------- ----------------------------------
Master Servicing Fee(1)(2) ___bp Mortgage Loan Interest Collections
Trustee Fee ___bp Master Servicing Fee
Servicer Fee ___bp Master Servicing Fee
(1) Master servicing fee including securities administrator,
paying agent and certificate registrar fees. The Master
Servicer receives a single combined fee that covers all of
these functions. The Master Servicer performs these functions.
(2) Master Servicer pays trustee and servicer fees out of its fee.
(3) The master servicing fee is paid on a first priority basis
from collections allocable to interest on the mortgage loans,
prior to distributions to certificateholders.
ALLOCATION OF LOSSES; SUBORDINATION
Realized Losses (other than Excess Losses) will be allocated on any
distribution date as follows: first, to the Class B-6 Certificates; second, to
the Class B-5 Certificates; third, to the Class B-4 Certificates; fourth, to the
Class B-3 Certificates; fifth, to the Class B-2 Certificates; and sixth, to the
Class B-1 Certificates, in each case until the Certificate Principal Balance of
such class has been reduced to zero. Thereafter, such Realized Losses will be
allocated on any distribution date among the Class A Certificates on a Pro rata
basis. Excess Losses will be allocated on any distribution date among all the
Certificates (other than the Class X Certificates) on a Pro rata basis. Any
allocation of a Realized Loss to a Certificate will be made by reducing the
Certificate Principal Balance thereof by the amount so allocated as of the
distribution date in the month following the calendar month in which such
Realized Loss was incurred.
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.
With respect to any defaulted mortgage loan that is finally liquidated
through foreclosure sale, disposition of the related mortgaged property if
acquired on behalf of the certificateholders by deed-in-lieu of foreclosure or
otherwise, the amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest thereon through the
last day of the month in which such mortgage loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the Master
Servicer for P&I Advances, Servicing Fees and Servicing Advances) towards
interest and principal owing on the mortgage loan. Such amount of loss realized
and any Special Hazard Losses, Fraud Losses and Bankruptcy Losses are referred
to in this prospectus supplement as "Realized Losses".
The Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount may
be reduced or modified upon confirmation from [Rating Agencies] that such
reduction or modification will not adversely affect the then-current ratings
assigned to the offered certificates rated thereby. Such a reduction or
modification may adversely affect the coverage provided by the subordination
with respect to Special Hazard Losses, Fraud Losses and Bankruptcy Losses.
In the event that Realized Losses are incurred that are covered by
subordination, such losses will be allocated to the most subordinate class of
Certificates then outstanding. The priorities for distribution of cash flows
described in this prospectus supplement, in some circumstances, may result in
cash flow shortfalls to any class of Subordinate Certificates even if it is not
the most subordinate class of Certificates then outstanding; however, the
interest portion of any such shortfall would be distributable as unpaid Interest
Distribution Amount on future distribution dates as cash flows allow, to the
extent of available funds, and the principal portion of any such shortfall would
not result in a reduction of the Certificate Principal Balance of such class. In
such event, the percentage interest represented by such class would increase
relative to the respective Certificate Principal Balances of the more
subordinate classes of Certificates. With respect to the most subordinate class
of the Certificates outstanding at the time any Realized Loss is incurred, the
total amount of the Realized Loss allocated to such class may be greater than
the concurrent reduction in the Certificate Principal Balance thereof because
such reduction will not reflect any undistributed Interest Distribution Amount
on such class. Such undistributed Interest Distribution Amount on the most
subordinate class of the Certificates outstanding will not be distributable on
any future distribution date. As a result, it is possible that the total amount
of Realized Losses that may be allocated to any class of Subordinate
Certificates may exceed the initial Certificate Principal Balance thereof.
In order to maximize the likelihood of distribution in full of the
Senior Interest 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 and the Senior Principal
Distribution Amount.
The application of the Senior Prepayment Percentage (when it exceeds
the Senior Percentage) to determine the Senior Principal Distribution Amount
will accelerate the amortization of the Class A Certificates relative to the
actual amortization of the mortgage loans. To the extent that the Class A
Certificates are amortized faster than the mortgage loans, in the absence of
offsetting Realized Losses allocated to the Subordinate Certificates, the
percentage interest evidenced by the Class A Certificates in the trust fund will
be decreased (with a corresponding increase in the percentage interest in the
trust fund evidenced by the Subordinate Certificates), thereby increasing,
relative to their respective Certificate Principal Balances, the subordination
afforded the Senior Certificates by the Subordinate Certificates.
RESTRICTIONS ON TRANSFER OF THE RESIDUAL CERTIFICATES
The Residual Certificates may not be purchased by or transferred to a
Plan except upon the delivery of a certification of facts or an opinion of
counsel, as provided in this prospectus supplement. SEE "ERISA CONSIDERATIONS"
IN THIS PROSPECTUS SUPPLEMENT. In addition, the Residual Certificates will be
subject to additional restrictions described under "FEDERAL INCOME TAX
CONSEQUENCES--SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL
CERTIFICATES" in this prospectus supplement and "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--TAX ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS" and "--TAXATION OF OWNERS OF REMIC RESIDUAL
CERTIFICATES--NONECONOMIC REMIC RESIDUAL CERTIFICATES" in the prospectus.
The initial owner of the Residual Certificates is ______________.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Agreement, a form of
which is filed as an exhibit to the registration statement. A current report on
Form 8-K relating to the Certificates containing a copy of the Agreement as
executed will be filed by the Depositor with the Securities and Exchange
Commission after the initial issuance of the Certificates. The trust fund
created under the Agreement will consist of (1) all of the Depositor's right,
title and interest in and to the mortgage loans, the related mortgage notes,
mortgages and other related documents, (2) all payments on or collections in
respect of the mortgage loans due after the Cut-off Date, together with any
proceeds thereof, (3) any mortgaged properties acquired on behalf of
certificateholders by foreclosure or by deed in lieu of foreclosure, and any
revenues received thereon, (4) the rights of the Trustee under all insurance
policies required to be maintained pursuant to the Agreement and (5) the rights
of the Depositor under the Mortgage Loan Purchase Agreement among the Depositor,
the Sponsor and the Originator (other than certain rights of the Depositor to
indemnification by the Originator). Reference is made to the prospectus for
important information in addition to that set forth in this prospectus
supplement regarding the trust fund, the terms and conditions of the Agreement
and the offered certificates. The offered certificates will be transferable and
exchangeable at the corporate trust offices of the Trustee, located in
___________________. The Depositor will provide to prospective or actual
certificateholders without charge, on written request, a copy (without exhibits)
of the Agreement. Requests should be addressed to the _____________, MILA
Mortgage Acceptance, Inc., 6021 244th Street SW, Mountlake Terrace, WA 98043 and
its phone number is (800) 332-6452.
ASSIGNMENT OF THE MORTGAGE LOANS
The Depositor will deliver to the Trustee or to a custodian with
respect to each mortgage loan (1) the mortgage note endorsed without recourse to
the Trustee to reflect the transfer of the mortgage loan, (2) the original
mortgage with evidence of recording indicated thereon and (3) an assignment of
the mortgage in recordable form to the Trustee, reflecting the transfer of the
mortgage loan. Such assignments of mortgage loans are required to be recorded by
or on behalf of the Depositor in the appropriate offices for real property
records.
REPRESENTATIONS AND WARRANTIES
In the Mortgage Loan Purchase Agreement, pursuant to which the
Depositor purchased the mortgage loans from the Sponsor, the Sponsor made
certain representations and warranties to the Depositor concerning the mortgage
loans. The Trustee will be assigned all right, title and interest in the
Mortgage Loan Purchase Agreement insofar as they relate to such representations
and warranties made by the Sponsor.
The representations and warranties of the Sponsor with respect to the
mortgage loans include the following, among others:
(1) The information set forth in the mortgage loan schedule is true,
complete and correct in all material respects as of the date such representation
was made;
(2) Each Mortgage Loan was originated or funded by (a) a savings and
loan association, savings bank, commercial bank, credit union, insurance company
or similar institution which is supervised and examined by a federal or state
authority (or originated by (i) a subsidiary of any of the foregoing
institutions which subsidiary is actually supervised and examined by applicable
regulatory authorities or (ii) a mortgage loan correspondent of any of the
foregoing and that was originated pursuant to the criteria established by any of
the foregoing) or (b) a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to sections 203 and 211 of the National Housing Act, as
amended, and the Mortgage Loans are currently being serviced in accordance with
accepted servicing practices;
(3) Immediately prior to the sale of the mortgage loans pursuant to the
Mortgage Loan Purchase Agreement, the Sponsor was the sole owner of beneficial
title and holder of each mortgage and mortgage note relating to the mortgage
loans and as of the Closing Date, or as of another specified date, is conveying
the same to the Depositor free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, mechanics' lien, assessment, claim
or security interest, and the Sponsor has full right and authority to sell and
assign each mortgage loan pursuant to the Mortgage Loan Purchase Agreement;
(4) As of the Closing Date, the improvements on each Mortgaged Property
securing a Mortgage Loan are insured (by an insurer which is acceptable to the
Sponsor) against loss by fire, flood and such hazards as are covered under a
standard extended coverage endorsement in the locale in which the Mortgaged
Property is located, in an amount which is not less than the lesser of the
maximum insurable value of the improvements securing such Mortgage Loan or the
outstanding principal balance of the Mortgage Loan, but in no event in an amount
less than an amount that is required to prevent the Mortgagor from being deemed
to be a co-insurer thereunder;
(5) Except to the extent insurance is in place which will cover such
damage, the physical property subject to any Mortgage is free of material damage
and is in good repair and there is no proceeding pending or threatened for the
total or partial condemnation of any Mortgaged Property;
(6) The Mortgaged Property and all improvements thereon comply with all
requirements of any applicable zoning and subdivision laws and ordinances;
(7) A lender's title insurance policy (on an ALTA or CLTA form) or
binder, or other assurance of title customary in the relevant jurisdiction
therefor in a form acceptable to Fannie Mae or Freddie Mac, was issued on the
date that each Mortgage Loan was created by a title insurance company which, to
the best of the Sponsor's knowledge, was qualified to do business in the
jurisdiction where the related Mortgaged Property is located, insuring the
Sponsor and its successors and assigns that the Mortgage is a first priority
lien on the related Mortgaged Property in the original principal amount of the
Mortgage Loan. The Sponsor is the sole insured under such lender's title
insurance policy, and such policy, binder or assurance is valid and remains in
full force and effect, and each such policy, binder or assurance shall contain
all applicable endorsements including a negative amortization endorsement, if
applicable;
(8) As of the Closing Date there is no monetary default existing under
any mortgage or the related mortgage note and there is no material event which,
with the passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach or event of acceleration; and neither
the Sponsor nor any of its respective affiliates has taken any action to waive
any default, breach or event of acceleration; and no foreclosure action is
threatened or has been commenced with respect to the mortgage loan;
(9) The terms of the Mortgage Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments, (i) if required by law in the jurisdiction where the Mortgaged
Property is located, or (ii) to protect the interests of the Trustee on behalf
of the Certificateholders; and
(10) At the time of origination, each Mortgaged Property was the
subject of an appraisal which conformed to the underwriting requirements of the
originator of the Mortgage Loan and, the appraisal is in a form acceptable to
Fannie Mae or FHLMC.
In the case of a breach of any representation or warranty set forth
above which materially and adversely affects the value of the interests of
certificateholders or the Trustee in any of the mortgage loans, within 90 days
from the date of discovery or notice from the Trustee, the Depositor, the
Securities Administrator or the Sponsor, the Sponsor will (i) cure such breach
in all material respects, (ii) provide the Trustee with a substitute mortgage
loan (if within two years of the Closing Date) or (iii) purchase the related
mortgage loan at the applicable Repurchase Price. The obligations of the Sponsor
to cure, purchase or substitute shall constitute the Trustee's sole and
exclusive remedy respecting a breach of such representations and warranties.
THE TRUSTEE
___________________, a national banking association, will act as
Trustee for the Certificates pursuant to the Agreement. The Trustee's offices
for notices under the Agreement are located at [address].
[Description of the extent of Trustee's prior experience serving as a
trustee for asset-backed securities transactions involving mortgage pools of
first lien [fixed][adjustable] rate mortgage loans secured by one- to
four-family residential real properties and individual condominium units.]
The Trustee, prior to the occurrence of an Event of Default and after
the curing or waiver of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in the Pooling and Servicing Agreement as duties of the Trustee,
including:
1. Upon receipt of all resolutions, certificates, statements, opinions,
reports, documents, orders or other instruments which are specifically
required to be furnished to the Trustee pursuant to the Pooling and
Servicing Agreement, the Trustee shall examine them to determine
whether they are in the required form; provided, however, that the
Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or
other instrument furnished hereunder; provided, further, that the
Trustee shall not be responsible for the accuracy or verification of
any calculation provided to it pursuant to the Pooling and Servicing
Agreement.
2. Except for those actions that the Trustee is required to take under the
Pooling and Servicing Agreement, the Trustee shall not have any
obligation or liability to take any action or to refrain from taking
any action in the absence of written direction as provided in the
Pooling and Servicing Agreement.
If an Event of Default has occurred and has not been cured or waived,
the Trustee shall exercise such of the rights and powers vested in it by the
Pooling and Servicing Agreement, using the same degree of care and skill in
their exercise, as a prudent person would exercise under the circumstances in
the conduct of his own affairs. Such rights and powers may include:
1. Execute and deliver, on behalf of the Master Servicer as
attorney-in-fact or otherwise, any and all documents and other
instruments and to do or accomplish all other acts or things necessary
or appropriate to effect the termination of the Master Servicer,
whether to complete the transfer and endorsement or assignment of the
Mortgage Loans and related documents, or otherwise.
2. The Trustee shall automatically become the successor in all respects to
the Master Servicer after the Master Servicer is terminated and shall
thereafter be subject to all the responsibilities, duties, liabilities
and limitations on liabilities relating thereto placed on the Master
Servicer by the terms and provisions of the Pooling and Servicing
Agreement.
3. Upon any termination or appointment of a successor to the Master
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the
Certificate Register and to the Rating Agencies.
FOR FURTHER DISCUSSION OF THE DUTIES OF THE TRUSTEE, PLEASE SEE "THE
AGREEMENTS--DUTIES OF THE TRUSTEE" IN THE PROSPECTUS.
The principal compensation to be paid to the Trustee in respect of its
obligations under the Agreement will be equal to the Trustee's Fee. The
Agreement will provide that the Trustee and any director, officer, employee or
agent of the Trustee will be indemnified by the trust fund and will be held
harmless against any loss, liability or expense (not including expenses,
disbursements and advances incurred or made by the Trustee, including the
compensation and the expenses and disbursements of its agents and counsel, in
the ordinary course of the Trustee's performance in accordance with the
provisions of the Agreement) incurred by the Trustee in connection with any
pending or threatened claim or legal action arising out of or in connection with
the acceptance or administration of its obligations and duties under the
Agreement, other than any loss, liability or expense (1) resulting from a breach
of either of the Master Servicer's obligations and duties under the Agreement,
(2) that constitutes a specific liability of Trustee under the Agreement or (3)
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of the Trustee's duties under the Agreement or as a result of a
breach, or by reason of reckless disregard, of the Trustee's obligations and
duties under the Agreement.
FOR FURTHER DISCUSSION OF THE DUTIES OF THE TRUSTEE, PLEASE SEE "THE
AGREEMENTS--RESIGNATION AND REMOVAL OF THE TRUSTEE" IN THE PROSPECTUS.
MILA Mortgage Acceptance, Inc. Trust Series ____-__
MILA MORTGAGE ACCEPTANCE, INC. TRUST SERIES ____-__
MILA Mortgage Acceptance, Inc. Trust Series ____-__ is a common law
trust formed under the laws of the State of [New York] pursuant to the pooling
and servicing agreement between the depositor, sponsor, master servicer and the
trustee, dated as of [____], 2006 (the "Pooling and Servicing Agreement"). The
Pooling and Servicing Agreement constitutes the "governing instrument" under the
laws of the State of [New York]. After its formation, the MILA Mortgage
Acceptance, Inc. Trust Series ____-__ will not engage in any activity other than
(i) acquiring and holding the Mortgage Loans and the other assets of the Trust
and proceeds therefrom, (ii) issuing the Certificates, (iii) making payments on
the Certificates and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith. The foregoing restrictions are contained in the Pooling and
Servicing Agreement. These restrictions cannot be amended without the consent of
holders of Certificates evidencing at least 66-2/3% of the voting rights. For a
description of other provisions relating to amending the Pooling and Servicing
Agreement, please see "The Agreements -- Amendment" in the base prospectus.
The assets of the MILA Mortgage Acceptance, Inc. Trust Series ____-__
will consist of the Mortgage Loans and certain related assets.
MILA Mortgage Acceptance, Inc. Trust Series ____-__'s fiscal year end
is [December 31].
THE SPONSOR
The sponsor will be MILA Inc. The sponsor was incorporated in the State
of Washington in 1989. The Sponsor is a full service lender who originates and
acquires a wide variety of mortgage loan types.
The sponsor maintains its principal office at 6021 244th Street SW,
Mountlake Terrace, WA, 98043. Its telephone number is (800) 332-6452.
The sponsor has been securitizing residential mortgage loans since
_______. [The following table describes size, composition and growth of the
sponsor's total portfolio of assets it has securitized as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
[_______] will also act as servicer [or master servicer] for the
mortgage pool. [_______] will service the mortgage loans in accordance with the
description of the applicable servicing procedures contained in the prospectus
under "Servicing of Mortgage Loans" and "Description of the Securities."
[_______] has been servicing residential mortgage loans since _______.
[The following table describes size, composition and growth of the sponsor's
total residential mortgage loan servicing portfolio as of the dates indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
[Describe any material changes in the sponsor's servicing policies and
procedures for residential mortgage loans, any failure of sponsor to make any
required advance as to any securitization and any default or early amortization
triggering event as to any prior securitization that occurred due to servicing,
over the preceding three years.]
THE DEPOSITOR
The depositor will be MILA Mortgage Acceptance, Inc. and was formed in
the State of Delaware on June 21, 2005 as a wholly-owned subsidiary of MILA,
Inc., a Washington corporation. The depositor was organized for the purpose of
serving as a private secondary mortgage market conduit. The depositor does not
have, nor is it expected in the future to have, any significant assets. After
issuance and registration of the securities contemplated in this prospectus
supplement and any supplement hereto, the depositor will have no duties or
responsibilities with respect to the pool assets or the securities.
The depositor maintains its principal office at 6021 244th Street SW,
Mountlake Terrace, WA 98043. Its telephone number is (800) 332-6452.
[The depositor has been serving as a private secondary mortgage market
conduit for residential mortgage loans since _______. Since that time it has
been involved in the issuance of securities backed by residential mortgage loans
in excess of $[____].]
The depositor has been securitizing residential mortgage loans since
_______. [The following table describes size, composition and growth of the
depositor's total portfolio of assets it has securitized as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
THE MASTER SERVICER AND THE SERVICERS
GENERAL
[Name of Master Servicer], referred to in this prospectus supplement as
[Name of Master Servicer] or the Master Servicer, will act as the Master
Servicer of the mortgage loans pursuant to the Pooling and Servicing Agreement,
referred to herein as the Agreement, dated as of the Cut-off Date, among the
Depositor, the Sponsor, the Master Servicer, the Securities Administrator and
the Trustee.
Primary servicing of the mortgage loans will be provided for in
accordance with various sale and servicing agreements or similar agreements,
which are collectively referred to in this prospectus supplement as the
Servicing Agreements. Each of the Servicing Agreements will be assigned to the
trust pursuant to various assignment, assumption and recognition agreements
among the related Servicer, the Sponsor and the Trustee on behalf of the
Certificateholders; provided, however, that the Sponsor will retain the right to
enforce the representations and warranties made by the Servicers with respect to
the related mortgage loans against them. In the event of a default by a Servicer
under the related Servicing Agreement, the Master Servicer will be required to
enforce any remedies against the Servicer, and shall either find a successor
Servicer or shall assume primary servicing obligations for the related mortgage
loans itself.
The servicer or the master servicer, directly or through subservicers,
as the case may be, will make reasonable efforts to collect all payments called
for under the loans and will, consistent with the related servicing agreement
and any applicable insurance policy, FHA insurance or other credit enhancement,
follow the collection procedures that are normal and usual in its general loan
servicing activities for assets that are comparable to the loans. Consistent
with the previous sentence, the servicer or the master servicer may, in its
discretion, waive any prepayment charge in connection with the prepayment of a
loan or extend the due dates for payments due on a mortgage note, provided that
the insurance coverage for the loan or any coverage provided by any alternative
credit enhancement will not be adversely affected by the waiver or extension.
The master servicer or servicer may also waive or modify any term of a loan so
long as the master servicer or servicer has determined that the waiver or
modification is not materially adverse to any securityholders, taking into
account any estimated loss that may result absent that action.
[[For subprime loans] In instances in which a loan is in default, or if
default is reasonably foreseeable, and if determined by the master servicer or
servicer to be in the best interests of the related securityholders, the master
servicer or servicer may engage, either directly or through subservicers, in a
wide variety of loss mitigation practices including waivers, modifications,
payment forbearances, partial forgiveness, entering into repayment schedule
arrangements, and capitalization of arrearages rather than proceeding with
foreclosure or repossession, if applicable. In making that determination, the
estimated Realized Loss that might result if the loan were liquidated would be
taken into account. Modifications may have the effect of, among other things,
reducing the loan rate, forgiving payments of principal, interest or other
amounts owed under the mortgage loan or contract, such as taxes or insurance
premiums, extending the final maturity date of the loan, capitalizing delinquent
interest and other amounts owed under the mortgage loan or contract, or any
combination of these or other modifications. Any modified loan may remain in the
related trust, and the reduction in collections resulting from a modification
may result in reduced distributions of interest or principal on, or may extend
the final maturity of, one or more classes of the related securities.]
The Servicers will be responsible for the servicing of the mortgage
loans covered by the related Servicing Agreement, and the Master Servicer will
be required to monitor their performance. All collections of principal and
interest on any mortgage loans, including but not limited to Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds (less amounts reimbursable
to the applicable Servicer out of Liquidation Proceeds in accordance with the
applicable Servicing Agreement), the Repurchase Price for any mortgage loans
repurchased, and advances made from the Servicer's own funds (less the servicing
fee) will be deposited in a Protected Account, held by a designated depository
institution and segregated on the books of such institution in the name of the
Trustee for the benefit of Certificateholders. Amounts on deposit in a Protected
Account may be invested in Permitted Investments in the name of the Trustee for
the benefit of Certificateholders and, except as provided in the preceding
paragraph, not commingled with any other funds. Such Permitted Investments shall
mature, or shall be subject to redemption or withdrawal, no later than the date
on which such funds are required to be withdrawn for deposit in the Master
Servicer Collection Account, and shall be held until required for such deposit.
The income earned from Permitted Investments made shall be paid to the related
Servicer under the applicable Servicing Agreement, and the risk of loss of
moneys required to be distributed to the Certificateholders resulting from such
investments shall be borne by and be the risk of the related Servicer. The
related Servicer (to the extent provided in the Servicing Agreement) shall
deposit the amount of any such loss in the Protected Account within two Business
Days of receipt of notification of such loss but not later than the second
Business Day prior to the Distribution Date on which the moneys so invested are
required to be distributed to the Certificateholders. On the date specified in
the related Servicing Agreement, the related Servicer will withdraw or cause to
be withdrawn from the applicable Protected Accounts and any other permitted
accounts and will remit to the Master Servicer for deposit in the Master
Servicer Collection Account the Available Funds. See "Description of the
Securities-The Distribution Account" in the prospectus.
The information set forth in the following paragraphs with respect to
the Master Servicer and the Servicers has been provided by the respective party.
THE MASTER SERVICER
[Name of Master Servicer] ("[Name of Master Servicer]") will act as
Securities Administrator and Master Servicer under the Agreement. [Name of
Master Servicer] is a [form of organization]. [Description of Master Servicer's
business]. The [Depositor, the Seller and the Servicer] may maintain banking and
other commercial relationships with [Name of Master Servicer] and its
affiliates. [Name of Master Servicer]'s principal corporate trust offices are
located at _______________________ and its office for certificate transfer
services is located at ___________________.
[Name of Master Servicer] acts as Master Servicer pursuant to the
Agreement. The Master Servicer is responsible for the aggregation of monthly
Servicer reports and remittances and for the oversight of the performance of the
Servicers under the terms of their respective [Servicing Agreements]. In
addition, upon the occurrence of certain Servicer events of default under the
terms of [any Servicing Agreement], the Master Servicer may be required to
enforce certain remedies on behalf of the Trust [and at the direction of the
Trustee] against such defaulting Servicer. As of __________, [Name of Master
Servicer] was acting as master servicer for approximately ____ series of
residential mortgage-backed securities with an aggregate outstanding principal
balance of approximately $___________.
[The following table describes size, composition and growth of [Name of
Master Servicer]'s total residential mortgage loan servicing portfolio as of the
dates indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Residential Mortage
Loans..............
[Describe any material changes in [Name of Master Servicer]'s servicing
policies and procedures for residential mortgage loans, any failure to make any
required advance as to any securitization, and any default or early amortization
triggering event as to any prior securitization that occurred due to servicing,
over the preceding three years.]
The Master Servicer shall not be under any liability to the Trust Fund
or the Certificateholders for any action taken or for refraining from the taking
of any action in good faith pursuant to the Pooling and Servicing Agreement, or
for errors in judgment except that the Master Servicer shall be liable for any
breach of warranties or representations made in the Pooling and Servicing
Agreement. In addition the Master Servicer shall be liable for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
for reckless disregard of its obligations and duties under the transaction
documents. The Master Servicer and any director, officer, employee or agent of
the Master Servicer may rely in good faith on any document of any kind PRIMA
FACIE properly executed and submitted by any Person respecting any matters
arising under the transaction documents The Master Servicer and any director,
officer, employee or agent of the Master Servicer shall be indemnified and held
harmless by the Trust Fund, against any loss, liability or expense incurred in
connection with the Pooling and Servicing Agreement or the Certificates or the
Mortgage Loans (including, without limitation, reasonable legal fees and
disbursements of counsel), other than (a) any loss, liability or expense related
to the Master Servicer's failure to perform its master servicing obligations
with respect to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to the
Pooling and Servicing Agreement) or (b) any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties by reason of reckless disregard of obligations and
duties under the Pooling and Servicing Agreement.
The Master Servicer may sell and assign its rights and delegate its
duties and obligations in their entirety as Master Servicer according to the
terms of the Pooling and Servicing Agreement; PROVIDED, HOWEVER, that: (i) the
purchaser or transferee accepting such assignment and delegation (a) shall be a
person which shall be qualified to service Mortgage Loans for Fannie Mae or
Freddie Mac; (b) shall, in the case of successor master servicers only, have a
net worth of not less than $10,000,000 (unless otherwise approved by each Rating
Agency pursuant to clause (ii) below); (c) shall execute and deliver to the
Trustee an agreement, in form and substance reasonably satisfactory to the
Trustee, which contains an assumption by such person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by it as master servicer under the pooling and servicing agreement and
any custodial agreement, from and after the effective date of such agreement;
(ii) each Rating Agency shall be given prior written notice of the identity of
the proposed successor to the Master Servicer and each Rating Agency's rating of
the Certificates in effect immediately prior to such assignment, sale and
delegation will not be downgraded or withdrawn as a result of such assignment,
sale and delegation, as evidenced by a letter to such effect obtained by the
Master Servicer at its expense and delivered to the Trustee; and (iii) the
Master Servicer assigning and selling the master servicing shall deliver to the
Trustee an officer's certificate and an opinion of counsel (at the expense of
the Master Servicer), each stating that all conditions precedent to such action
have been completed and such action is permitted by and complies with the terms
of the Pooling and Servicing Agreement. No such assignment or delegation shall
affect any liability of the Master Servicer arising prior to the effective date
thereof.
THE SERVICERS
[Name of Servicer] and [Additional Servicers] will service the related
mortgage loans in accordance with the related Servicing Agreements, each of
which will be assigned to the trust on the Closing Date.
The following table shows the percentage of the mortgage loans which
are or will be serviced by each of, [Name of Servicer] and [Additional
Servicers], collectively referred to herein as the Servicers in the aggregate.
NAME OF SERVICER TOTAL
------------------ -----
[Name of Servicer]
[Additional
Servicers]
[NAME OF SERVICER]
The principal executive offices of [Name of Servicer] are located at
______________. [Name of Servicer] is a [Description of Servicer's form of
organization].
[Name of Servicer] is an approved mortgage loan servicer for Fannie
Mae, Freddie Mac, Ginnie Mae, HUD and VA and is licensed to service mortgage
loans in each state where a license is required. Its loan servicing activities
are guaranteed by ___________ when required by the owner of the mortgage loans.
As of _______, ____ [Name of Servicer] had a net worth of approximately $[___].
[The following table describes size, composition and growth of [Name of
Servicer]'s total residential mortgage loan servicing portfolio as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Residential Mortage
Loans..............
[Describe any material changes in [Name of Servicer]'s servicing
policies and procedures for residential mortgage loans, any failure to make any
required advance as to any securitization, and any default or early amortization
triggering event as to any prior securitization that occurred due to servicing,
over the preceding three years.]
[ADDITIONAL SERVICERS]
[Identification of, and information with respect to additional
servicers will be provided in accordance with Item 1108 if applicable.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its servicing activities for the Certificates will be equal to the Servicing
Fee. As additional servicing compensation, the Master Servicer is entitled to
retain all assumption fees and late payment charges in respect of mortgage loans
master serviced by it, to the extent collected from mortgagors, together with
any interest or other income earned on funds held in the Distribution Account
and any escrow accounts in respect of mortgage loans master serviced by it. The
Master Servicer is obligated to offset any Prepayment Interest Shortfall in
respect of the mortgage loans on any distribution date with Compensating
Interest to the extent of its aggregate Servicing Fee for such distribution
date. The Master Servicer is obligated to pay insurance premiums and ongoing
expenses associated with the mortgage pool in respect of mortgage loans and
incurred by the Master Servicer in connection with its responsibilities under
the Agreement. However, the Master Servicer is entitled to reimbursement
therefor as provided in the Agreement. See "DESCRIPTION OF THE
CERTIFICATES--RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES"
in the prospectus for information regarding expenses payable by the Master
Servicer and "FEDERAL INCOME TAX CONSEQUENCES" in this prospectus supplement
regarding taxes payable by the Master Servicer.
PERMITTED INVESTMENTS
To the extent provided in the Servicing Agreement, amounts on deposit
in a Protected Account may be invested in Permitted Investments in the name of
the Securities Administrator on behalf of the Trustee for the benefit of
Certificateholders and not commingled with any other funds. Such Permitted
Investments shall mature, or shall be subject to redemption or withdrawal, no
later than the date on which such funds are required to be withdrawn for deposit
in the Distribution Account, and shall be held until required for such deposit.
The income earned from Permitted Investments made shall be paid to the Servicer
under the Servicing Agreement, and the risk of loss of moneys required to be
distributed to the Certificateholders resulting from such investments shall be
borne by and be the risk of the Servicer. The Servicer (to the extent provided
in the Servicing Agreement) shall deposit the amount of any such loss in the
Protected Account within two Business Days of receipt of notification of such
loss but not later than the second Business Day prior to the Servicer Remittance
Date on which the moneys so invested are required to be distributed to the
Securities Administrator.
Any one or more of the following obligations or securities held in the
name of the Trustee for the benefit of the Certificateholders will be considered
a Permitted Investment:
(i) obligations of or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than one month from the date of acquisition thereof,
provided that the unsecured obligations of the party agreeing to repurchase such
obligations are at the time rated by each Rating Agency in its highest
short-term rating available;
(iii) federal funds, certificates of deposit, demand deposits,
time deposits and bankers' acceptances (which shall each have an original
maturity of not more than 90 days and, in the case of bankers' acceptances,
shall in no event have an original maturity of more than 365 days or a remaining
maturity of more than 30 days) denominated in United States dollars of any U.S.
depository institution or trust company incorporated under the laws of the
United States or any state thereof or of any domestic branch of a foreign
depository institution or trust company; provided that the debt obligations of
such depository institution or trust company (or, if the only Rating Agency is
Standard & Poor's, in the case of the principal depository institution in a
depository institution holding company, debt obligations of the depository
institution holding company) at the date of acquisition thereof have been rated
by each Rating Agency in its highest short-term rating available; and provided
further that, if the only Rating Agency is Standard & Poor's or Fitch Ratings
and if the depository or trust company is a principal subsidiary of a bank
holding company and the debt obligations of such subsidiary are not separately
rated, the applicable rating shall be that of the bank holding company; and,
provided further that, if the original maturity of such short-term obligations
of a domestic branch of a foreign depository institution or trust company shall
exceed 30 days, the short-term rating of such institution shall be A-1+ in the
case of Standard & Poor's if Standard & Poor's is the Rating Agency;
(iv) commercial paper (having original maturities of not more
than 365 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated by
Moody's, Fitch Ratings and Standard & Poor's in their highest short-term ratings
available; provided that such commercial paper shall have a remaining maturity
of not more than 30 days;
(v) a money market fund or a qualified investment fund rated
by Moody's and Fitch Ratings, if so rated, in its highest long-term ratings
available and rated AAAm or AAAm-G by Standard & Poor's, including any such
funds for which Wells Fargo Bank, N.A. or any affiliate thereof serves as an
investment advisor, manager, administrator, shareholder, servicing agent, and/or
custodian or sub-custodian; and
(vi) other obligations or securities that are acceptable to
each Rating Agency as a Permitted Investment hereunder and will not reduce the
rating assigned to any Class of Certificates by such Rating Agency below the
lower of the then-current rating or the rating assigned to such Certificates as
of the Closing Date by such Rating Agency, as evidenced in writing;
PROVIDED, HOWEVER, that no instrument shall be a Permitted Investment
if it represents, either (1) the right to receive only interest payments with
respect to the underlying debt instrument or (2) the right to receive both
principal and interest payments derived from obligations underlying such
instrument and the principal and interest payments with respect to such
instrument provide a yield to maturity greater than 120% of the yield to
maturity at par of such underlying obligations.
VOTING RIGHTS
At all times, __% of all voting rights will be allocated among the
holders of the Certificates (other than the Class X Certificates and the
Residual Certificates) in proportion to the then outstanding Certificate
Principal Balances of their respective Certificates, __% of all voting rights
will be allocated among the holders of the Class X Certificates in proportion to
the then outstanding Notional Amounts of their respective Certificates and __%
of all voting rights will be allocated among the holders of the Residual
Certificates in proportion to the percentage interests in each such class
evidenced by their respective Certificates.
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of the Certificates are described in "Description of
the Certificates--Termination" in the prospectus. The Master Servicer will have
the right to purchase the mortgage loans and any properties acquired in respect
thereof on any distribution date, once the aggregate principal balance of the
mortgage loans and such properties at the time of purchase is reduced to less
than __% of the aggregate principal balance of the mortgage loans as of the
Cut-off Date. If the Master Servicer elects to exercise the foregoing option, it
will effect the termination of the trust fund and the early retirement of the
Certificates. In the event the Master Servicer exercises this option,
notwithstanding the terms of the prospectus, the purchase price payable in
connection therewith generally will be equal to par plus accrued interest for
each mortgage loan at the related mortgage rate to but not including the first
day of the month in which the repurchase price is distributed, and the portion
of the purchase price allocable to the Certificates of each class will be, to
the extent of available funds, (1) in the case of the Certificates of any class,
other than the Class X Certificates, 100% of the then outstanding Certificate
Principal Balance thereof, plus (2) in the case of the Certificates of any
class, one month's interest on the then outstanding Certificate Principal
Balance or Notional Amount thereof at the then applicable Pass-Through Rate for
such class plus any previously accrued but unpaid interest thereon. In no event
will the trust created by the Agreement continue beyond the expiration of 21
years from the death of the survivor of the persons named in the Agreement. SEE
"DESCRIPTION OF THE CERTIFICATES--TERMINATION; RETIREMENT OF SECURITIES" IN THE
PROSPECTUS. In no event will the trust created by the Agreement continue beyond
the expiration of 21 years from the death of the survivor of the person or
persons named in the Agreement. SEE "DESCRIPTION OF THE
CERTIFICATES--TERMINATION; RETIREMENT OF SECURITIES" IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust fund as a REMIC for federal
income tax purposes. Upon the issuance of the offered certificates, Thacher
Proffitt & Wood LLP, counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
Agreement, for federal income tax purposes, the REMIC will qualify as a REMIC
under Sections 860A through 860G of the Code.
For federal income tax purposes, (1) the Class R Certificates will be
the sole class of "residual interests" in the REMIC and (2) the Senior
Certificates and the Subordinate Certificates will evidence the "regular
interests" in, and will be treated as debt instruments of, the REMIC. SEE
"FEDERAL INCOME TAX CONSEQUENCES--REMIC--CLASSIFICATION OF REMICS" IN THE
PROSPECTUS.
For federal income tax reporting purposes, the Class X Certificates and
the Class PO Certificates will, the Class __ Certificates may, and all other
classes will not, be treated as having been issued with original issue discount.
The prepayment assumption that will be used in determining the rate of accrual
of original issue discount, premium and market discount, if any, for federal
income tax purposes will be based on the assumption that, subsequent to the date
of any determination, the mortgage loans will prepay at a rate equal to ____% of
the prepayment assumption. No representation is made that the mortgage loans
will prepay at that rate or at any other rate. SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES--ORIGINAL
ISSUE DISCOUNT" IN THE PROSPECTUS.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the
Code generally addressing the treatment of debt instruments issued with original
issue discount. Purchasers of the Class X Certificates should be aware that the
OID Regulations do not adequately address some issues relevant to, or are not
applicable to, securities such as the Class X Certificates. In addition, there
is considerable uncertainty concerning the application of the OID Regulations to
REMIC Regular Certificates that provide for payments based on a variable rate
such as the Class X Certificates. Prospective purchasers of the Class X
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
If the method of computing original issue discount described in the
prospectus results in a negative amount for any period with respect to any
certificateholders (in particular, the holders of the Class X Certificates), the
amount of original issue discount allocable to such period would be zero, and
such certificateholders will be permitted to offset such amounts only against
the respective future income (if any) from such Certificate. Although uncertain,
a certificateholders 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 certificateholders is entitled, assuming no
further prepayments of the mortgage loans. Although the matter is not free from
doubt, any such loss might be treated as a capital loss.
The OID Regulations suggest that original issue discount with respect
to securities such as the Class X Certificates that represent multiple
uncertificated REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer 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 Class X
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.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that of the issuing entity. Accordingly, it is possible that holders of offered
certificates issued with original issue discount may be able to select a method
for recognizing original issue discount that differs from that used in preparing
reports to certificateholders and the IRS. Prospective purchasers of offered
certificates issued with original issue discount are advised to consult their
tax advisors concerning the tax treatment of such Certificates in this regard.
Some Classes of Certificates may be treated for federal income tax
purposes as having been issued with a premium. Certificateholders may elect to
amortize such premium under a constant yield method in which case such
amortizable premium will generally be allocated among the interest payments on
such Certificates and will be applied as an offset against such interest
payments. SEE "FEDERAL INCOME TAX CONSEQUENCES--REMICS--TAXATION OF OWNERS OF
REMIC REGULAR CERTIFICATES--PREMIUM" IN THE PROSPECTUS.
The offered certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code, generally in the same proportion that the assets in the related
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 the offered certificates are treated as "real estate assets" under Section
856(c)(4)(A) of the Code. The offered certificates (other than the Residual
Certificates) also will be treated as "qualified mortgages" under Section
860G(a)(3) of the Code. SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES" IN
THE PROSPECTUS.
It is not anticipated that the REMIC will engage in any transactions
that would subject it to the prohibited transactions tax as defined in Section
860F(a)(2) of the Code, the contributions tax as defined in Section 860G(d) of
the Code or the tax on net income from foreclosure property as defined in
Section 860G(c) of the Code. However, in the event that any such tax is imposed
on the REMIC, such tax will be borne (1) by the Trustee, if the Trustee has
breached its obligations with respect to REMIC compliance under the Agreement,
(2) by the Master Servicer, if the Master Servicer has breached its obligations
with respect to REMIC compliance under the Agreement and (3) otherwise by the
trust fund, with a resulting reduction in amounts otherwise distributable to
holders of the related offered certificates. SEE "DESCRIPTION OF THE
CERTIFICATES-- GENERAL" AND "FEDERAL INCOME TAX CONSEQUENCES--REMICS
- --PROHIBITED TRANSACTIONS TAX AND OTHER TAXES" IN THE PROSPECTUS.
The responsibility for filing annual federal information returns and
other reports will be borne by the Trustee. SEE "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--REPORTING AND OTHER ADMINISTRATIVE MATTERS" IN THE
PROSPECTUS.
For further information regarding the federal income tax consequences
of investing in the offered certificates, see "FEDERAL INCOME TAX
CONSEQUENCES--REMICS" in the prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The IRS has issued REMIC regulations under the provisions of the
Internal Revenue Code that significantly affect holders of Residual
Certificates. The REMIC regulations impose restrictions on the transfer or
acquisition of some residual interests, including the Residual Certificates. The
Agreement includes other provisions regarding the transfer of Residual
Certificates, including:
o the requirement that any transferee of a Residual Certificate provide
an affidavit representing that the transferee:
o is not a disqualified organization;
o is not acquiring the Residual Certificate on behalf of a
disqualified organization; and
o will maintain that status and will obtain a similar affidavit
from any person to whom the transferee shall subsequently
transfer a Residual Certificate;
o a provision that any transfer of a Residual Certificate to a
disqualified organization shall be null and void; and
In addition, under the Agreement, the Residual Certificates may not be
transferred to non-United States persons.
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 the 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 relating to the income on the Residual Certificates. All transfers
of the Residual Certificates will be restricted in accordance with the terms of
the Agreement that are intended to reduce the possibility of any transfer of a
Residual Certificate being disregarded to the extent that the Residual
Certificates constitute noneconomic residual interests.
The IRS has issued final REMIC regulations that add to the conditions
necessary to assure that a transfer of a non-economic residual interest would be
respected. The additional conditions require that in order to qualify as a safe
harbor transfer of a residual, the transferee represent that it will not cause
the income "to be attributable to a foreign permanent establishment or fixed
base (within the meaning of an applicable income tax treaty) of the transferee
or another U.S. taxpayer" and either (i) the amount received by the transferee
be no less on a present value basis than the present value of the net tax
detriment attributable to holding the residual interest reduced by the present
value of the projected payments to be received on the residual interest or (ii)
the transfer is to a domestic taxable corporation with specified large amounts
of gross and net assets and that meets certain other requirements where
agreement is made that all future transfers will be to taxable domestic
corporations in transactions that qualify for the same "safe harbor" provision.
Eligibility for the safe harbor requires, among other things, that the facts and
circumstances known to the transferor at the time of transfer not indicate to a
reasonable person that the taxes with respect to the residual interest will not
be paid, with an unreasonably low cost for the transfer specifically mentioned
as negating eligibility. The regulations generally apply to transfers of
residual interests occurring on or after February 4, 2000. SEE "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 term of each
REMIC that significantly exceeds the amount of cash distributions received by
the Residual Certificateholders from the respective REMIC with respect to those
periods. Furthermore, the tax on that income may exceed the cash distributions
with respect to those periods. Consequently, Residual Certificateholders' should
have other sources of funds sufficient to pay any federal income taxes due in
the earlier years of the REMICs' term as a result of their ownership of the
Residual Certificates. In addition, the required inclusion of this amount of
taxable income during the REMICs' 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 Internal Revenue 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 the Residual Certificates over their life.
An individual, trust or estate that holds, whether directly or
indirectly through pass-through entities, a Residual Certificate, may have
significant additional gross income with respect to, but may be limited on the
deductibility of, servicing and trustee's fees and other administrative expenses
properly allocable to the REMIC in computing the certificateholder's regular tax
liability and will not be able to deduct those fees or expenses to any extent in
computing the certificateholder's alternative minimum tax liability. SEE
"FEDERAL INCOME TAX CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC RESIDUAL
CERTIFICATES--POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS" IN THE
PROSPECTUS.
Potential investors in Residual Certificates should also be aware that
under the terms of the Agreement, the holders of the largest percentage interest
in the Residual Certificates shall, by their acceptance of such Certificates,
agree to irrevocably appoint the Trustee as their agent to perform all of the
duties of the tax matters person for the REMIC.
Purchasers of the Residual Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in the
Residual Certificates.
For further information regarding the federal income tax consequences
of investing in the Residual Certificates, SEE "YIELD ON THE
CERTIFICATES--ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAX
CONSEQUENCES--REMICS--TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES" IN THE
PROSPECTUS.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated _________ __, ____, the Depositor has agreed to sell, and the
Underwriter has agreed to purchase the offered certificates. The Underwriter is
obligated to purchase all offered certificates of the respective classes offered
by this prospectus supplement if it purchases any. The Underwriter is an
affiliate of the Depositor.
Distribution of the offered certificates will be made from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the Depositor from the sale of the offered
certificates, before deducting expenses payable by the Depositor, will be
approximately _________% of the aggregate initial Certificate Principal Balance
of the offered certificates, plus accrued interest on the offered certificates.
In connection with the purchase and sale of the offered certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The offered certificates are offered subject to receipt and acceptance
by the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Book-Entry Certificates will be made
through the facilities of DTC, and that delivery of each other class of offered
certificates and the Residual Certificates will be made at the offices of the
Underwriter, [Address], in each case, on or about the Closing Date.
The underwriting agreement provides that the Depositor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
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 SECURITIES--REPORTS TO SECURITYHOLDERS", 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 Depositor 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 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
Legal matters relating to the offered certificates will be passed upon
for the Depositor by Thacher Proffitt & Wood LLP, New York, New York and for the
Underwriter by [______________________].
LEGAL PROCEEDINGS
[There are no material legal proceedings pending against the Sponsor,
the Depositor, the Trustee, The Issuing Entity, the Master Servicer, [any
affiliated Servicer, any 20% concentration unaffiliated Servicer, any 20%
concentration Originator], the Securities Administrator or the Custodians, or
with respect to which the property of any of the foregoing transaction parties
is subject, that are material to the Certificateholders. No legal proceedings
against any of the foregoing transaction parties is known to be contemplated by
governmental authorities, that are material to the Certificateholders.]
AFFILIATIONS, RELATIONSHIPS AND RELATED TRANSACTIONS
[There are no affiliations between the Sponsor, the Depositor or the
Issuing Entity and any of the Master Servicer, [any affiliated Servicer, any 20%
concentration unaffiliated Servicer], the Trustee, [any 10% concentration
Originator], [any credit enhancement provider or derivatives counterparty], the
Securities Administrator or the Custodians. There are no affiliations among the
Master Servicer, [any affiliated Servicer, any 20% concentration unaffiliated
Servicer], the Trustee, [any 10% concentration Originator], [any credit
enhancement provider or derivatives counterparty], the Securities Administrator
or the Custodians. There are currently no business relationships, agreements,
arrangements, transactions or understandings between (a) the Sponsor, the
Depositor or the Issuing entity and (b) any of the parties referred to in the
preceding sentence, or any of their respective affiliates, that were entered
into outside the normal course of business or that contain terms other than
would be obtained in an arm's length transaction with an unrelated third party
and that are material to the investor's understanding of the Certificates, or
that relate to the Certificates or the pooled assets. No such business
relationship, agreement, arrangement, transaction or understanding has existed
during the past two years.]
RATINGS
It is a condition to the issuance of the Certificates that the Class A
Certificates and the Residual Certificates be rated "AAA" by _________________
("_____") and "AAA" by ____________ ("____"), that the Class B-1 Certificates be
rated at least "AA" by _________ and at least "AA" by _______, that the Class
B-2 Certificates be rated at least "A" by _________ and at least "A" by
________, and that the Class B-3 Certificates be rated at least "BBB" by
__________.
The ratings of _________ and ________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of all
distributions to which the certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the Certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
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 the rate and timing principal prepayments will differ from that
originally anticipated. The ratings do not address the possibility that
certificateholders might suffer a lower than anticipated yield due to non-credit
events or that the holders of the Class X Certificates may fail to recover fully
their initial investment. In addition, the ratings on the Residual Certificates
do not address the likelihood of receipt by the holders of the Residual
Certificates of any amounts in excess of their initial Certificate Balance
thereof and interest thereon.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the offered certificates are subsequently lowered for any
reason, no person or entity is obligated to provide any additional credit
support or credit enhancement with respect to the offered certificates.
The Depositor has not requested that any rating agency rate any class
of the offered certificates other than as stated above. However, there can be no
assurance as to whether any other rating agency will rate any class of the
offered certificates, or, if it does, what rating would be assigned by any other
rating agency. A rating on any class of the offered certificates by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
offered certificates as stated above.
The rating agencies have stated that it is their standard policy to
monitor ratings on publicly offered securities for which a rating has been
provided, as to each rating agency rating each class of Offered Certificates in
accordance with the rating agencies' particular surveillance policies, unless
the issuing entity requests a rating without surveillance. A rating agency will
monitor the rating it issues on an ongoing basis and may update the rating after
conducting its regular review of the issuing entity's creditworthiness or after
conducting a review of the status of the rating upon becoming aware of any
information that might reasonably be expected to result in a change of rating.
The Depositor has not requested that any rating agency not monitor their ratings
of the Offered Certificates, and the Depositor has not requested that any rating
agency use any monitoring procedures other than their standard monitoring
procedures.
AVAILABLE INFORMATION
The depositor is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports and other information
with the Commission. Reports and other information filed by the depositor can be
inspected and copied at the Public Reference Room maintained by the Commission
at 100 F Street NE, Washington, DC 20549, and its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison, 14th Floor, Chicago,
Illinois 60661; New York Regional Office, 233 Broadway, New York, New York
10279. Copies of the material can also be obtained from the Public Reference
Section of the Commission, 100 F Street NE, Washington, DC 20549, at prescribed
rates and electronically through the Commission's Electronic Data Gathering,
Analysis and Retrieval system at the Commission's Website (http://www.sec.gov).
Information about the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at (800) SEC-0330. Exchange Act
reports as to any series filed with the Commission will be filed under the
issuing entity's name. The depositor does not intend to send any financial
reports to securityholders.
The issuing entity's annual reports on Form 10-K (including reports of
assessment of compliance with the AB Servicing Criteria, attestation reports,
and statements of compliance, discussed in "Description of the Securities --
Reports to Securityholders" and "Servicing of Mortgage Loans -- Evidence as to
Compliance", required to be filed under Regulation AB), periodic distribution
reports on Form 10-D, current reports on Form 8-K and amendments to those
reports, together with such other reports to security holders or information
about the securities as shall have been filed with the Commission will be posted
on the [sponsor's][depositor's] internet web site as soon as reasonably
practicable after it has been electronically filed with, or furnished to, the
Commission. The address of the website is: __________________.
The prospectus and this prospectus supplement do not contain all of the
information set forth in the registration statement (of which the prospectus
forms a part) and exhibits thereto which the depositor has filed with the
Commission under the Securities Act and to which reference is hereby made.
REPORTS TO SECURITYHOLDERS
The master servicer or another designated person will be required to
provide periodic unaudited reports concerning the trust fund to all registered
holders of the offered securities with respect to the trust fund as are required
under the Exchange Act and the Commission's related rules and regulations, and
under the terms of the applicable agreements.
So long as it is required to file reports under the Exchange Act, those
reports will be made available as described above under "Available Information".
Periodic distribution reports will be posted on the
[sponsor's][depositor's] website referenced above under "Available Information"
as soon as practicable. Annual reports of assessment of compliance with the AB
Servicing Criteria, attestation reports, and statements of compliance will be
provided to registered holders of the securities upon request free of charge.
See "Servicing of Mortgage Loans -- Evidence as to Compliance" and "Description
of the Securities -- Reports to Securityholders."
LEGAL INVESTMENT
The Senior Certificates and the Class B-1 Certificates will constitute
"mortgage related securities" for purposes of SMMEA for so long as they are
rated not lower than the second highest rating category by a Rating Agency (as
defined in the prospectus) and, as such, will be legal investments for entities
to the extent provided in SMMEA. SMMEA, however, provides for state limitation
on the authority of these entities to invest in "mortgage related securities"
provided that restrictive legislation by the state was enacted prior to October
3, 1991. Some states have enacted legislation which overrides the preemption
provisions of SMMEA. The Class B-2 Certificates and the Class B-3 Certificates
will not constitute "mortgage related securities" for purposes of SMMEA.
The Depositor makes no representations as to the proper
characterization of any class of offered certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of 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 are encouraged to consult with
their legal advisors in determining whether and to what extent any class of
offered certificates constitutes a legal investment or is subject to investment,
capital or other restrictions.
SEE "LEGAL INVESTMENT" IN THE PROSPECTUS.
ERISA CONSIDERATIONS
A fiduciary of any Plan and any person investing Plan Assets of any
Plan should carefully review with its legal advisors whether the purchase, sale
or holding of certificates will give rise to a prohibited transaction under
ERISA or Section 4975 of the Code.
The U.S. Department of Labor has issued an Exemption, as described
under "ERISA Considerations" in the prospectus, to the Underwriter. The
Exemption generally exempts from the application of certain of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions by Section 4975(a) and (b) of the Code and Section
502(i) of ERISA, transactions relating to the purchase, sale and holding of
pass-through certificates rated at least "BBB-" (or its equivalent) by the
Exemption Rating Agencies at the time of purchase and underwritten by the
Underwriter, such as the offered certificates, and the servicing and operation
of asset pools, such as the mortgage pool, provided that the conditions of the
Exemption are satisfied. The purchase of the offered certificates by, on behalf
of or with the Plan Assets of any Plan may qualify for exemptive relief under
the Exemption, as amended and as currently in effect. However, the Exemption
contains a number of conditions which must be met for the Exemption, as amended,
to apply (as described in the prospectus), including the requirement that any
such Plan must be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Securities Act
of 1933, as amended. A fiduciary of a Plan contemplating purchasing an offered
certificate must make its own determination that the conditions set forth in the
Exemption, as amended, will be satisfied with respect to such certificates,
including the requirement that the rating on a particular class of certificates
be "BBB-" or higher at the time of purchase.
Any fiduciary or other investor of "Plan Assets" that proposes to
acquire or hold the offered certificates on behalf of or with "Plan Assets" of
any Plan is encouraged to consult with its counsel with respect to the
application of the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of the ERISA and the Code to the proposed
investment. SEE "ERISA CONSIDERATIONS" IN THE PROSPECTUS.
The sale of any class of offered certificates to a Plan is in no
respect a representation by the Depositor, the Trustee or the Underwriter that
such an investment meets all relevant legal requirements with respect to
investments by Plans generally or any particular Plan, or that such an
investment is appropriate for Plans generally or any particular Plan.
GLOSSARY
AVAILABLE DISTRIBUTION AMOUNT -- For any distribution date, an amount which
generally includes scheduled payments on the mortgage loans due during the
related Due Period and received on or prior to the related Determination Date,
prepayments and other unscheduled collections received on the mortgage loans
during the related Prepayment Period, any P&I Advances made by the Master
Servicer for such distribution date and with respect to each mortgage loan with
a first payment date occurring in _________ ____, a cash amount equal to
interest on such mortgage loan, net of the amount of any prepayment charges
received on the mortgage loans and net of fees payable to the Master Servicer
and the Trustee and amounts reimbursable to the Master Servicer, the Depositor
and the Trustee as provided in the Agreement.
BANKRUPTCY AMOUNT -- The aggregate amount of Realized Losses which may be
allocated in connection with Bankruptcy Losses through subordination will
initially be equal to approximately $_______. As of any date of determination,
the Bankruptcy Amount shall equal the initial Bankruptcy Amount less the sum of
any amounts allocated through subordination for such losses up to such date of
determination.
BOOK-ENTRY CERTIFICATES -- The Class A Certificates issued, maintained and
transferred at the DTC.
CERTIFICATE PRINCIPAL BALANCE -- With respect to any Certificate (other than a
Class X Certificate), the then maximum amount that the holder thereof is
thereafter entitled to receive as distributions allocable to principal from the
cash flow on the mortgage loans and the other assets in the trust fund. The
Certificate Principal Balance of any class of Certificates (other than the Class
X Certificates) 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) without duplication of amounts described in clause (a)
above, any reductions in the Certificate Principal Balance thereof deemed to
have occurred in connection with allocations thereto of Realized Losses on the
mortgage loans as described below.
CLASS A CERTIFICATES -- The Lockout Certificates together with the Senior
Sequential Certificates.
CLASS B PERCENTAGE -- For the Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates initially will equal
approximately ____%, approximately ____%, approximately ____%, approximately
____%, approximately ____% and approximately ____%, respectively, and will in no
event exceed 100%, and will be adjusted for each distribution date to be the
percentage equal to the Certificate Principal Balance of the related class of
Subordinate Certificates immediately prior to such distribution date divided by
the aggregate of the Scheduled Principal Balance of each of the mortgage loans
immediately prior to such distribution date.
COMPENSATING INTEREST -- Any payments made by the Master Servicer from its own
funds to cover Prepayment Interest Shortfalls.
CPR -- A constant rate of prepayment on the mortgage loans.
CUT-OFF DATE-- [Date]
DETERMINATION DATE -- With respect to any distribution date is on the 15th day
of the month in which such distribution date occurs or, if such day is not a
business day, on the immediately preceding business day.
DUE DATE -- With respect to each mortgage loans, the first day of the month.
DUE PERIOD -- With respect to any distribution date commences on the second day
of the month immediately preceding the month in which such distribution date
occurs and ends on the first day of the month in which such distribution date
occurs.
EXCESS BANKRUPTCY LOSSES-- Bankruptcy Losses in excess of the Bankruptcy Amount.
EXCESS FRAUD LOSSES -- Fraud Losses in excess of the Fraud Loss Amount.
EXCESS LOSSES -- Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess
Fraud Losses and Extraordinary Losses.
EXCESS SPECIAL HAZARD LOSSES -- Special Hazard Losses in excess of the Special
Hazard Amount.
EXEMPTION-- Prohibited Transaction Exemption __-__.
FRAUD LOSS AMOUNT -- The aggregate amount of Realized Losses which may be
allocated in connection with Fraud Losses through subordination shall initially
be equal to approximately $_________. As of any date of determination after the
Cut-off Date, the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
principal balance of all of the mortgage loans as of the Cut-off Date minus the
aggregate amounts allocated through subordination with respect to Fraud Losses
on the mortgage loans up to such date of determination, (Y) from the first to
the second anniversary of the Cut-off Date, an amount equal to (1) the lesser of
(a) the Fraud Loss Amount as of the most recent anniversary of the Cut-off Date
and (b) ____% of the aggregate principal balance of all of the mortgage loans as
of the most recent anniversary of the Cut-off Date minus (2) the aggregate
amounts allocated through subordination with respect to Fraud Losses on the
mortgage loans since the most recent anniversary of the Cut-off Date up to such
date of determination and (Z) from the second to the fifth anniversary of the
Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-off Date, and (b) ____% of the
aggregate principal balance of all of the mortgage loans as of the most recent
anniversary of the Cut-off Date minus (2) the aggregate amounts allocated
through subordination with respect to Fraud Losses on the mortgage loans since
the most recent anniversary of the Cut-off Date up to such date of
determination. On and after the fifth anniversary of the Cut-off Date, the Fraud
Loss Amount shall be zero.
INDUSTRY -- DTC's participants and other members of the financial community.
INTEREST ACCRUAL PERIOD -- For each class of Certificates for any distribution
date, the one-month period preceding the month in which such distribution date
occurs.
INTEREST DISTRIBUTION AMOUNT -- With respect to the Certificates of any class on
any distribution date, is equal to interest accrued during the related Interest
Accrual Period on the Certificate Principal Balance or Notional Amount, as
applicable, of such Certificates immediately prior to such distribution date at
the then applicable Pass-Through Rate for such class, plus, in the case of each
such class, any such amount remaining unpaid from previous distribution dates,
and reduced (to not less than zero), in the case of each such class, by the
allocable share for such class of Prepayment Interest Shortfalls to the extent
not covered by Compensating Interest paid by the Master Servicer, shortfalls
resulting from the application of the Relief Act and other interest shortfalls
not covered by the subordination provided by more subordinate classes of
Certificates. Any Prepayment Interest Shortfalls for any distribution date to
the extent not covered by Compensating Interest paid by the Master Servicer will
be allocated among the holders of the Certificates on a Pro rata basis based on
the respective amounts of interest accrued on such Certificates for such
distribution date. In addition, any shortfalls resulting from the application of
the Relief Act will be allocated among the holders of all of the Certificates on
a Pro rata basis as described above.
LOCKOUT CERTIFICATES -- The Class A-6 Certificates.
LOCKOUT CERTIFICATE PERCENTAGE -- As calculated for each distribution date, the
percentage equal to the aggregate Certificate Principal Balance of the Lockout
Certificates divided by the sum of the aggregate Certificate Principal Balances
of the Class A Certificates.
LOCKOUT DISTRIBUTION PERCENTAGE -- For any distribution date occurring prior to
the distribution date in _________ ____ will be equal to 0%. The "Lockout
Distribution Percentage" for any distribution date occurring after the first
____ years following the Closing Date will be as follows: for any distribution
date during the _______ year after the Closing Date, __% of the Lockout
Certificate Percentage for such distribution date; for any distribution date
during the ______ year after the Closing Date, __% of the Lockout Certificate
Percentage for such distribution date; for any distribution date during the
_______ year after the Closing Date, ___% of the Lockout Certificate Percentage
for such distribution date, and for any distribution date thereafter, the lesser
of (x) 300% of the Lockout Certificate Percentage and (y) 100%. Notwithstanding
the foregoing, if the Certificate Principal Balances of the Class A Certificates
(other than the Lockout Certificates) have been reduced to zero, the Lockout
Distribution Percentage will be equal to 100%.
MASTER SERVICER-- [Name of Master Servicer].
NET MORTGAGE RATE -- On any mortgage loan, the then applicable mortgage rate
thereon minus the sum of (1) the Servicing Fee Rate and (2) the Trustee's Fee
Rate.
NOTIONAL AMOUNT -- With respect to the Class X Certificates as of any date of
determination, the aggregate principal balance of the then outstanding mortgage
loans. Reference to the Notional Amount of the Class X Certificates is solely
for convenience in calculations and does not represent the right to receive any
distributions allocable to principal.
OFFERED CERTIFICATES -- The Senior Certificates, the Class B-1 Certificates, the
Class B-2 Certificates, the Class B-3 Certificates and the Residual
Certificates.
P&I ADVANCE -- The aggregate of all payments of principal and interest, net of
the Servicing Fee, that were due during the related Due Period on the mortgage
loans master serviced by it and that were delinquent on the related
Determination Date, plus amounts representing assumed payments not covered by
any current net income on the mortgaged properties acquired by foreclosure or by
deed in lieu of foreclosure.
PASS-THROUGH RATE -- With respect to any class of Certificates other than the
Class X Certificates, the fixed rate set forth on the cover hereof. The
Pass-Through Rate applicable to the calculation of the Interest Distribution
Amount for the Class X Certificates for any distribution date is the rate per
annum expressed as the percentage equivalent of a fraction, the numerator of
which is equal to (1)(A) the amount of interest accrued on the mortgage loans
for the immediately preceding calendar month at the Net Mortgage Rate minus (B)
the aggregate amount of interest payable on the Certificates (other than the X
Certificates), and the denominator of which is equal to (2) the Notional Amount
of the Class X Certificates. The initial variable Pass-Through Rate for the
Class X Certificates is approximately _______% per annum.
PREPAYMENT ASSUMPTION -- A prepayment rate for the mortgage loans of ___% of the
Prepayment Vector.
PREPAYMENT PERIOD -- With respect to any distribution date is the calendar month
immediately preceding the month in which such distribution date occurs.
PREPAYMENT VECTOR -- A ___% Prepayment Vector assumes that the outstanding
balance of a pool of mortgage loans prepays at a rate of ____% CPR in the first
month of the life of such pool, such rate increasing by an additional
approximate ____% CPR (precisely __/__, expressed as a percentage) each month
thereafter through the eleventh month of the life of such pool, and such rate
thereafter remaining constant at __% CPR for the remainder of the life of such
pool. An __% Prepayment Vector assumes, for example, that the outstanding
balance of a pool of mortgage loans prepays at a rate of ____% CPR in the first
month of the life of such pool, such rate increasing by an additional
approximate ____% CPR (precisely _____/__, expressed as a percentage) each month
thereafter through the ________ month of the life of the pool, and such rate
thereafter remaining constant at __% CPR for the remainder of the life of the
pool.
RATING AGENCIES -- [Names of Rating Agencies].
RECORD DATE -- For each distribution date (1) with respect to any Book-Entry
Certificate will be the close of business on the business day immediately
preceding such distribution date or (2) with respect to any other class of
Certificates, including any definitive certificates, will be the close of
business on the last business day of the month preceding the month in which such
distribution date occurs.
RESIDUAL CERTIFICATES-- The Class R Certificates.
RULES -- The rules, regulations and procedures creating and affecting DTC and
its operations.
SCHEDULED PRINCIPAL BALANCE -- With respect to any mortgage loan as of any date
of determination is equal to the principal balance thereof as of the Cut-off
Date (after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received), reduced by (x) the principal portion of
all monthly payments due on or before the date of determination, whether or not
received, (y) all amounts allocable to unscheduled principal that were received
prior to the calendar month in which the date of determination occurs, and (z)
any Bankruptcy Loss occurring out of a Deficient Valuation that was incurred
prior to the calendar month in which the date of determination occurs.
SENIOR CERTIFICATES -- The Class A Certificates and the Class X Certificates
SENIOR INTEREST DISTRIBUTION AMOUNT -- On each distribution date, the aggregate
of the Interest Distribution Amounts for such distribution date on all of the
Senior Certificates and, on the first distribution date, the Residual
Certificates.
SENIOR INTEREST DISTRIBUTION AMOUNT -- On each distribution date, the aggregate
of the Interest Distribution Amounts for such distribution date on all of the
Senior Certificates and, on the first distribution date, the Residual
Certificates.
SENIOR PERCENTAGE -- The percentage equal to the aggregate Certificate Principal
Balances of the Class A Certificates immediately prior to such distribution date
divided by the aggregate of the Scheduled Principal Balance of each of the
mortgage loans immediately prior to such distribution date.
SENIOR PREPAYMENT PERCENTAGE -- Except as described below, the Senior Prepayment
Percentage for any distribution date occurring prior to the distribution date in
________ ____ will equal ___%. Except as described below, the Senior Prepayment
Percentage for any distribution date occurring after the first five years will
be as follows: for any distribution date during the _____ year after the Closing
Date, the Senior Percentage for such distribution date plus ___% of the
Subordinate Percentage for such distribution date; for any distribution date
during the _______ year after the Closing Date, the Senior Percentage for such
distribution date plus __% of the Subordinate Percentage for such distribution
date; for any distribution date during the ______ year after the Closing Date,
the Senior Percentage for such distribution date plus __% of the Subordinate
Percentage for such distribution date; for any distribution date during the
_______ year after the Closing Date, the Senior Percentage for such distribution
date plus __% of the Subordinate Percentage for such distribution date; and for
any distribution date thereafter, the Senior Percentage for such distribution
date (unless on any such distribution date the Senior Percentage exceeds the
initial Senior Percentage, in which case the Senior Prepayment Percentage for
such distribution date will equal ___%). Any scheduled reduction to the Senior
Prepayment Percentage described above shall not be made as of any distribution
date unless (1) the outstanding principal balance of mortgage loans delinquent
60 days or more (including real estate owned and mortgage loans in foreclosure)
averaged over the last six months does not exceed 50% of the sum of the then
current Certificate Principal Balances of the Subordinate Certificates and (2)
Realized Losses on the mortgage loans to date are less than the then applicable
Trigger Amount. The Trigger Amount for any distribution date occurring after the
first ____ years will be as follows: for any distribution date during the _____
year after the Closing Date, __% of the initial sum of the Certificate Principal
Balances of the Subordinate Certificates; for any distribution date during the
seventh year after the Closing Date, __% of the initial sum of the Certificate
Principal Balances of the Subordinate Certificates; for any distribution date
during the ______ year after the Closing Date, __% of the initial sum of the
Certificate Principal Balances of the Subordinate Certificates; and for any
distribution date during the _____ year after the Closing Date, __% of the
initial sum of the Certificate Principal Balances of the Subordinate
Certificates. Notwithstanding the foregoing, upon reduction of the Certificate
Principal Balances of the Senior Certificates to zero, the Senior Prepayment
Percentage will equal 0%.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT -- With respect to any distribution date,
the lesser of (a) the balance of the Available Distribution Amount remaining
after the Senior Interest Distribution Amount is distributed and (b) the sum of
the amounts described in clauses (1) through (4) in section ___________.
SENIOR SEQUENTIAL CERTIFICATES -- The Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates and the
Class A-5 Certificates.
SERVICING FEE -- With respect to each mortgage loan, accrued interest at the
Servicing Fee Rate of ____% per annum with respect to the mortgage loan on the
same principal balance on which interest on the mortgage loan accrues for the
calendar month.
SERVICING FEE RATE -- On each mortgage loan, a rate equal to ____% per annum.
SPECIAL HAZARD AMOUNT -- The aggregate amount of Realized Losses which may be
allocated in connection with Special Hazard Losses through subordination shall
initially be equal to approximately $_________. As of any date of determination
following the Cut-off Date, the Special Hazard Amount shall equal approximately
$_________ less the sum of (A) any amounts allocated through subordination in
respect of Special Hazard Losses and (B) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Agreement.
SPONSOR -- [Name of Sponsor]
SUBORDINATE CERTIFICATES -- The Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates
SUBORDINATE PERCENTAGE -- As of any date of determination, a percentage equal to
___% minus the Senior Percentage.
SUBORDINATE INTEREST DISTRIBUTION AMOUNT -- On each distribution date, is equal
to the aggregate of the Interest Distribution Amounts on all of the Subordinate
Certificates.
SUBORDINATE PREPAYMENT PERCENTAGE -- For any distribution date will equal 100%
minus the Senior Prepayment Percentage.
SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT -- With respect to any distribution
date, the lesser of (a) the balance of the Available Distribution Amount
remaining after the distribution of the Senior Interest Distribution Amount, the
Senior Principal Distribution Amount and the Subordinate Interest Distribution
Amount and (b) the aggregate of the sum for each class of Subordinate
Certificates of the amounts described in clauses (1) through (4) of
"------".
SYSTEMS -- Computer applications, systems and similar items for processing data.
TRUSTEE -- [Name of Trustee].
TRUSTEE'S FEE -- Accrued interest at the Trustee's Fee Rate of ______% per annum
on the Stated Principal Balance of each mortgage loan.
TRUSTEE'S FEE RATE -- On each mortgage loan, a rate equal to ______% per annum.
UNDERWRITER-- [Name of Underwriter].
$____________ (APPROXIMATE)
MILA MORTGAGE ACCEPTANCE, INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES ____-__
PROSPECTUS SUPPLEMENT
DATED _________ ___, ____
[NAME OF MASTER SERVICER]
MASTER SERVICER
[NAME OF UNDERWRITER]
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE OFFERED CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered by this prospectus supplement
and with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until _______ ___, ____.
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING OF AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-___ IN THIS
PROSPECTUS SUPPLEMENT. The notes offered hereby represent an interest solely in
MILA Mortgage Acceptance Trust ____-_ and do not represent interests in or
obligations of the sponsor, depositor, or any of their affiliates.
Distributions on the offered notes will be made on the 25th day of each month,
or, if such day is not a business day, on the next succeeding business day,
beginning in [__].
SUBJECT TO COMPLETION, DATED FEBRUARY [__], 2006 [VERSION 2]
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED __________, ____)
$_______________ (APPROXIMATE)
MORTGAGE-BACKED NOTES, SERIES ____-__
MILA MORTGAGE ACCEPTANCE TRUST SERIES ____-__
ISSUING ENTITY
[NAME OF MASTER SERVICER]
MASTER SERVICER
MILA, INC.
SPONSOR
MILA MORTGAGE ACCEPTANCE, INC.
DEPOSITOR
THE TRUST
The trust will consist primarily of a mortgage pool of one- to four-family
fixed-rate and adjustable-rate residential mortgage loans. The trust will be
represented by ______ classes of notes, ______ of which are offered by this
prospectus supplement.
CREDIT ENHANCEMENT
o the notes will have credit enhancement in the form of subordination.
The price to investors will vary from time to time and will be determined at the
time of sale. The proceeds to the depositor from the offering will be ___% of
the aggregate principal balance of the offered notes, less expenses equal to
$_______. SEE "METHOD OF DISTRIBUTION" IN THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED NOTES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. 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.
[NAME OF UNDERWRITER]
UNDERWRITER
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered notes in two separate documents
that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of notes; and
o this prospectus supplement, which describes the specific terms of this
series of notes.
The Depositor's principal offices are located at 6021 244th Street SW, Mountlake
Terrace, WA 98043 and its phone number is (800) 332-6452.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT................................................
RISK FACTORS....................................................................
THE MORTGAGE POOL...............................................................
STATIC POOL INFORMATION.........................................................
YIELD ON THE NOTES..............................................................
YIELD SENSITIVITY OF THE SUBORDINATE NOTES......................................
DESCRIPTION OF THE NOTES........................................................
MILA MORTGAGE ACCEPTANCE, INC. TRUST SERIES ____-__.............................
THE SPONSOR.....................................................................
THE DEPOSITOR...................................................................
THE OWNER TRUSTEE...............................................................
THE INDENTURE TRUSTEE...........................................................
THE SERVICING AGREEMENT.........................................................
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES........................
PERMITTED INVESTMENTS...........................................................
TABLE OF FEES AND EXPENSES......................................................
SERVICER EVENTS OF DEFAULT......................................................
THE MASTER SERVICER.............................................................
THE INDENTURE AND OWNER TRUST AGREEMENT.........................................
ASSIGNMENT OF MORTGAGE LOANS....................................................
EVENTS OF DEFAULT...............................................................
VOTING RIGHTS...................................................................
OPTIONAL REDEMPTION.............................................................
FEDERAL INCOME TAX CONSEQUENCES.................................................
METHOD OF DISTRIBUTION..........................................................
SECONDARY MARKET................................................................
LEGAL OPINIONS..................................................................
LEGAL PROCEEDINGS...............................................................
AFFILIATIONS, RELATIONSHIPS AND RELATED TRANSACTIONS............................
RATINGS.........................................................................
AVAILABLE INFORMATION...........................................................
REPORTS TO SECURITYHOLDERS......................................................
LEGAL INVESTMENT................................................................
ERISA CONSIDERATIONS............................................................
GLOSSARY........................................................................
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A BRIEF DESCRIPTION OF THE IMPORTANT FEATURES OF THE
NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT BUT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO
UNDERSTAND ALL OF THE TERMS OF THE OFFERED NOTES, READ CAREFULLY THIS ENTIRE
PROSPECTUS SUPPLEMENT AND THE ENTIRE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS
USED BUT NOT DEFINED IN THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO
THEM IN THE PROSPECTUS. A GLOSSARY IS INCLUDED AT THE END OF THIS PROSPECTUS
SUPPLEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED IN THE GLOSSARY AT THE END OF
THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO THEM IN THE GLOSSARY AT
THE END OF THE PROSPECTUS.
Title of Series.................... MILA Mortgage Acceptance, Inc.,
Mortgage-Backed Notes,
Series ____-_.
Cut-off Date....................... __________ __, ____.
Closing Date....................... On or about __________ __, ____.
Issuing Entity..................... MILA Mortgage Acceptance, Inc. Trust
Series ____-__.
Depositor.......................... MILA Mortgage Acceptance, Inc., an
affiliate of MILA, Inc.
Master Servicer.................... [Name of Master Servicer].
Originators and Servicers.......... [Names of Originators and Servicers.]
Sponsor............................ MILA, Inc.
Owner Trustee...................... [Name of Owner Trustee.]
Indenture Trustee.................. [Name of Indenture Trustee.]
Distribution Dates................. Distributions on the offered notes will
be made on the ___ day of each month,
or, if that day is not a business day,
on the next succeeding business day,
beginning in ______ ___.
Offered Notes...................... The classes of offered notes and their
interest rates, note balances and final
maturity date are shown in the table
below.
NOTES
- --------------------------------------------------------------------------------------------------------------------
CLASS INITIAL NOTE BALANCE(1) NOTE INTEREST RATE FINAL MATURITY DATE
- ---------------------- ------------------------------ --------------------------- ----------------------------------
A_______ $_________ Variable(2)
M-1 $_________
M-2 $_________
M-3 $_________
- ----------------------
(1) Approximate.
(2) Calculated at the per annum rate of One-Month LIBOR plus __%,
as set forth for each class in "Description of the Notes--Note
Interest Rates" in this prospectus supplement and subject to
limitation or increase under certain circumstances.
NOTE:
The notes offered hereby represent interests solely in MILA Mortgage Acceptance,
Inc. Trust Series ____-__. and do not represent interests in or obligations of
the sponsor, depositor, or any of their affiliates.
THE ISSUING ENTITY
The notes will be issued by MILA Mortgage Acceptance, Inc. Trust Series ____-__,
a Delaware statutory trust established pursuant to an owner trust agreement
between the depositor and the owner trustee. MILA Mortgage Acceptance, Inc.
Trust Series ____-__ will issue _____ classes of notes representing non-recourse
debt obligations of MILA Mortgage Acceptance, Inc. Trust Series ____-__ secured
by the trust estate.
SEE "DESCRIPTION OF THE NOTES" IN THIS PROSPECTUS SUPPLEMENT.
Distributions of interest and/or principal on the offered notes will be made
only from payments received in connection with the mortgage loans described
below.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
fixed-rate and adjustable-rate mortgage loans secured by first liens on
residential real properties. The mortgage loans have an aggregate principal
balance of approximately $__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____.
Range of mortgage rates _____% to _____%. (approximate):
Weighted average mortgage rate ______%. (approximate):
Weighted average remaining ___ years and ___ term to stated maturity months.
(approximate):
Range of principal balances $__________ to (approximate): $____________.
Average principal balance: $_____________.
Range of loan-to-value ratios _____% to _____%. (approximate):
Weighted average loan-to-value ______%. ratio (approximate):
Number of mortgage loans with a 100% loan-to-value ratio:
Approximately ___% of the mortgage loans are "sub-prime" mortgage loans.
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
REMOVAL AND SUBSTITUTION OF A MORTGAGE LOAN
The indenture trustee will acknowledge the sale, transfer and assignment of the
trust fund to it by the depositor and receipt of, subject to further review and
the exceptions, the mortgage loans. If the indenture trustee finds that any
mortgage loan is defective on its face due to a breach of the representations
and warranties with respect to that loan made in the transaction agreements, the
indenture trustee shall promptly notify the sponsor of such defect. The sponsor
must then correct or cure any such defect within 90 days from the date of notice
from the indenture trustee of the defect and if the sponsor fails to correct or
cure such defect within such period and such defect materially and adversely
affects the interests of the noteholders in the related mortgage loan, the
sponsor will, in accordance with the terms of the pooling and servicing
agreement, within 90 days of the date of notice, provide the indenture trustee
with a substitute mortgage loan (if within two years of the closing date);
provided that, if such defect would cause the mortgage loan to be other than a
"qualified mortgage" as defined in Section 860G(a)(3) of the Internal Revenue
Code, any such cure or substitution must occur within 90 days from the date such
breach was discovered.
THE NOTES
OFFERED NOTES. The offered notes will have the characteristics shown in the
table above in this prospectus supplement. The interest rates on each class of
offered notes are variable and are calculated for each distribution date as
described in this prospectus supplement under "DESCRIPTION OF THE
NOTES--INTEREST RATES" in this prospectus supplement.
DISTRIBUTIONS ON THE NOTES
INTEREST DISTRIBUTIONS
To the extent of the current interest payment amount, in the priorities listed
below, the holders of each class of notes will be entitled to receive on each
payment date interest payments in an amount equal to the interest payment amount
for that class. On each payment date, the current interest payment amount will
be distributed in the following order of priority:
First, to the holders of the Class A Notes, the interest payment amount for
those notes;
Second, to the extent of the current interest payment amount remaining after
payment of the interest payment amount for the Class A Notes, to the holders of
the Class M-1 Notes, the interest payment amount for those notes;
Third, to the extent of the current interest payment amount remaining after
payment of the interest payment amounts for the Class A Notes and the Class M-1
Notes, to the holders of the Class M-2 Notes, the interest payment amount for
those notes; and
Fourth, to the extent of the current interest payment amount remaining after
payment of the interest payment amounts for the Class A Notes, the Class M-1
Notes and the Class M-2 Notes, to the holders of the Class M-3 Notes, the
interest payment amount for those notes.
With respect to any payment date, to the extent that the aggregate of the
interest payment amounts for the notes is limited by the current interest
payment amount for the related due period, the holders of some classes of notes
may receive an interest payment amount calculated at the available interest rate
rather than at the applicable note accrual rate for those classes and that
payment date. The interest carry forward amount, if any, for any class of the
notes for any payment date is payable to the extent of available funds remaining
after some other payments on the notes on that payment date, but before any
payments on the equity certificates on that payment date.
All payments of interest on the notes will be based on a 360-day year and the
actual number of days in the applicable interest accrual period.
The note balance of a note outstanding at any time represents the then maximum
amount that the holder of that note is entitled to receive as payments allocable
to principal from the cash flow on the mortgage loans and the other assets in
the trust estate.
PRINCIPAL DISTRIBUTIONS
On each payment date, the principal payment amount will be distributed to the
holders of the notes then entitled to payments of principal. In no event will
the principal payment amount with respect to any payment date be (x) less than
zero or (y) greater than the then-outstanding aggregate note balance of the
notes. The principal payment amount for the first payment date will include
approximately $_________ collected by the servicers in respect of prepayments on
the mortgage loans during the _________ ____ prepayment period.
On each payment date (a) prior to the stepdown date or (b) on which a trigger
event is in effect, the principal payment amount shall be distributed: first, to
the Class A Notes, until the note balance thereof has been reduced to zero;
second, to the Class M-1 Notes, until the note balance thereof has been reduced
to zero; third, to the Class M-2 Notes, until the note balance thereof has been
reduced to zero; and fourth, to the Class M-3 Notes, until the note balance
thereof has been reduced to zero.
On each payment date (a) on or after the stepdown date and (b) on which a
trigger event is not in effect, the holders of the Class A Notes and the
subordinate notes shall be entitled to receive payments in respect of principal
to the extent of the principal payment amount in the following amounts and order
of priority:
First, the lesser of (x) the principal payment amount and (y) the Class A
principal payment amount, shall be distributed to the holders of the Class A
Notes, until the note balance thereof has been reduced to zero;
Second, the lesser of (x) the excess of (i) the principal payment amount over
(ii) the amount distributed to the holders of the Class A notes pursuant to
clause first above and (y) the Class M-1 principal payment amount, shall be
distributed to the holders of the Class M-1 Notes, until the note balance
thereof has been reduced to zero;
Third, the lesser of (x) the excess of (i) the principal payment amount over
(ii) the sum of the amounts distributed to the holders of the Class A Notes
pursuant to clause first above and to the holders of the Class M-1 Notes
pursuant to clause second above and (y) the Class M-2 principal payment amount,
shall be distributed to the holders of the Class M-2 Notes, until the note
balance thereof has been reduced to zero; and
Fourth, the lesser of (x) the excess of (i) the principal payment amount over
(ii) the sum of the amounts distributed to the holders of the Class A Notes
pursuant to clause first above, to the holders of the Class M-1 Notes pursuant
to clause second above and to the holders of the Class M-2 Notes pursuant to
clause third above and (y) the Class M-3 principal payment amount, shall be
distributed to the holders of the Class M-3 Notes, until the note balance
thereof has been reduced to zero.
On the final maturity date or the payment date immediately following the
acceleration of the notes due to any event of default principal will be payable
on each class of notes in an amount equal to the note balance thereof on that
payment date. On the final maturity date or the payment date immediately
following the acceleration of the notes due to any event of default, amounts in
respect of accrued interest, interest carry forward amounts and allocated
realized loss amounts will also be payable on each class of notes in the
priorities listed in the indenture. There can be no assurance, however, that
sufficient funds will be available on that date to retire the note balances and
pay those other amounts.
The allocation of payments in respect of principal to the Class A Notes on each
payment date (a) prior to the stepdown date or (b) on which a trigger event has
occurred, will have the effect of accelerating the amortization of the Class A
Notes while, in the absence of realized losses, increasing the respective
percentage interest in the principal balance of the mortgage loans evidenced by
the subordinate notes and the overcollateralized amount. Increasing the
respective percentage interest in the trust estate of the subordinate notes and
the overcollateralized amount relative to that of the Class A Notes is intended
to preserve the availability of the subordination provided by the subordinate
notes and the overcollateralized amount.
The holders of the equity certificates will be entitled to all prepayment
charges received on the mortgage loans and those amounts will not be available
for distribution on the notes.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
notes consists of subordination as described below and under "DESCRIPTION OF THE
NOTES--OF LOSSES; SUBORDINATION" in this prospectus supplement.
ADVANCES
Each servicer will make cash advances with respect to delinquent payments of
scheduled interest and principal on the mortgage loans for which it acts as
servicer, in general, to the extent that such servicer reasonably believes that
such cash advances can be repaid from future payments on the related mortgage
loans. If the related servicer fails to make any required advances, the master
servicer may be obligated to do so, as described in this prospectus supplement.
These cash advances are only intended to maintain a regular flow of scheduled
interest and principal payments on the certificates and are not intended to
guarantee or insure against losses.
SERVICING FEE
With respect to each mortgage loan, the amount of the annual master servicing
fee that shall be paid to the master servicer is, for a period of one full
month, equal to one-twelfth of the product of (a) [__]% and (b) the outstanding
principal balance of the mortgage loan. Such fee shall be payable monthly,
computed on the basis of the same principal amount and period respecting which
any related interest payment on a mortgage loan is computed. The obligation to
pay the master servicing fee is limited to, and the master servicing fee is
payable from the interest portion of such monthly payments collected. The master
servicer will pay the indenture trustee's fee and the servicing fees from its
fee.
OPTIONAL REDEMPTION
At its option, the majority holder of the equity certificates may redeem the
notes and thereby effect termination and early retirement of the notes, after
the aggregate Note balance has been reduced to less than [__%] of the aggregate
initial note balance.
SEE "THE INDENTURE AND OWNER TRUST AGREEMENT--OPTIONAL REDEMPTION" IN THIS
PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--TERMINATION" IN THE
PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood LLP, counsel to the
depositor, will deliver its opinion generally to the effect that the notes will
be characterized as indebtedness and MILA Mortgage Acceptance, Inc. Trust Series
____-__ will not be classified as an association taxable as a corporation, a
publicly traded partnership or a taxable mortgage pool.
For further information regarding the federal income tax consequences of
investing in the offered notes, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the notes that the offered notes receive
the following ratings from [______________ and ___________]:
OFFERED NOTES [RA] [RA]
- ----------------------- ------------- ----------------
Class A [___] [___]
Class M-1 [___] [___]
Class M-2 [___] [___]
Class M-3 [___] [___]
_____________________ [(1) Not rated.]
SEE "YIELD ON THE NOTES" and "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD
CONSIDERATIONS" IN THE PROSPECTUS.
LEGAL INVESTMENT
The offered notes (other than the Class ___ and Class ___ Notes) will constitute
"mortgage related securities" for purposes of SMMEA. The Class ___ Notes and the
Class ___ Notes will not constitute "mortgage related securities" for purposes
of SMMEA.
SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
Subject to important considerations, the notes may be eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts which are deemed to make the representations set forth in "ERISA
CONSIDERATIONS". Plans are encouraged to consult with their legal advisors
before investing.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
TRANSACTION STRUCTURE
RISK FACTORS
You should carefully consider, among other things, the following
factors in connection with the purchase of the offered notes:
[See version 1 of the prospectus supplement for some risk factors that may be
applicable.]
[Appropriate risk factors from the following list are particular to the
securitization represented by this version of the prospectus supplement]
[THE CLASS M-1, CLASS M-2 AND CLASS M-3 NOTES WILL BE PARTICULARLY SENSITIVE TO
LOSSES ON THE MORTGAGE LOANS
The weighted average lives of, and the yields to maturity on, the Class
M-1, Class M-2 and Class M-3 Notes will be progressively more sensitive, in
increasing order of their numerical class designations, to the rate and timing
of mortgagor defaults and the severity of ensuing losses on the mortgage loans.
If the actual rate and severity of losses on the mortgage loans is higher than
those assumed by an investor in one of the Class M-1, Class M-2 or Class M-3
Notes, the actual yield to maturity of the note may be lower than the yield
anticipated by the holder based on the investor's assumption. The timing of
losses on the mortgage loans will also affect an investor's actual yield to
maturity, even if the rate of defaults and severity of losses over the life of
the mortgage pool are consistent with an investor's expectations. In general,
the earlier a loss occurs, the greater the effect on an investor's yield to
maturity. Losses on the mortgage loans in any due period, to the extent they
exceed the overcollateralized amount following payments of principal on the
related payment date, will reduce the note balance of the class of notes then
outstanding with the highest numerical class designation. As a result of these
reductions, less interest will accrue on the class of subordinate notes than
would otherwise be the case].
[THE CLASS M-1, CLASS M-2 AND CLASS M-3 NOTES WILL GENERALLY NOT BE ENTITLED TO
RECEIVE PRINCIPAL PAYMENTS UNTIL ALL PRINCIPAL PAYMENTS HAVE BEEN MADE ON THE
CLASS A NOTES WHICH MAY RESULT IN LOSSES ON THOSE NOTES
Unless the note balance of the Class A Notes has been reduced to zero,
the Class M-1, Class M-2 and Class M-3 Notes will not be entitled to any
principal payments until _________ ____ or a later period as described in this
prospectus supplement. As a result, the weighted average lives of these notes
will be longer than would otherwise be the case if payments of principal were
allocated among all of the notes at the same time. As a result of the longer
weighted average lives of these notes, the holders of these notes have a greater
risk of suffering a loss on their investments. Further, because these notes
might not receive any principal if certain delinquency levels occur, it is
possible for these notes to receive no principal payments even if no losses have
occurred on the mortgage pool].
[THE NOTES ARE OBLIGATIONS OF THE TRUST ONLY
The notes will not represent an interest in or obligation of the
originators, the depositor, the master servicer, the sponsor, _________, the
owner trustee, the indenture trustee or any of their respective affiliates. The
only obligations of the foregoing entities with respect to the notes or any
mortgage loan will be the obligations of the sponsor pursuant to the limited
representations and warranties made with respect to the mortgage loans and of
the servicers with respect to their servicing obligations under the related
servicing agreement (including the limited obligation to make advances, as
described in this prospectus supplement). Neither the notes nor the underlying
mortgage loans will be guaranteed or insured by any governmental agency or
instrumentality, or by the issuing entity, the originators, the depositor, the
master servicer, the sponsor, ________, the owner trustee, the indenture trustee
or any of their respective affiliates. Proceeds of the assets included in the
trust (including the mortgage loans) will be the sole source of payments on the
notes, and there will be no recourse to the issuing entity, the originators, the
depositor, the master servicer, the sponsor, _______, the owner trustee, the
indenture trustee or any of their respective affiliates or any other entity in
the event that the proceeds are insufficient or otherwise unavailable to make
all payments provided for under the notes].
[THE DIFFERENCE BETWEEN THE INTEREST RATES ON THE NOTES AND THE MORTGAGE LOANS
MAY RESULT IN INTEREST SHORTFALLS ALLOCATED TO THE NOTES
The note interest rate for each class of the notes adjusts monthly
based on a particular index, subject to the limitations described in this
prospectus supplement. However, the mortgage rates on the fixed rate mortgage
loans are fixed and will not vary with any index, and the mortgage rates on the
adjustable rate mortgage loans adjust semi-annually (after an initial fixed rate
period in the case of some of the adjustable rate mortgage loans) based on the
index (which may not move in tandem with the index), subject to periodic and
lifetime limitations as described in this prospectus supplement. As a result of
the foregoing as well as other factors like the prepayment behavior of the
mortgage pool, relative increases in the index or relative decreases in the
weighted average of the mortgage rates on the mortgage loans (i) could cause the
amount of interest generated by the mortgage pool to be less than the aggregate
of the amount of interest that would otherwise be payable on the notes, leading
one or more classes of notes to receive payments of interest at a later date, as
described in this prospectus supplement or (ii) could cause the maximum note
interest rate to apply to one or more classes of notes, as described in this
prospectus supplement.
Because the mortgage rate for each adjustable rate mortgage loan will
be adjusted, subject to periodic and lifetime limitations, to equal the sum of
the index and the related gross margin, these rates could be higher than
prevailing market interest rates, possibly resulting in an increase in the rate
of prepayments on the adjustable rate mortgage loans after their adjustments. In
particular, investors should note that approximately _____% of the adjustable
rate mortgage loans have their interest rates fixed for two years following
origination and approximately _____% of the adjustable rate mortgage loans have
their interest rates fixed for three years following origination, in each case
by aggregate principal balance as of _________ __, ___. The weighted average
next adjustment date for the adjustable rate mortgage loans whose interest rates
are fixed for two years is _______ ____, and the weighted average next
adjustment date for the adjustable rate mortgage loans whose interest rates are
fixed for three years is _______ ____].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED NOTES WILL BE
AFFECTED BY PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the
offered notes will depend, in general, on the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on the offered notes as provided in this prospectus supplement. As is the case
with mortgage securities generally, the offered notes are subject to substantial
inherent cash-flow uncertainties because the mortgage loans may be prepaid at
any time. However, with respect to approximately ____% of the mortgage loans, by
aggregate principal balance as of _______ __, ____, a prepayment may subject the
related mortgagor to a prepayment charge, which may act as a deterrent to
prepayment of the mortgage loan. SEE "THE MORTGAGE POOL" IN THIS PROSPECTUS
SUPPLEMENT.
Generally, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease; a decrease in the prepayment rates on
the mortgage loans will result in a reduced rate of return of principal to
investors in the offered notes at a time when reinvestment at these higher
prevailing rates would be desirable. Conversely, when prevailing interest rates
are declining, prepayment rates on mortgage loans tend to increase; an increase
in the prepayment rates on the mortgage loans will result in a greater rate of
return of principal to investors in the offered notes at a time when
reinvestment at comparable yields may not be possible.
Distributions of principal will be made to the subordinate notes
according to the priorities described in this prospectus supplement. The timing
of commencement of principal distributions and the weighted average life of each
of these classes of notes will be affected by the rates of prepayment on the
mortgage loans experienced both before and after the commencement of principal
distributions on the class. For further information regarding the effect of
principal prepayments on the weighted average lives of the offered notes, see
"YIELD ON THE NOTES" in this prospectus supplement and the table entitled
"PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE
PREPAYMENT ASSUMPTION" herein.
[THE YIELD TO MATURITY ON THE OFFERED NOTES WILL DEPEND ON A VARIETY OF FACTORS
The yield to maturity on the offered notes will depend, in general, on:
o the applicable note interest rate and note accrual rate thereon from
time to time;
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the
mortgage loans and the allocation thereof to reduce the note balance of
the notes, as well as other factors.
The yield to investors on any class of offered notes will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans.
In general, if the offered notes are 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 the offered notes are
purchased at a discount and principal distributions thereon occur at a rate
slower than that anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the offered notes were
determined based on a number of assumptions, including a prepayment assumption
of __% of the [constant prepayment rate model] and weighted average lives
corresponding thereto. No representation is made that the mortgage loans will
prepay at this particular rate or at any other rate. The yield assumptions for
the offered notes will vary as determined at the time of sale].
FICO SCORES MENTIONED IN THIS PROSPECTUS SUPPLEMENT ARE NOT AN INDICATOR OF
FUTURE PERFORMANCE OF BORROWERS.
Investors should be aware that FICO scores are based on past payment
history of the borrower. Investors should not rely on FICO scores as an
indicator of future borrower performance. See "The Mortgage Pools -- FICO
Scores" in the base prospectus.
THE MORTGAGE POOL
GENERAL
The mortgage pool will consist of approximately _____ conventional,
one- to four-family, fixed rate mortgage loans and approximately _____
conventional, one-to four-family, adjustable rate mortgage loans, in each case
secured by first liens on residential real properties and having an aggregate
principal balance as of Cut-off Date of approximately $___________ after
application of scheduled payments due on or before the Cut-off Date whether or
not received, subject to a permitted variance of plus or minus [5]%. The
mortgage loans have original terms to maturity of not greater than [30] years.
References to percentages of the mortgage loans, unless otherwise noted, are
calculated based on the aggregate principal balance of the mortgage loans as of
the Cut-off Date. The mortgage loans are secured by first mortgages or deeds of
trust or other similar security instruments creating first liens on residential
properties consisting of attached, detached or semi-detached, one- to
four-family dwelling units, townhouses, individual condominium units, individual
units in planned unit developments and manufactured housing.
The mortgage loans to be included in the mortgage pool will be acquired
by the Depositor on the Closing Date from ________________, who will have
acquired the mortgage loans on the Closing Date from the Sponsor. SEE
"--UNDERWRITING STANDARDS; REPRESENTATIONS" below and "THE SPONSOR" in this
prospectus supplement. The Sponsor in turn will have acquired the mortgage loans
on the Closing Date from MILA, Inc., an affiliate of the Depositor. The Sponsor
will have acquired the mortgage loans directly or indirectly from the
Originators. For a further description of the underwriting or selection criteria
used to purchase the mortgage pool assets, please see "THE MORTGAGE POOLS --
UNDERWRITING STANDARDS".
No mortgage loan will be more than 30 days delinquent as of the Cut-off
Date. A loan is considered to be delinquent when a payment due on any due date
remains unpaid as of the close of business on the last business day immediately
prior to the next monthly due date. The determination as to whether a loan falls
into this category is made as of the close of business on the last business day
of each month.
Each adjustable rate mortgage loan provides for semi-annual adjustment
to the mortgage rate on that adjustable rate mortgage loan and for corresponding
adjustments to the monthly payment amount due on that adjustable rate mortgage
loan, in each case on each Adjustment Date applicable thereto; provided,
however, that in the case of approximately _____% and approximately _____% of
the adjustable rate mortgage loans by aggregate principal balance as of the
Cut-off Date, the first Adjustment Date will occur after an initial period of
approximately ____ years and approximately ______ years, respectively, from the
date of origination of that adjustable rate mortgage loan. On each Adjustment
Date, the mortgage rate on each adjustable rate mortgage loan will be adjusted
to equal the sum, rounded as provided in the related mortgage note, of the Index
(as described below) and the Gross Margin; provided, however, that the mortgage
rate on each adjustable rate mortgage loan, including each Delayed First
Adjustment Mortgage Loan, will generally not increase or decrease by more than
the Periodic Rate Cap on any related Adjustment Date and will not exceed the
Maximum Mortgage Rate or be less than the Minimum Mortgage Rate. For Adjustment
Dates other than the first Adjustment Date after origination, the Periodic Rate
Cap for the majority of the adjustable rate mortgage loans is 1.00% per annum,
and with respect to substantially all of the adjustable rate mortgage loans, for
Adjustment Dates other than the first Adjustment Date after origination, the
Periodic Rate Cap will not exceed ____% per annum. Effective with the first
monthly payment due on each adjustable rate mortgage loan after each related
Adjustment Date, the monthly payment amount will be adjusted to an amount that
will amortize fully the outstanding principal balance of the related adjustable
rate mortgage loan over its remaining term and pay interest at the mortgage rate
as so adjusted. Due to the application of the Periodic Rate Caps and the Maximum
Mortgage Rates, the mortgage rate on each mortgage loan, as adjusted on any
related Adjustment Date, may be less than the sum of the Index and Gross Margin,
calculated as described in this prospectus supplement. SEE "--THE INDEX" IN THIS
PROSPECTUS SUPPLEMENT. None of the adjustable rate mortgage loans permits the
related mortgagor to convert the adjustable mortgage rate on that adjustable
rate mortgage loan to a fixed mortgage rate. As to each mortgage loan, the
related servicer will be responsible for calculating and implementing interest
rate adjustments.
The mortgage loans generally have scheduled monthly payments due on
each Due Date. Each mortgage loan will contain a customary "due-on-sale" clause
or will be assumable by a creditworthy purchaser of the related mortgaged
property.
Approximately ______% of the mortgage loans provide for payment by the
mortgagor of a Prepayment Charge in limited circumstances on voluntary
prepayments in full made within one to five years from the date of origination
of those mortgage loans. The amount of the Prepayment Charge is as provided in
the related mortgage note. Prepayment Charge obligations generally expire by
their terms after a limited period specified in the related mortgage note. The
weighted average month of origination of the mortgage loans with Prepayment
Charges is _________ ____. The holders of the Equity Certificates will be
entitled to all Prepayment Charges received on the mortgage loans, and that
amount will [not] be available for distribution on the notes. Under some
instances, as described in the related Servicing Agreement, the related Servicer
may waive the payment of any otherwise applicable Prepayment Charge, and
accordingly, there can be no assurance that the Prepayment Charges will have any
effect on the prepayment performance of the mortgage loans.
None of the mortgage loans are buydown mortgage loans.
Approximately ____% of the mortgage loans are Balloon Loans. Each
Balloon Loan is a fixed rate mortgage loan that amortizes over ___ months, but
the Balloon Payment on each Balloon Loan is due and payable on the ___ month.
The amount of the Balloon Payment on each Balloon Loan is substantially in
excess of the amount of the scheduled monthly payment on that Balloon Loan for
the period prior to the Due Date of that Balloon Payment.
The average principal balance of the mortgage loans at origination was
approximately $_______. No mortgage loan had a principal balance at origination
greater than approximately $________ or less than approximately $______. The
average principal balance of the mortgage loans as of the Cut-off Date was
approximately $_______.
The mortgage loans had mortgage rates as of the Cut-off Date ranging
from approximately ____% per annum to approximately _____% per annum, and the
weighted average mortgage rate was approximately ______% per annum. The weighted
average loan-to-value ratio of the mortgage loans at origination was
approximately _____%. At origination, no mortgage loan will have a loan-to-value
ratio greater than approximately _____% or less than approximately ____%.
The weighted average remaining term to maturity of the mortgage loans
will be approximately __ years and __ months as of the Cut-off Date. None of the
mortgage loans will have a first Due Date prior to _______ ____ or after
___________ ____, or will have a remaining term to maturity of less than __
years or greater than __ years as of the Cut-off Date. The latest maturity date
of any mortgage loan is __________ ____.
As of the Cut-off Date, the adjustable rate mortgage loans had Gross
Margins ranging from approximately ____% to approximately ____%, Minimum
Mortgage Rates ranging from approximately ____% per annum to approximately
_____% per annum and Maximum Mortgage Rates ranging from approximately _____%
per annum to approximately _____% per annum. As of the Cut-off Date, the
weighted average Gross Margin was approximately ______%, the weighted average
Minimum Mortgage Rate was approximately _____% per annum and the weighted
average Maximum Mortgage Rate was approximately _______% per annum. The latest
first Adjustment Date following the Cut-off Date on any adjustable rate mortgage
loan occurs in _______ ____ and the weighted average next Adjustment Date for
all of the mortgage loans following the Cut-off Date is _______ ____.
The mortgage loans are expected to have the following characteristics
as of the Cut-off Date (the sum in any column may not equal the total indicated
due to rounding):
ORIGINATOR CONCENTRATIONS IN THE MORTGAGE PROPERTIES
AGGREGATE SCHEDULED
PRINCIPAL BALANCE
OUTSTANDING AS OF CUT-OFF % OF LOAN GROUP 1 MORTGAGE
ORIGINATOR NUMBER OF MORTGAGE LOANS DATE LOANS
- ---------------------------- ------------------------ ------------------------- --------------------------
[________] .................
[--------] .................
Total .................
SERVICER CONCENTRATIONS IN THE MORTGAGE PROPERTIES
AGGREGATE SCHEDULED
PRINCIPAL BALANCE
OUTSTANDING AS OF CUT-OFF % OF LOAN GROUP 1 MORTGAGE
SERVICER NUMBER OF MORTGAGE LOANS DATE LOANS
- ---------------------------- ------------------------ ------------------------- --------------------------
[________] .................
[--------] .................
Total .................
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
ORIGINAL RANGE ($) % OF AGGREGATE ORIGINAL % OF AGGREGATE PRINCIPAL
PRINCIPAL BALANCE NUMBER OF LOANS PRINCIPAL BALANCE BALANCE
----------------- --------------- ----------------------- ------------------------
Total
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
AS OF RANGE ($) CUT-OFF DATE NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
MORTGAGE RATE (%) NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
MAXIMUM MORTGAGE RATE (%) NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
MINIMUM MORTGAGE RATE (%) NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
GROSS MARGIN (%) NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
LOCATION NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
PROPERTY TYPE NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
OCCUPANCY STATUS NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
The occupancy status of a mortgaged property is as represented by the
mortgagor in its loan application
LOAN PURPOSE OF THE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
LOAN PURPOSE NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
LOAN PROGRAM NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
RISK CATEGORIES OF THE FIXED RATE ____________ MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
RISK CATEGORIES NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
RISK CATEGORIES OF THE ADJUSTABLE RATE ____________ MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
RISK CATEGORIES NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
RISK CATEGORIES OF THE ___________ MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
RISK CATEGORIES NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
RISK CATEGORIES OF THE ___________ MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
RISK CATEGORIES NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
NEXT ADJUSTMENT DATES FOR THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
MONTH OF NEXT OUTSTANDING AS OF THE BALANCE OUTSTANDING AS OF
ADJUSTMENT DATE NUMBER OF LOANS CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------- --------------- --------------------------- -------------------------
Total
THE INDEX
As of any Adjustment Date, the Index applicable to the determination of
the mortgage rate on each mortgage loan will be the average of the interbank
offered rates for six-month United States dollar deposits in the London market
as published in THE WALL STREET JOURNAL and as of a date as specified in the
related mortgage note. In the event that the Index becomes unavailable or
otherwise unpublished, each Servicer will select a comparable alternative index
over which it has no direct control and which is readily verifiable.
The table below sets forth historical average rates of six-month LIBOR
for the months indicated as made available from Fannie Mae, which rates may
differ from the rates of the Index, which is six-month LIBOR as published in THE
WALL STREET JOURNAL as described above. The table does not purport to be
representative of the subsequent rates of the Index which will be used to
determine the mortgage rate on each mortgage loan.
SIX-MONTH LIBOR
1995 1996 1997 1998 1999 2000 2001 2002
- --------- ----- ----- ----- ----- ------ ------ ------ ------
January ____% ____% ____% ____% ____% ____% ____% ____%
February ____% ____% ____% ____% ____% ____% ____% ____%
March ____% ____% ____% ____% ____% ____% ____% ____%
April ____% ____% ____% ____% ____% ____% ____% ____%
May ____% ____% ____% ____% ____% ____% ____% ____%
June ____% ____% ____% ____% ____% ____% ____% ____%
July ____% ____% ____% ____% ____% ____% ____% ____%
August ____% ____% ____% ____% ____% ____% ____% ____%
September ____% ____% ____% ____% ____% ____% ____% ____%
October ____% ____% ____% ____% ____% ____% ____% ____%
November ____% ____% ____% ____% ____% ____% ____% ____%
December ____% ____% ____% ____% ____% ____% ____% ____%
UNDERWRITING STANDARDS; REPRESENTATIONS
[Standards included as necessary].
REPRESENTATIONS AND WARRANTIES
In the Mortgage Loan Purchase Agreement, pursuant to which the
Depositor purchased the mortgage loans from the Sponsor, the Sponsor made
certain representations and warranties to the Depositor concerning the mortgage
loans. The Indenture Trustee will be assigned all right, title and interest in
the Mortgage Loan Purchase Agreement insofar as they relate to such
representations and warranties made by the Sponsor.
The representations and warranties of the Sponsor with respect to the
mortgage loans include the following, among others:
(1) The information set forth in the mortgage loan schedule is
true, complete and correct in all material respects as of the date such
representation was made;
(2) Each Mortgage Loan was originated or funded by (a) a savings
and loan association, savings bank, commercial bank, credit union, insurance
company or similar institution which is supervised and examined by a federal or
state authority (or originated by (i) a subsidiary of any of the foregoing
institutions which subsidiary is actually supervised and examined by applicable
regulatory authorities or (ii) a mortgage loan correspondent of any of the
foregoing and that was originated pursuant to the criteria established by any of
the foregoing) or (b) a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to sections 203 and 211 of the National Housing Act, as
amended, and the Mortgage Loans are currently being serviced in accordance with
accepted servicing practices;
(3) Immediately prior to the sale of the mortgage loans pursuant
to the Mortgage Loan Purchase Agreement, the Sponsor was the sole owner of
beneficial title and holder of each mortgage and mortgage note relating to the
mortgage loans and as of the Closing Date, or as of another specified date, is
conveying the same to the Depositor free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, mechanics' lien, assessment, claim
or security interest, and the Sponsor has full right and authority to sell and
assign each mortgage loan pursuant to the Mortgage Loan Purchase Agreement;
(4) As of the Closing Date, the improvements on each Mortgaged
Property securing a Mortgage Loan are insured (by an insurer which is acceptable
to the Sponsor) against loss by fire, flood and such hazards as are covered
under a standard extended coverage endorsement in the locale in which the
Mortgaged Property is located, in an amount which is not less than the lesser of
the maximum insurable value of the improvements securing such Mortgage Loan or
the outstanding principal balance of the Mortgage Loan, but in no event in an
amount less than an amount that is required to prevent the Mortgagor from being
deemed to be a co-insurer thereunder;
(5) Except to the extent insurance is in place which will cover
such damage, the physical property subject to any Mortgage is free of material
damage and is in good repair and there is no proceeding pending or threatened
for the total or partial condemnation of any Mortgaged Property;
(6) The Mortgaged Property and all improvements thereon comply
with all requirements of any applicable zoning and subdivision laws and
ordinances;
(7) A lender's title insurance policy (on an ALTA or CLTA form) or
binder, or other assurance of title customary in the relevant jurisdiction
therefor in a form acceptable to Fannie Mae or Freddie Mac, was issued on the
date that each Mortgage Loan was created by a title insurance company which, to
the best of the Sponsor's knowledge, was qualified to do business in the
jurisdiction where the related Mortgaged Property is located, insuring the
Sponsor and its successors and assigns that the Mortgage is a first priority
lien on the related Mortgaged Property in the original principal amount of the
Mortgage Loan. The Sponsor is the sole insured under such lender's title
insurance policy, and such policy, binder or assurance is valid and remains in
full force and effect, and each such policy, binder or assurance shall contain
all applicable endorsements including a negative amortization endorsement, if
applicable;
(8) As of the Closing Date there is no monetary default existing
under any mortgage or the related mortgage note and there is no material event
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach or event of acceleration; and
neither the Sponsor nor any of its respective affiliates has taken any action to
waive any default, breach or event of acceleration; and no foreclosure action is
threatened or has been commenced with respect to the mortgage loan;
(9) The terms of the Mortgage Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments, (i) if required by law in the jurisdiction where the Mortgaged
Property is located, or (ii) to protect the interests of the Indenture Trustee
on behalf of the Noteholders; and
(10) At the time of origination, each Mortgaged Property was the
subject of an appraisal which conformed to the underwriting requirements of the
originator of the Mortgage Loan and, the appraisal is in a form acceptable to
Fannie Mae or FHLMC.
In the case of a breach of any representation or warranty set forth
above which materially and adversely affects the value of the interests of
Noteholders or the Indenture Trustee in any of the mortgage loans, within 90
days from the date of discovery or notice from the Indenture Trustee, the
Depositor, the Securities Administrator or the Sponsor, the Sponsor will (i)
cure such breach in all material respects, (ii) provide the Indenture Trustee
with a substitute mortgage loan (if within two years of the Closing Date) or
(iii) purchase the related mortgage loan at the applicable Repurchase Price. The
obligations of the Sponsor to cure, purchase or substitute shall constitute the
Indenture Trustee's sole and exclusive remedy respecting a breach of such
representations and warranties.
ADDITIONAL INFORMATION
The description in this prospectus supplement of the mortgage pool and
the mortgaged properties is based upon the mortgage pool as constituted as of
the close of business on the Cut-off Date, as adjusted for the scheduled
principal payments due on or before that date. Prior to the issuance of the
notes, mortgage loans may be removed from the mortgage pool as a result of
incomplete documentation or otherwise if the Depositor deems that removal
necessary or desirable, and may be prepaid at any time. A limited number of
other mortgage loans may be included in the mortgage pool prior to the issuance
of the notes unless including those mortgage loans would materially alter the
characteristics of the mortgage pool as described in this prospectus supplement.
The Depositor believes that the information provided in this prospectus
supplement will be representative of the characteristics of the mortgage pool as
it will be constituted at the time the notes are issued, although the range of
mortgage rates and maturities and some other characteristics of the mortgage
loans may vary. In no event, however, will more than 5% (by principal balance at
the Cut-off Date) of the mortgage loans or mortgage securities deviate from the
characteristics of the mortgage loans or mortgage securities set forth in this
prospectus supplement.
If, as of the Closing Date, any material pool characteristic differs by
5% or more from the description in this prospectus supplement, revised
disclosure will be provided either in a supplement or in a Current Report on
Form 8-K.
STATIC POOL INFORMATION
[Static pool information material to this offering may be found at
__________________________.] [The [Sponsor] does not have any material static
pool information with respect to any mortgage loans of the same type as those
included in the trust fund originated by it prior to January 1, 2006, because
all or substantially all of these mortgage loans originated by the [Sponsor]
prior to that time were sold on a servicing released basis, and such information
may not be obtained without unreasonable effort or expense. With respect to any
of these mortgage loans originated by the [Sponsor] on or after January 1, 2006,
the static pool information provided does not include any information with
respect to any mortgage loan which was sold on a servicing released basis,
except to the extent the purchaser of that loan or another third-party has
agreed to provide that information back to the [Sponsor] and has actually
provided it to the [Sponsor] with indemnification.]
[Information provided through the Internet address above will not be
deemed to be a part of this prospectus or the registration statement for the
securities offered hereby if it relates to any prior securities pool or vintage
formed before January 1, 2006, or with respect to the mortgage pool (if
applicable) any period before January 1, 2006.]
YIELD ON THE NOTES
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the notes, the aggregate amount of
payments on the notes and the yield to maturity of the notes will be related to
the rate and timing of payments of principal on the mortgage loans. The rate of
principal payments on the mortgage loans will in turn be affected by the
amortization schedules of those mortgage loans and by the rate of principal
prepayments on those mortgage loans (including for this purpose, payments
resulting from refinancings, liquidations of the mortgage loans due to defaults,
casualties, condemnations and repurchases, whether optional or required, by the
Depositor, the Sponsor or the majority holder of the Equity Certificates, as the
case may be). The mortgage loans generally may be prepaid by the mortgagors at
any time; however, as described under "The Mortgage Pool" in this prospectus
supplement, with respect to approximately _____% of the mortgage loans, by
aggregate principal balance as of the Cut-off Date, a prepayment may subject the
related mortgagor to a Prepayment Charge. Prepayment Charge obligations
generally expire by their terms after a limited period specified in the related
mortgage note. The weighted average month of origination of the mortgage loans
with Prepayment Charges is ________ ____.
Prepayments, liquidations and repurchases of the mortgage loans will
result in payments in respect of principal to the holders of the class or
classes of notes then entitled to receive those payments that otherwise would be
distributed over the remaining terms of the mortgage loans. SEE "MATURITY AND
PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS. Since the rates of payment of
principal on the mortgage loans will depend on future events and a variety of
factors (as described more fully in this prospectus supplement and in the
prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to that rate or the rate of
principal prepayments. The extent to which the yield to maturity of any class of
notes may vary from the anticipated yield will depend upon the degree to which
those notes are purchased at a discount or premium and the degree to which the
timing of payments on those notes is sensitive to prepayments on the mortgage
loans. Further, an investor should consider, in the case of a Note purchased at
a discount, the risk that a slower than anticipated rate of principal payments
on the mortgage loans could result in an actual yield to that investor that is
lower than the anticipated yield and, in the case of a note purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to that investor that is lower than the
anticipated yield. In general, the earlier a prepayment of principal is made on
the mortgage loans, the greater the effect on the yield to maturity of the
notes. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of those notes would not be
fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
It is highly unlikely that the mortgage loans will prepay at any
constant rate until maturity or that all of the mortgage loans will prepay at
the same rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the notes, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the mortgage rates on the
mortgage loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
mortgage rates on the mortgage loans, the rate of prepayment on the mortgage
loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. In addition, in the case of the adjustable rate mortgage loans in the
mortgage pool, the existence of the applicable Periodic Rate Cap, Maximum
Mortgage Rate and Minimum Mortgage Rate may affect the likelihood of prepayments
resulting from refinancings. There can be no certainty as to the rate of
prepayments on the mortgage loans during any period or over the life of the
notes. SEE "YIELD CONSIDERATIONS" AND "MATURITY AND PREPAYMENT CONSIDERATIONS"
IN THE PROSPECTUS.
Because principal payments are paid to some classes of notes before
other classes, holders of classes of notes having a later priority of payment
bear a greater risk of losses (because those notes will represent an increasing
percentage of the Trust Estate during the period prior to the commencement of
payments of principal on those notes) than holders of classes having earlier
priorities for payment of principal. As described under "Description of the
Notes--Principal Payments on the Notes" in this prospectus supplement, prior to
the Stepdown Date (as defined in this prospectus supplement), all principal
payments on the mortgage loans will be allocated to the Class A Notes.
Thereafter, as further described in this prospectus supplement, subject to
various delinquency triggers described in this prospectus supplement, all
principal payments on the mortgage loans will be allocated among all classes of
the notes then outstanding as described under "Description of the
Notes--Principal Payments on the Notes" in this prospectus supplement.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. In addition, default rates may be higher
for mortgage loans used to refinance an existing mortgage loan. In the event of
a mortgagor's default on a mortgage loan, there can be no assurance that
recourse will be available beyond the specific mortgaged property pledged as
security for repayment. SEE "THE MORTGAGE POOL--UNDERWRITING STANDARDS;
REPRESENTATIONS" IN THIS PROSPECTUS SUPPLEMENT.
SPECIAL YIELD CONSIDERATIONS
The Note Interest Rate for each class of the notes adjusts monthly
based on One-Month LIBOR as described under "DESCRIPTION OF THE
NOTES--CALCULATION OF ONE-MONTH LIBOR" in this prospectus supplement, subject to
the Maximum Note Interest Rate and the Available Interest Rate. However, the
mortgage rates on the fixed rate mortgage loans are fixed and will not vary with
any index, and the mortgage rates on the adjustable rate mortgage loans adjust
semi-annually (after an initial fixed rate period in the case of Delayed First
Adjustment Mortgage Loans) based on the Index (which may not move in tandem with
One- Month LIBOR), subject to periodic and lifetime limitations as described in
this prospectus supplement. Investors should note that approximately _____% of
the mortgage loans are ____ year Delayed First Adjustment Mortgage Loans,
approximately ____% of the mortgage loans are _____ year Delayed First
Adjustment Loans and approximately _____% of the mortgage loans are fixed rate
mortgage loans, in each case by aggregate principal balance as of the Cut-off
Date. The weighted average month of origination of the _____ year Delayed First
Adjustment Mortgage Loans is _____ ____, and the weighted average month of
origination of the ______ year Delayed First Adjustment Mortgage Loans is ______
____. Because of the application of the Maximum Note Interest Rate and the
Available Interest Rate, increases in the Note Interest Rate on the notes may be
limited for extended periods or indefinitely in a rising interest rate
environment. The interest due on the mortgage loans during any Due Period may
not equal the amount of interest that would accrue at One-Month LIBOR plus the
applicable margin on the notes during the related Interest Accrual Period. In
addition, the Index and One-Month LIBOR may respond differently to economic and
market factors. Thus, it is possible, for example, that if both One-Month LIBOR
and the Index rise during the same period, One-Month LIBOR may rise more rapidly
than the Index or may rise higher than the Index, potentially resulting in
Interest Carry Forward Amounts with respect to one or more classes of notes. As
a result of the foregoing as well as other factors such as the prepayment
behavior of the mortgage pool, relative increases in One-Month LIBOR or relative
decreases in the weighted average of the mortgage rates on the mortgage loans
(i) could cause the Current Interest Payment Amount generated by the mortgage
pool to be less than the aggregate of the Interest Payment Amounts that would
otherwise be payable on the notes, leading one or more classes of notes to incur
Interest Carry Forward Amounts, or (ii) could cause the Maximum Note Interest
Rate to apply to one or more classes of notes.
Because the mortgage rate for each adjustable rate mortgage loan will
be adjusted, subject to periodic and lifetime limitations, to equal the sum of
the Index and the related Gross Margin, those rates could be higher than
prevailing market interest rates, possibly resulting in an increase in the rate
of prepayments on the adjustable rate mortgage loans after their adjustments.
As described under "Description of the Notes--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of the Subordinate
Notes may be made available to protect the holders of the Class A Notes against
interruptions in payments due to various mortgagor delinquencies, to the extent
not covered by P&I Advances. Those delinquencies may affect the yield to
investors on those classes of Subordinate Notes and, even if subsequently cured,
will affect the timing of the receipt of payments by the holders of those
classes of Subordinate Notes. In addition, a larger than expected rate of
delinquencies or losses will affect the rate of principal payments on each class
of Subordinate Notes. SEE "DESCRIPTION OF THE NOTES--PRINCIPAL PAYMENTS ON THE
NOTES" IN THIS PROSPECTUS SUPPLEMENT.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse
from the date of issuance of a security until each dollar of principal of that
security will be repaid to the investor. The weighted average life of each class
of notes will be influenced by the rate at which principal on the mortgage loans
is paid, which may be in the form of scheduled payments or prepayments
(including repurchases and prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the mortgage loans), and the timing of those principal payments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prepayment Assumption assumes a prepayment
rate for the mortgage loans of __% CPR. The CPR assumes that the outstanding
principal balance of a pool of mortgage loans prepays at a specified constant
annual rate or CPR. In generating monthly cash flows, this rate is converted to
an equivalent constant monthly rate. To assume __% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the mortgage loans will prepay at __% CPR or any other rate.
The tables following the next paragraph indicate the percentage of the
initial Note Balance of the notes that would be outstanding after each of the
dates shown at various percentages of the Prepayment Assumption and the
corresponding weighted average lives of those notes. The tables are based on the
following modeling assumptions (the "Structuring Assumptions"): (i) the mortgage
pool consists of __ mortgage loans with the characteristics described below,
(ii) payments on those notes are received, in cash, on the 25th day of each
month, commencing in _______ ____, (iii) the mortgage loans prepay at the
percentages of the Prepayment Assumption indicated, (iv) no defaults or
delinquencies occur in the payment by mortgagors of principal and interest on
the mortgage loans, (v) none of the majority holder of the Equity Certificates,
the Sponsor, the Master Servicer, the Servicers or any other person purchases
from the Trust Estate any mortgage loan or redeems the notes pursuant to any
obligation or option under the Indenture, the Servicing Agreement or any other
agreement except as indicated in footnote two in the tables below, and no
partial early redemption of the notes occurs with respect to the ___________
Mortgage Loans, (vi) scheduled monthly payments on the mortgage loans are
received on the first day of each month commencing in _______ ____, and are
computed prior to giving effect to any prepayments received in the prior month,
(vii) prepayments representing payment in full of individual mortgage loans are
received on the last day of each month commencing in ________ ____, and include
30 days' interest on those mortgage loans, (viii) the scheduled monthly payment
for each mortgage loan is calculated based on its principal balance, mortgage
rate, original term to stated maturity and remaining term to stated maturity so
that the mortgage loan will amortize in amounts sufficient to repay the
remaining principal balance of that mortgage loan by its remaining term to
stated maturity, (ix) the notes are purchased on ________ __, ____, (x) the
Index remains constant at _____% per annum and the mortgage rate on each
adjustable rate mortgage loan is adjusted on the next Adjustment Date (and on
subsequent Adjustment Dates, if necessary) to equal the Index plus the
applicable Gross Margin, subject to the applicable Periodic Rate Cap, (xi)
One-Month LIBOR remains constant at _____% per annum, (xii) the monthly payment
on each adjustable rate mortgage loan is adjusted on the Due Date immediately
following the next Adjustment Date (and on subsequent Adjustment Dates, if
necessary) to equal a fully amortizing monthly payment as described in clause
(viii) above and (xiii) the Master Servicing Fee Rate is as shown in the
"Assumed Mortgage Loan Characteristics" table below and the Master Servicing Fee
is payable monthly, the Servicing Fee Rate for each Servicer is equal to ____%
per annum and the Servicing Fees are payable monthly, and the Indenture Trustee
Fee Rate is equal to ______% per annum and the Indenture Trustee Fee is paid
monthly.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
REMAINING
PRINCIPAL MORTGAGE ORIGINAL TERM MASTER
BALANCE RATE (%) TERM TO TO NEXT MAXIMUM MINIMUM PERIODIC SERVICING PREPAY
AS OF THE MORTGAGE MATURITY MATURITY ADJUSTMENT GROSS MORTGAGE MORTGAGE RATE FEE RATE PENALTY
CUT-OFF DATE RATE (%) (MONTHS) (MONTHS) DATE MARGIN (%) RATE (%) RATE (%) CAP (%) (%) (YES/NO)
------------ --------- --------- -------- ---------- ---------- -------- -------- ------- -------- --------
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the tables. This
discrepancy may have an effect upon the percentages of the initial Note Balance
outstanding (and the weighted average lives) of the notes shown in the tables.
In addition, since the actual mortgage loans included in the mortgage pool will
have characteristics that differ from those assumed in preparing the tables
shown below and since it is not likely the level of the Index or One-Month LIBOR
will remain constant as assumed, the notes may mature earlier or later than
indicated by the tables. In addition, as described under "Description of the
Notes--Principal Payments on the Notes" in this prospectus supplement, the
occurrence of the Stepdown Date or a Trigger Event (each as defined in this
prospectus supplement) will have the effect of accelerating or decelerating the
amortization of the notes, affecting the weighted average lives of the notes.
Based on the Structuring Assumptions, the tables indicate the weighted average
lives of the notes and show the percentages of the initial Note Balance of those
notes that would be outstanding after each of the Payment Dates shown, at
various percentages of the Prepayment Assumption. Neither the prepayment model
used in this prospectus supplement nor any other prepayment model or assumption
purports 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 included in the mortgage pool. Variations in the prepayment
experience and the balance of the mortgage loans that prepay may increase or
decrease the percentages of initial Note Balances (and weighted average lives)
shown in the following tables. Those variations may occur even if the average
prepayment experience of all the mortgage loans equals any of the specified
percentages of the Prepayment Assumption.
PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE SPECIFIED PERCENTAGES OF THE
PREPAYMENT ASSUMPTION
CLASS A NOTES
-------------------------
PAYMENT DATE 0% 15% 25% 35% 45%
- ------------ -- --- --- --- ---
Closing Date.....................
Weighted Average Life in Years(1)
Weighted Average Life in Years(2)
- -----------
(1) The weighted average life of a Note is determined by (a)
multiplying the amount of each payment of principal by the
number of years from the date of issuance of the Note to the
related Payment Date, (b) adding the results and (c) dividing
the sum by the initial Note Balance of the notes.
(2) Calculated pursuant to footnote one but assumes the majority
holder of the Equity Certificates exercises its option to
redeem the notes when the aggregate Note Balance has been
reduced to less than 20% of the initial aggregate Note
Balance. SEE "THE INDENTURE AND OWNER TRUST
AGREEMENT--REDEMPTION" IN THIS PROSPECTUS SUPPLEMENT.
CLASS M-1 NOTES
-------------------------
PAYMENT DATE 0% 15% 25% 35% 45%
- ------------ -- --- --- --- ---
Closing Date.....................
Weighted Average Life in Years(1)
Weighted Average Life in Years(2)
- -----------
(1) The weighted average life of a Note is determined by (a)
multiplying the amount of each payment of principal by the
number of years from the date of issuance of the Note to the
related Payment Date, (b) adding the results and (c) dividing
the sum by the initial Note Balance of the notes.
(2) Calculated pursuant to footnote one but assumes the majority
holder of the Equity Certificates exercises its option to
redeem the notes when the aggregate Note Balance has been
reduced to less than 20% of the initial aggregate Note
Balance. See "THE INDENTURE AND OWNER TRUST
AGREEMENT--REDEMPTION" IN THIS PROSPECTUS SUPPLEMENT.
CLASS M-2 NOTES
-------------------------
PAYMENT DATE 0% 15% 25% 35% 45%
- ------------ -- --- --- --- ---
Closing Date.....................
Weighted Average Life in Years(1)
Weighted Average Life in Years(2)
- -----------
(1) The weighted average life of a Note is determined by (a)
multiplying the amount of each payment of principal by the
number of years from the date of issuance of the Note to the
related Payment Date, (b) adding the results and (c) dividing
the sum by the initial Note Balance of the notes.
(2) Calculated pursuant to footnote one but assumes the majority
holder of the Equity Certificates exercises its option to
redeem the notes when the aggregate Note Balance has been
reduced to less than 20% of the initial aggregate Note
Balance. SEE "THE INDENTURE AND OWNER TRUST
AGREEMENT--REDEMPTION" IN THIS PROSPECTUS SUPPLEMENT.
CLASS M-3 NOTES
-------------------------
PAYMENT DATE 0% 15% 25% 35% 45%
- ------------ -- --- --- --- ---
Closing Date.....................
Weighted Average Life in Years(1)
Weighted Average Life in Years(2)
- -----------
(1) The weighted average life of a Note is determined by (a)
multiplying the amount of each payment of principal by the
number of years from the date of issuance of the Note to the
related Payment Date, (b) adding the results and (c) dividing
the sum by the initial Note Balance of the notes.
(2) Calculated pursuant to footnote one but assumes the majority
holder of the Equity Certificates exercises its option to
redeem the notes when the aggregate Note Balance has been
reduced to less than 20% of the initial aggregate Note
Balance. See "THE INDENTURE AND OWNER TRUST
AGREEMENT--REDEMPTION" IN THIS PROSPECTUS SUPPLEMENT.
There is no assurance that prepayments of the mortgage loans will
conform to any of the levels of the Prepayment Assumption indicated in the
tables above, or to any other level, or that the actual weighted average lives
of the notes will conform to any of the weighted average lives shown in the
tables above. Furthermore, the information contained in the tables with respect
to the weighted average lives of the notes is not necessarily indicative of the
weighted average lives that might be calculated or projected under different or
varying prepayment or Index level assumptions.
The characteristics of the mortgage loans will differ from those
assumed in preparing the tables above. In addition, it is unlikely that any
mortgage loan will prepay at any constant percentage until maturity, that all of
the mortgage loans will prepay at the same rate or that the level of the Index
will remain constant or at any level for any period of time. The timing of
changes in the rate of prepayments may significantly affect the actual yield to
maturity to investors, even if the average rate of principal prepayments and the
level of the Index is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE SUBORDINATE NOTES
If on any Payment Date, the Overcollateralized Amount and the Note
Balances of the Class M-3 Notes and the Class M-2 Notes have been reduced to
zero, the yield to maturity on the Class M-1 Notes will become extremely
sensitive to losses on the mortgage loans (and the timing of those losses) that
are covered by subordination, because the entire amount of any Realized Losses
(to the extent not covered by Net Monthly Excess Cashflow) will be allocated to
the Class M-1 Notes. If on any Payment Date, the Overcollateralized Amount and
the Note Balance of the Class M-3 Notes have been reduced to zero, the yield to
maturity on the Class M-2 Notes will become extremely sensitive to losses on the
mortgage loans (and the timing of those losses) that are covered by
subordination, because the entire amount of any Realized Losses (to the extent
not covered by Net Monthly Excess Cashflow) will be allocated to the Class M-2
Notes. If on any Payment Date, the Overcollateralized Amount has been reduced to
zero, the yield to maturity on the Class M-3 Notes will become extremely
sensitive to losses on the mortgage loans (and the timing of those losses) that
are covered by subordination, because the entire amount of any Realized Losses
(to the extent not covered by Net Monthly Excess Cashflow) will be allocated to
the Class M-3 Notes. Once Realized Losses have been allocated to the Subordinate
Notes, those Realized Losses will not be reinstated thereafter. However,
Allocated Realized Loss Amounts may be paid to the holders of those classes of
notes, after various distributions to the holders of the Class A Notes and
Subordinate Notes with lower numerical class designations, but before the Equity
Certificates are entitled to any distributions. SEE "DESCRIPTION OF THE
NOTES--OVERCOLLATERALIZATION PROVISIONS" IN THIS PROSPECTUS SUPPLEMENT.
Investors in the Subordinate Notes should fully consider the risk that
Realized Losses on the mortgage loans could result in the failure of those
investors to fully recover their investments. For additional considerations
relating to the yield on the Subordinate Notes, SEE "YIELD CONSIDERATIONS" AND
"MATURITY AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS.
DESCRIPTION OF THE NOTES
GENERAL
MILA Mortgage Acceptance, Inc., Mortgage-Backed Notes, Series ____-__
will consist of ____ classes of notes, designated as (i) the Class A Notes and
(ii) the Class M-1 Notes, the Class M-2 Notes and the Class M-3 Notes. The notes
will be issued by MILA Mortgage Acceptance, Inc. Trust Series ____-__ pursuant
to the Indenture, dated as of ________ __, ____, between MILA Mortgage
Acceptance, Inc. Trust Series ____-__ and the Indenture Trustee. Only the notes
are offered by this prospectus supplement. The Equity Certificates will be
issued pursuant to the Owner Trust Agreement, dated as of ________ __, ____,
between the Depositor and the Owner Trustee, and will represent the beneficial
ownership interest in MILA Mortgage Acceptance, Inc. Trust Series ____-__. The
Equity Certificates are not being offered by this prospectus supplement and will
be delivered on the Closing Date to the ____________, as partial consideration
for the conveyance of the mortgage loans by ____________ to the Depositor.
Distributions on the offered notes will be made on each Distribution
Date.
The notes represent non-recourse debt obligations of MILA Mortgage
Acceptance, Inc. Trust Series ____-__ secured by the Trust Estate, which
consists primarily of a mortgage pool of conventional, one- to four-family,
adjustable rate mortgage loans and fixed rate mortgage loans having an aggregate
principal balance as of the Cut-off Date of approximately $___________, subject
to a permitted variance as described in this prospectus supplement under "The
Mortgage Pool". Proceeds of the Trust Estate will be the sole source of payments
on the notes. MILA Mortgage Acceptance, Inc. Trust Series ____-__ is not
expected to have any significant assets other than the Trust Estate pledged as
collateral to secure the notes.
The Class A Notes, the Class M-1 Notes, the Class M-2 Notes and the
Class M-3 Notes will have an aggregate initial Note Balance of approximately
$___________, approximately $_________, approximately $__________ and
approximately $__________, respectively, in each case subject to a permitted
variance of plus or minus [5]%. The Note Interest Rates on the notes are
adjustable, subject to the Maximum Note Interest Rate and the Available Interest
Rate, and will be calculated for each Payment Date as described under "--Note
Interest Rate" in this prospectus supplement. The "Final Maturity Date" of the
notes is the Payment Date occurring in _______ ____.
The notes will be issued, maintained and transferred on the book-entry
records of DTC and its participants in minimum denominations of $[10,000] and
integral multiples of $[1.00] in excess of that minimum denomination.
The notes will initially be represented by one or more global notes
registered in the name of the nominee of DTC, except as provided below. The
Depositor has been informed by DTC that DTC's nominee will be Cede. No person
acquiring an interest in any class of the notes will be entitled to receive a
note representing those person's interest, except as described below under
"--Definitive Notes". Unless and until Definitive Notes are issued under the
limited circumstances described in this prospectus supplement, all references to
actions by noteholders with respect to the notes shall refer to actions taken by
DTC upon instructions from its participants (as defined below), and all
references in this prospectus supplement to payments, notices, reports and
statements to noteholders with respect to the notes shall refer to payments,
notices, reports and statements to DTC or Cede, as the registered holder of the
notes, for payment to Note Owners in accordance with DTC procedures. SEE
"--REGISTRATION" AND "--DEFINITIVE NOTES" IN THIS PROSPECTUS SUPPLEMENT.
Any Definitive Notes will be transferable and exchangeable at the
offices of the Indenture Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
All payments to holders of the notes, other than the final payment on
any class of notes, will be made by or on behalf of the Indenture Trustee to the
persons in whose names those notes are registered at the close of business on
each Record Date. Those payments will be made either (a) by check mailed to the
address of that noteholder as it appears in the Note Register or (b) upon
written request to the Indenture Trustee at least five business days prior to
the relevant Record Date by any holder of notes having an aggregate initial Note
Balance that is in excess of the lesser of (i) $5,000,000 or (ii) two-thirds of
the initial aggregate Note Balance of that class of notes, by wire transfer in
immediately available funds to the account of that noteholder specified in the
request. The final payment on any class of notes will be made in like manner,
but only upon presentment and surrender of those notes at the corporate trust
office of the Indenture Trustee or another location specified in the notice to
noteholders of that final payment.
REGISTRATION
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participants and to facilitate the clearance and settlement of
securities transactions between participants through electronic book entries,
thereby eliminating the need for physical movement of notes. participants
include securities brokers and dealers (including [Name of Underwriter]), banks,
trust companies and clearing corporations. Indirect access to the DTC system is
also available to indirect participants.
Note Owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the notes may do so only through participants and indirect participants. In
addition, Note Owners will receive all payments of principal of and interest on
the notes from the Indenture Trustee through DTC and DTC participants. The
Indenture Trustee will forward payments to DTC in same day funds and DTC will
forward those payments to participants in next day funds settled through the New
York Clearing House. Each Participant will be responsible for disbursing those
payments to indirect participants or to Note Owners. Unless and until Definitive
Notes are issued, it is anticipated that the only holder of the notes will be
Cede, as nominee of DTC. Note Owners will not be recognized by the Indenture
Trustee as noteholders, as that term is used in the Indenture, and Note Owners
will be permitted to exercise the rights of noteholders only indirectly through
DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of notes among
participants and to receive and transmit payments of principal of, and interest
on, the notes. Participants and indirect participants with which Note Owners
have accounts with respect to the notes similarly are required to make
book-entry transfers and receive and transmit those payments on behalf of their
respective Note Owners. Accordingly, although Note Owners will not possess
Definitive Notes, the Rules provide a mechanism by which Note Owners through
their participants and indirect participants will receive payments and will be
able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of some banks, the ability of a
Note Owner to pledge notes to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to those notes, may be limited due
to the absence of physical notes for the notes. In addition, under a book-entry
format, Note Owners may experience delays in their receipt of payments since
payment will be made by the Indenture Trustee to Cede, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a
noteholder under the Indenture only at the direction of one or more participants
to whose DTC account the notes are credited. Clearstream or the Euroclear
Operator (as defined in this prospectus supplement), as the case may be, will
take any other action permitted to be taken by a noteholder under the Indenture
on behalf of a Clearstream Participant (as defined in this prospectus
supplement) or Euroclear Participant (as defined in this prospectus supplement)
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary (as defined in this prospectus supplement) to
effect those actions on its behalf through DTC. Additionally, under the Rules,
DTC will take those actions with respect to specified Voting Rights only at the
direction of and on behalf of participants whose holdings of notes evidence
those specified Voting Rights. DTC may take conflicting actions with respect to
Voting Rights to the extent that participants whose holdings of notes evidence
those Voting Rights, authorize divergent action.
MILA Mortgage Acceptance, Inc. Trust Series ____-__, the Originators,
the Depositor, the Master Servicer, the Sponsor, ________, the Owner Trustee,
the Indenture Trustee and their respective affiliates will have no liability for
any actions taken by DTC or its nominee or Clearstream or Euroclear, including
actions for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the notes held by Cede, as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
DEFINITIVE NOTES
Definitive Notes will be issued to Note Owners or their nominees,
rather than to DTC or its nominee, only if (i) the Depositor advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as clearing agency with respect to the notes and
the Depositor is unable to locate a qualified successor, (ii) the Depositor, at
its option, advises the Indenture Trustee in writing that it elects to terminate
the book-entry system through DTC, or (iii) after the occurrence of an Event of
Default (as defined in this prospectus supplement), Note Owners representing in
the aggregate not less than 51% of the Voting Rights of the notes advise the
Indenture Trustee and DTC through participants, in writing, that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Note Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Indenture Trustee is required to notify all Note Owners through
participants of the availability of Definitive Notes. Upon surrender by DTC of
the definitive notes representing the Notes and receipt of instructions for re-
registration, the Indenture Trustee will reissue the notes as Definitive Notes
issued in the respective principal amounts owned by individual Note Owners, and
thereafter the Indenture Trustee will recognize the holders of those Definitive
Notes as noteholders under the Indenture. Those Definitive Notes will be issued
in minimum denominations of $10,000, except that any beneficial ownership
represented by a note in an amount less than $10,000 immediately prior to the
issuance of a Definitive Note shall be issued in a minimum denomination equal to
the amount represented by that note.
BOOK-ENTRY FACILITIES
Note Owners may elect to hold their interests in the notes through DTC
in the United States or through Clearstream or Euroclear in Europe, if they are
participants of those systems, or indirectly through organizations which are
participants in those systems. The notes of each class will be issued in one or
more notes which equal the aggregate Note Balance of that class and will
initially be registered in the name of Cede, the nominee of DTC. Clearstream and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold those positions
in customers' securities accounts in the depositaries' names on the books of
DTC. Citibank will act as depositary for Clearstream and Chase will act as
depositary for Euroclear.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Those credits or any transactions in
those securities settled during that processing will be reported to the relevant
Euroclear participants or Clearstream participants on that business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream Participant or Euroclear Participant to a Participant will
be received with value on the DTC settlement date but will be available in the
relevant Clearstream 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 Clearstream 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 Clearstream
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, those cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Clearstream participants and Euroclear participants may not deliver
instructions directly to the European Depositaries.
Clearstream is incorporated under the laws of Luxembourg as a
professional depository. Clearstream holds securities for its Clearstream
participants and facilitates the clearance and settlement of securities
transactions between Clearstream participants through electronic book-entry
changes in accounts of Clearstream participants, thereby eliminating the need
for physical movement of notes. Transactions may be settled in Clearstream in
any of 28 currencies, including United States dollars. Clearstream provides to
its Clearstream participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. Indirect access to Clearstream is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Clearstream
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its 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 notes and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of the Euroclear Operator, under
contract with the Cooperative. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
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. 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 notes to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Payments with respect to notes held through Clearstream or Euroclear
will be credited to the cash accounts of Clearstream participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by the Relevant Depositary. Those payments will be subject
to tax reporting in accordance with relevant United States tax laws and
regulations.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform those procedures and those procedures may be discontinued at any
time. SEE "DESCRIPTION OF THE SECURITIES--FORM OF SECURITIES" IN THE PROSPECTUS.
NOTE INTEREST RATES
The Note Interest Rate on the Class A Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-1 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-2 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-3 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus _____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
SEE "--CALCULATION OF ONE-MONTH LIBOR" IN THIS PROSPECTUS SUPPLEMENT.
The Note Interest Rate and the Note Accrual Rate for the notes for the
current related Interest Accrual Period, to the extent it has been determined,
and for the immediately preceding Interest Accrual Period may be obtained by
telephoning the Indenture Trustee at __________.
INTEREST PAYMENTS ON THE NOTES
To the extent of the Current Interest Payment Amount, in the priorities
listed below, the holders of each class of notes will be entitled to receive on
each Payment Date interest payments in an amount equal to the Interest Payment
Amount for that class. On each Payment Date, the Current Interest Payment Amount
will be distributed in the following order of priority:
FIRST, to the holders of the Class A Notes, the Interest Payment Amount
for those notes;
SECOND, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amount for the Class A Notes, to
the holders of the Class M-1 Notes, the Interest Payment Amount for
those Notes;
THIRD, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes and
the Class M-1 Notes, to the holders of the Class M-2 Notes, the
Interest Payment Amount for those notes; and
FOURTH, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes,
the Class M-1 Notes and the Class M-2 Notes, to the holders of the
Class M-3 Notes, the Interest Payment Amount for those notes.
With respect to any Payment Date, to the extent that the aggregate of
the Interest Payment Amounts for the notes is limited by the Current Interest
Payment Amount for the related Due Period, the holders of some classes of notes
may receive an Interest Payment Amount calculated at the Available Interest Rate
rather than at the applicable Note Accrual Rate for those classes and that
Payment Date. The Interest Carry Forward Amount, if any, for any class of the
notes for any Payment Date is payable to the extent of available funds remaining
after some other payments on the notes on that Payment Date, but before any
payments on the Equity Certificates on that Payment Date. SEE
"--OVERCOLLATERALIZATION PROVISIONS" IN THIS PROSPECTUS SUPPLEMENT.
All payments of interest on the notes will be based on a 360-day year
and the actual number of days in the applicable Interest Accrual Period.
The Note Balance of a note outstanding at any time represents the then
maximum amount that the holder of that note is entitled to receive as payments
allocable to principal from the cash flow on the mortgage loans and the other
assets in the Trust Estate.
CALCULATION OF ONE-MONTH LIBOR
With respect to each Interest Accrual Period, on the Interest
Determination Date, the Indenture Trustee will determine One-Month LIBOR for the
next Interest Accrual Period. If that rate does not appear on Telerate Page
3750, the rate for that day will be determined on the basis of the offered rates
of the Reference Banks (as defined in this prospectus supplement) for one-month
U.S. dollar deposits, as of 11:00 a.m. (London time) on that Interest
Determination Date. The Indenture Trustee will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If on
that Interest Determination Date two or more Reference Banks provide those
offered quotations, One-Month LIBOR for the related Interest Accrual Period
shall be the arithmetic mean of those offered quotations (rounded upwards if
necessary to the nearest whole multiple of 0.0625%). If on that Interest
Determination Date fewer than two Reference Banks provide those offered
quotations, One-Month LIBOR for the related Interest Accrual Period shall be the
higher of (x) One-Month LIBOR as determined on the previous Interest
Determination Date and (y) the Reserve Interest Rate (as defined in this
prospectus supplement).
As used in this section, "business day" means a day on which banks are
open for dealing in foreign currency and exchange in London and New York City.
The establishment of One-Month LIBOR on each Interest Determination
Date by the Indenture Trustee and the Indenture Trustee's calculation of the
rate of interest applicable to the notes for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
On each Payment Date, the Principal Payment Amount will be distributed
to the holders of the notes then entitled to payments of principal. In no event
will the Principal Payment Amount with respect to any Payment Date be (x) less
than zero or (y) greater than the then-outstanding aggregate Note Balance of the
notes. The Principal Payment Amount for the first Payment Date will include
approximately $_________ collected by the Servicers in respect of prepayments on
the mortgage loans during the _________ ____ Prepayment Period.
On each Payment Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, the Principal Payment Amount shall be distributed:
first, to the Class A Notes, until the Note Balance thereof has been reduced to
zero; second, to the Class M-1 Notes, until the Note Balance thereof has been
reduced to zero; third, to the Class M-2 Notes, until the Note Balance thereof
has been reduced to zero; and fourth, to the Class M-3 Notes, until the Note
Balance thereof has been reduced to zero.
On each Payment Date (a) on or after the Stepdown Date and (b) on which
a Trigger Event is not in effect, the holders of the Class A Notes and the
Subordinate Notes shall be entitled to receive payments in respect of principal
to the extent of the Principal Payment Amount in the following amounts and order
of priority:
FIRST, the lesser of (x) the Principal Payment Amount and (y) the Class
A Principal Payment Amount, shall be distributed to the holders of the
Class A Notes, until the Note Balance thereof has been reduced to zero;
SECOND, the lesser of (x) the excess of (i) the Principal Payment
Amount over (ii) the amount distributed to the holders of the Class A
notes pursuant to clause first above and (y) the Class M-1 Principal
Payment Amount, shall be distributed to the holders of the Class M-1
Notes, until the Note Balance thereof has been reduced to zero;
THIRD, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the
Class A Notes pursuant to clause first above and to the holders of the
Class M-1 Notes pursuant to clause second above and (y) the Class M-2
Principal Payment Amount, shall be distributed to the holders of the
Class M-2 Notes, until the Note Balance thereof has been reduced to
zero; and
FOURTH, the lesser of (x) the excess of (i) the Principal Payment
Amount over (ii) the sum of the amounts distributed to the holders of
the Class A Notes pursuant to clause first above, to the holders of the
Class M-1 Notes pursuant to clause second above and to the holders of
the Class M-2 Notes pursuant to clause third above and (y) the Class
M-3 Principal Payment Amount, shall be distributed to the holders of
the Class M-3 Notes, until the Note Balance thereof has been reduced to
zero.
On the Final Maturity Date or the Payment Date immediately following
the acceleration of the notes due to any Event of Default principal will be
payable on each class of notes in an amount equal to the Note Balance thereof on
that Payment Date. On the Final Maturity Date or the Payment Date immediately
following the acceleration of the notes due to any Event of Default, amounts in
respect of accrued interest, Interest Carry Forward Amounts and Allocated
Realized Loss Amounts will also be payable on each class of notes in the
priorities listed in the Indenture. There can be no assurance, however, that
sufficient funds will be available on that date to retire the Note Balances and
pay those other amounts.
The allocation of payments in respect of principal to the Class A Notes
on each Payment Date (a) prior to the Stepdown Date or (b) on which a Trigger
Event has occurred, will have the effect of accelerating the amortization of the
Class A Notes while, in the absence of Realized Losses, increasing the
respective percentage interest in the principal balance of the mortgage loans
evidenced by the Subordinate Notes and the Overcollateralized Amount. Increasing
the respective percentage interest in the Trust Estate of the Subordinate Notes
and the Overcollateralized Amount relative to that of the Class A Notes is
intended to preserve the availability of the subordination provided by the
Subordinate Notes and the Overcollateralized Amount.
The holders of the Equity Certificates will be entitled to all
Prepayment Charges received on the mortgage loans and those amounts will not be
available for distribution on the notes.
CREDIT ENHANCEMENT
The Credit Enhancement provided for the benefit of the holders of the
notes consists of subordination, as described below, and overcollateralization,
as described under "--OVERCOLLATERALIZATION PROVISIONS" in this prospectus
supplement.
The rights of the holders of the Subordinate Notes and the Equity
Certificates to receive payments will be subordinated, to the extent described
in this prospectus supplement, to the rights of the holders of the Class A
Notes. This subordination is intended to enhance the likelihood of regular
receipt by the holders of the Class A Notes of the full amount of interest and
principal to which they are entitled and to afford those holders protection
against Realized Losses.
The protection afforded to the holders of the Class A Notes by means of
the subordination of the Subordinate Notes and the Equity Certificates will be
accomplished by (i) the preferential right of the holders of the Class A Notes
to receive on any Payment Date, prior to payment on the Subordinate Notes and
the Equity Certificates, payments in respect of interest and principal, subject
to available funds, and (ii) if necessary, the right of the holders of the Class
A Notes to receive future payments of amounts that would otherwise be payable to
the holders of the Subordinate Notes and the Equity Certificates.
In addition, the rights of the holders of Subordinate Notes with lower
numerical class designations will be senior to the rights of holders of
Subordinate Notes with higher numerical class designations, and the rights of
the holders of all of the Subordinate Notes to receive payments in respect of
the mortgage loans will be senior to the rights of the holders of the Equity
Certificates, in each case to the extent described in this prospectus
supplement. This subordination is intended to enhance the likelihood of regular
receipt by the holders of Subordinate Notes with lower numerical class
designations relative to the holders of Subordinate Notes with higher numerical
class designations (and by the holders of all of the Subordinate Notes relative
to the holders of the Equity Certificates) of the full amount of interest and
principal to which they are entitled and to afford those holders protection
against Realized Losses, as described under "--Allocation of Realized Losses" in
this prospectus supplement.
OVERCOLLATERALIZATION PROVISIONS
The weighted average mortgage rate for the mortgage loans (adjusted to
reflect the Master Servicing Fee, the Servicing Fees and the Indenture Trustee
Fee payable from interest received or advanced on the mortgage loans) is
generally expected to be higher than the weighted average of the Note Interest
Rates on the notes, thus generating excess interest collections which, in the
absence of Realized Losses, will not be necessary to fund interest payments on
the notes. The Indenture requires that, on each Payment Date, the Net Monthly
Excess Cashflow, if any, be applied on that Payment Date as an accelerated
payment of principal on the class or classes of notes then entitled to receive
payments in respect of principal, but only to the limited extent hereafter
described. With respect to any Payment Date, any Net Monthly Excess Cashflow
(or, in the case of clause first below, the Net Monthly Excess Cashflow
exclusive of any Overcollateralization Reduction Amount) shall be paid as
follows:
FIRST, to the holders of the class or classes of notes then entitled to
receive payments in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or deemed to have
been incurred on the mortgage loans;
SECOND, to the holders of the class or classes of notes then entitled
to receive payments in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
THIRD, to the holders of the Class A Notes, in an amount equal to the
Interest Carry Forward Amount for those notes;
FOURTH, to the holders of the Class M-1 Notes, in an amount equal to
the Interest Carry Forward Amount for those notes;
FIFTH, to the holders of the Class M-1 Notes, in an amount equal to the
Allocated Realized Loss Amount for those notes;
SIXTH, to the holders of the Class M-2 Notes, in an amount equal to the
Interest Carry Forward Amount for those notes;
SEVENTH, to the holders of the Class M-2 Notes, in an amount equal to
the Allocated Realized Loss Amount for those notes;
EIGHTH, to the holders of the Class M-3 Notes, in an amount equal to
the Interest Carry Forward Amount for those notes;
NINTH, to the holders of the Class M-3 Notes, in an amount equal to the
Allocated Realized Loss Amount for those notes; and
TENTH, to the holders of the Equity Certificates as provided in the
Indenture.
With respect to any Payment Date, the excess, if any, of (a) the
aggregate principal balance of the mortgage loans immediately following that
Payment Date over (b) the Note Balance of the notes, after taking into account
the payment of the amounts described in clauses (b)(i) through (iv) of the
definition of Principal Payment Amount on that Payment Date, is the
"Overcollateralized Amount" for the notes as of that Payment Date. As of the
Closing Date, the aggregate principal balance of the mortgage loans as of the
Cut-off Date will exceed the aggregate Note Balance of the notes by an amount
equal to approximately $_________. That amount represents approximately ____% of
the aggregate principal balance of the mortgage loans as of the Cut-off Date,
which is the initial amount of overcollateralization required to be provided by
the mortgage pool under the Indenture. Under the Indenture, the
Overcollateralized Amount is required to be maintained at the Required
Overcollateralized Amount. In the event that Realized Losses are incurred on the
mortgage loans, those Realized Losses may result in an overcollateralization
deficiency since those Realized Losses will reduce the principal balance of the
mortgage loans without a corresponding reduction to the aggregate Note Balance
of the notes. In that event, the Indenture requires the payment from Net Monthly
Excess Cashflow, subject to available funds, of an amount equal to that
overcollateralization deficiency, which shall constitute a principal payment on
the notes in reduction of the Note Balances thereof. This has the effect of
accelerating the amortization of the notes relative to the amortization of the
mortgage loans, and of increasing the Overcollateralized Amount.
On and after the Stepdown Date and provided that a Trigger Event is not
in effect, the Required Overcollateralized Amount may be permitted to decrease,
or "step down", below the initial $_________ level to a level equal to
approximately ____% of the then current aggregate outstanding principal balance
of the mortgage loans (after giving effect to principal payments to be
distributed on that Payment Date), subject to a floor of $_________. In the
event that the Required Overcollateralized Amount is permitted to step down on
any Payment Date, the Indenture provides that a portion of the principal which
would otherwise be distributed to the holders of the notes on that Payment Date
shall be distributed to the holders of the Equity Certificates, subject to the
priorities listed above. With respect to that Payment Date, the Principal
Payment Amount will be reduced by the Overcollateralization Reduction Amount
after taking into account all other payments to be made on that Payment Date,
which amount shall be distributed as Net Monthly Excess Cashflow pursuant to the
priorities listed above. This has the effect of decelerating the amortization of
the notes relative to the amortization of the mortgage loans, and of reducing
the Overcollateralized Amount. However, if on any Payment Date a Trigger Event
is in effect, the Required Overcollateralized Amount will not be permitted to
step down on that Payment Date.
ALLOCATION OF LOSSES; SUBORDINATION
With respect to any defaulted mortgage loan that is finally liquidated
through foreclosure sale, disposition of the related mortgaged property (if
acquired by deed in lieu of foreclosure) or otherwise, the amount of loss
realized, if any, will equal the portion of the unpaid principal balance
remaining, if any, plus interest on that mortgage loan through the last day of
the month in which that mortgage loan was finally liquidated, after application
of all amounts recovered (net of amounts reimbursable to the Servicers for P&I
Advances, servicing advances and Servicing Fees) towards interest and principal
owing on the mortgage loan.
Any Realized Loss on the mortgage loans will be allocated on any
Payment Date, first, to Net Monthly Excess Cashflow, second, to the
Overcollateralized Amount, third, to the Class M-3 Notes, fourth, to the Class
M-2 Notes, and fifth, to the Class M-1 Notes. The Indenture does not permit the
allocation of Realized Losses to the Class A Notes. Investors in the Class A
Notes should note that although Realized Losses cannot be allocated to those
notes, under various loss scenarios there will not be enough principal and
interest collected on the mortgage loans to pay the Class A Notes all interest
and principal amounts to which they are then entitled.
Once Realized Losses have been allocated to the Subordinate Notes,
those Realized Losses will not be reinstated thereafter. However, Allocated
Realized Loss Amounts may be paid to the holders of those classes of notes,
after various distributions to the holders of the Class A Notes and Subordinate
Notes with lower numerical class designations, but before the Equity
Certificates are entitled to any distributions.
Any allocation of a Realized Loss to a note will be made by reducing
the Note Balance thereof by the amount so allocated on the Payment Date in the
month following the calendar month in which that Realized Loss was incurred.
Notwithstanding anything to the contrary described in this prospectus
supplement, in no event will the Note Balance of any note be reduced more than
once in respect of any particular amount both (i) allocable to those notes in
respect of Realized Losses and (ii) payable as principal to the holder of those
notes from Net Monthly Excess Cashflow.
P&I ADVANCES
Subject to the following limitations, each Servicer will be obligated
to advance or cause to be advanced on or before each Payment Date from its own
funds, or funds in the Distribution Account that are not included in the
Available Payment Amount for that Payment Date, any P&I Advance.
P&I Advances are required to be made only to the extent they are deemed
by the related Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making those P&I
Advances is to maintain a regular cash flow to the noteholders, rather than to
guarantee or insure against losses. The Servicers will not be required to make
any P&I Advances with respect to reductions in the amount of the monthly
payments on the mortgage loans due to bankruptcy proceedings or the application
of the Relief Act.
All P&I Advances will be reimbursable to the related Servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which that unreimbursed P&I Advance was made. In addition, any P&I
Advances previously made in respect of any mortgage loan that are deemed by the
related Servicer to be nonrecoverable from related late collections, insurance
proceeds or liquidation proceeds may be reimbursed to the related Servicer out
of any funds in the Distribution Account prior to the payments on the notes. In
the event that any Servicer fails in its obligation to make any required
advance, the Master Servicer will be obligated to make that advance, and in the
event that the Master Servicer fails in its obligation to make that advance, the
Indenture Trustee will be obligated to make that advance, in each of these cases
to the extent required in the related Servicing Agreement.
MILA MORTGAGE ACCEPTANCE, INC. TRUST SERIES ____-__
MILA Mortgage Acceptance, Inc. Trust Series ____-__ is a statutory
trust formed under the laws of the State of Delaware pursuant to the Owner Trust
Agreement, dated as of ________ __, ____, between the Depositor and the Owner
Trustee for the transactions described in this prospectus supplement. The Owner
Trust Agreement constitutes the "governing instrument" under the laws of the
State of Delaware relating to statutory trusts. After its formation, MILA
Mortgage Acceptance, Inc. Trust Series ____-__ will not engage in any activity
other than (i) acquiring and holding the mortgage loans and the proceeds
therefrom, (ii) issuing the notes and the Equity Certificates, (iii) making
payments on the notes and the Equity Certificates and (iv) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith. The foregoing
restrictions are contained in the Owner Trust Agreement. These restrictions
cannot be amended without the consent of holders of Notes evidencing at least
[__]% of the voting rights. For a description of other provisions relating to
amending the permitted activities of the trust, please see "THE AGREEMENTS --
AMENDMENT" in the base prospectus.
MILA Mortgage Acceptance, Inc. Trust Series ____-__ is not expected to
have any significant assets other than the Trust Estate pledged as collateral to
secure the notes. The assets of MILA Mortgage Acceptance, Inc. Trust Series
____-__ will consist of the mortgage loans pledged to secure the notes. MILA
Mortgage Acceptance, Inc. Trust Series ____-__'s principal offices are in
__________, ________, in care of ________________, as Owner Trustee. MILA
Mortgage Acceptance, Inc. Trust Series ____-__'s fiscal year end is [December
31].
THE SPONSOR
The sponsor will be MILA Inc. The Sponsor was incorporated in the State
of Washington in 1989. The Sponsor is a full service lender who originates and
acquires a wide variety of mortgage loan types
The sponsor maintains its principal office at 6021 244th Street SW,
Mountlake Terrace, WA, 98043. Its telephone number is (800) 332-6452.
The sponsor has been securitizing residential mortgage loans since
_______. [The following table describes size, composition and growth of the
sponsor's total portfolio of assets it has securitized as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
[_______] will also act as servicer [or master servicer] for the
mortgage pool. [_______] will service the mortgage loans in accordance with the
description of the applicable servicing procedures contained in the prospectus
under "Servicing of Mortgage Loans" and "Description of the Securities."
[_______] has been servicing residential mortgage loans since _______.
[The following table describes size, composition and growth of the sponsor's
total residential mortgage loan servicing portfolio as of the dates indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
[Describe any material changes in the sponsor's servicing policies and
procedures for residential mortgage loans, any failure of sponsor to make any
required advance as to any securitization and any default or early amortization
triggering event as to any prior securitization that occurred due to servicing,
over the preceding three years.]
THE DEPOSITOR
The depositor will be MILA Mortgage Acceptance, Inc. for each series of
securities unless otherwise indicated in the related prospectus supplement. The
depositor was formed in the State of Delaware on June 21, 2005 as a wholly-owned
subsidiary of MILA, Inc., a Washington corporation. The depositor was organized
for the purpose of serving as a private secondary mortgage market conduit. The
depositor does not have, nor is it expected in the future to have, any
significant assets. After issuance and registration of the securities
contemplated in this prospectus and any supplement hereto, the depositor will
have no duties or responsibilities with respect to the pool assets or the
securities.
The depositor maintains its principal office at 6021 244th Street SW,
Mountlake Terrace, WA 98043. Its telephone number is (800) 332-6452.
[The depositor has been serving as a private secondary mortgage market
conduit for residential mortgage loans since _______. Since that time it has
been involved in the issuance of securities backed by residential mortgage loans
in excess of $[____].]
The depositor has been securitizing residential mortgage loans since
_______. [The following table describes size, composition and growth of the
depositor's total portfolio of assets it has securitized as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
THE OWNER TRUSTEE
_________________ is the Owner Trustee under the Owner Trust Agreement.
The Owner Trustee is a _________ banking corporation and its principal offices
are located in _____________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to MILA Mortgage Acceptance, Inc.
Trust Series ____-__ or the noteholders under the Owner Trust Agreement under
any circumstances, except for the Owner Trustee's own misconduct, gross
negligence, bad faith or grossly negligent failure to act or in the case of the
inaccuracy of some representations made by the Owner Trustee in the Owner Trust
Agreement. All persons into which the Owner Trustee may be merged or with which
it may be consolidated or any person resulting from that merger or consolidation
shall be the successor of the Owner Trustee under the Owner Trust Agreement.
The principal compensation to be paid to the Owner Trustee in respect
of its obligations under the Owner Trust Agreement will have been paid by or on
behalf of MILA Mortgage Acceptance, Inc. Trust Series ____-__ on or prior to the
Closing Date.
THE INDENTURE TRUSTEE
____________________, a ____________ banking association, will act as
Indenture Trustee for the notes pursuant to the Indenture. The Indenture
Trustee's offices for notices under the Indenture are located at
______________________________ and its telephone number is ______________. The
Depositor and the Master Servicer and their affiliates may maintain other
banking relationships in the ordinary course of business with the Indenture
Trustee.
[Description of the extent of Indenture Trustee's prior experience
serving as an indenture trustee for asset-backed securities transactions
involving mortgage pools of first lien [fixed][adjustable] rate mortgage loans
secured by one- to four-family residential real properties and individual
condominium units.]
The Indenture Trustee, prior to the occurrence of an Event of Default
and after the curing or waiver of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in the Indenture.
If an Event of Default has occurred and has not been cured or waived,
the Indenture Trustee shall exercise such of the rights and powers vested in it
by the Indenture, using the same degree of care and skill in their exercise, as
a prudent person would exercise under the circumstances in the conduct of his
own affairs. Such rights and powers may include the ability:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Indenture Trustee (including any
claim for reasonable compensation to the Indenture Trustee and each
predecessor Indenture Trustee, and their respective agents, attorneys
and counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence,
willful misconduct or bad faith) and of the Noteholders allowed in such
proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or person performing similar functions in any such
proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf, and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to MILA Mortgage Acceptance, Inc. Trust
Series ____-__, its creditors and its property.
The Indenture Trustee will promptly mail to each Noteholder notice of the Event
of Default after it is known to a responsible officer of the Indenture Trustee,
unless such Event of Default shall have been waived or cured.
The Indenture will provide that the Indenture Trustee may withdraw
funds from the Distribution Account (i) to reimburse itself for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection and
including reasonable compensation and expenses, disbursements and advances of
its agents, counsel, accountants and experts and (ii) to reimburse the Owner
Trustee for all reasonable out-of pocket expenses incurred or made by the Owner
Trustee for all services rendered by the Owner Trustee it in the Owner Trustee's
execution of the trust created under the Owner Trust Agreement and in the
exercise and performance of any of the Owner Trustee's powers and duties under
the Owner Trust Agreement. Under the Indenture, MILA Mortgage Acceptance, Inc.
Trust Series ____-__ (from the assets of the Trust Estate) shall indemnify the
Indenture Trustee against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by the Indenture Trustee in connection with
the administration of the Trust Estate and the performance of the Indenture
Trustee's duties under this prospectus supplement. MILA Mortgage Acceptance,
Inc. Trust Series ____-__ is not required, however, to reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.
THE SERVICING AGREEMENT
The following summary describes a number of terms of the Servicing
Agreement, dated as of __________ __, ____, among MILA Mortgage Acceptance, Inc.
Trust Series ____-__, the Indenture Trustee, the Master Servicer and the
Servicer. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Servicing
Agreement. Whenever particular sections or defined terms of the Servicing
Agreement are referred to, those sections or defined terms are incorporated in
this prospectus supplement by reference. The Depositor will provide to a
prospective or actual noteholder without charge, on written request, a copy
(without exhibits) of the Servicing Agreement. Requests should be addressed to
the ____________, MILA Mortgage Acceptance, Inc., 6021 244th Street SW,
Mountlake Terrace, WA 98043.
ORIGINATORS AND SERVICERS
[See version 1 of the prospectus supplement]
[NAME OF ORIGINATOR]
[Name of Originator] has been an originator of mortgage loans since
_______, ____ and has originated Mortgage Loans of the type backing the notes
offered hereby since ____. [Name of Originator] currently has an origination
portfolio of approximately $[__], of which approximately $[__] is secured by
one- to four-family residential real properties and individual condominium
units.
[The following table describes the size, composition and growth of
[Name of Originator]'s total residential mortgage loan production over the past
three years and recent stub-period.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Residential Mortage
Loans..............
Approximately [__]% of the mortgage loans have been originated
generally in accordance with credit, appraisal and underwriting standards
acceptable to [Name of Originator], which are referred to herein as the
Underwriting Standards. The Underwriting Standards are applied in accordance
with applicable federal and state laws and regulations.
[Description of the Originator's Underwriting Standards]
[NAME OF SERVICER]
The principal executive offices of [Name of Servicer] are located at
______________. [Name of Servicer] is a [Description of Servicer's form of
organization].
[Name of Servicer] is an approved mortgage loan servicer for Fannie
Mae, Freddie Mac, Ginnie Mae, HUD and VA and is licensed to service mortgage
loans in each state where a license is required. Its loan servicing activities
are guaranteed by ___________ when required by the owner of the mortgage loans.
As of _______, ____ [Name of Servicer] had a net worth of approximately $[___].
[The following table describes size, composition and growth of [Name of
Servicer]'s total residential mortgage loan servicing portfolio as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Residential Mortage
Loans..............
[Describe any material changes in [Name of Servicer]'s servicing
policies and procedures for residential mortgage loans, any failure to make any
required advance as to any securitization, and any default or early amortization
triggering event as to any prior securitization that occurred due to servicing,
over the preceding three years.]
Pursuant to the related Servicing Agreement, ____________ will serve as
Servicer for the mortgage loans sold indirectly by it to the Depositor.
Notwithstanding the foregoing, the Master Servicer and ___________ have advised
the Depositor that with respect to a portion of the mortgage loans initially to
be serviced by _____________, the servicing thereof is expected to be
transferred to the Master Servicer, whereupon the Master Servicer will act in
the capacity as "Servicer" under the applicable Servicing Agreement to the
extent of those mortgage loans. That portion of the mortgage loans that is
expected to be subject to that servicing transfer represents approximately
_____% of the mortgage loans, by aggregate principal balance as of the Cut-off
Date.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee to be paid to each Servicer in respect of its
servicing activities for the notes will be equal to accrued interest at the
Servicing Fee Rate of ____% per annum with respect to each mortgage loan
serviced by it for each calendar month on the same principal balance on which
interest on that mortgage loan accrues for that calendar month. As additional
servicing compensation, each Servicer is entitled to retain all assumption fees
and late payment charges in respect of mortgage loans serviced by it, to the
extent collected from mortgagors, together with any interest or other income
earned on funds held in the Distribution Account (to the extent not payable as
compensation to the Indenture Trustee) and any escrow accounts in respect of
mortgage loans serviced by it.
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of that prepayment, instead of for a
full month. When a partial principal prepayment is made on a mortgage loan, the
mortgagor is not charged interest on the amount of that prepayment for the month
in which that prepayment is made. Each Servicer is obligated to pay Compensating
Interest from its own funds a Prepayment Interest Shortfall, but only to the
extent of its aggregate Servicing Fee for the related Due Period. Each Servicer
is obligated to pay various insurance premiums and ongoing expenses associated
with the mortgage pool in respect of mortgage loans serviced by it and incurred
by that Servicer in connection with its responsibilities under the related
Servicing Agreement and is entitled to reimbursement therefor as provided in
that Servicing Agreement. With respect to the mortgage loans serviced by
_________, _________ will also be entitled to reimbursement of servicing
advances and principal and interest advances made by it as servicer of those
mortgage loans prior to the Cut-off Date. SEE "DESCRIPTION OF THE
SECURITIES--RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES"
IN THE PROSPECTUS for information regarding expenses payable by the Servicers.
PERMITTED INVESTMENTS
The Servicers will be responsible for the servicing of the mortgage
loans covered by the related Servicing Agreement, and the Master Servicer will
be required to monitor their performance. All collections of principal and
interest on any mortgage loans, including but not limited to Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds (less amounts reimbursable
to the applicable Servicer out of Liquidation Proceeds in accordance with the
applicable Servicing Agreement), the Repurchase Price for any mortgage loans
repurchased, and advances made from the Servicer's own funds (less the servicing
fee) will be deposited in a Protected Account, held by a designated depository
institution and segregated on the books of such institution in the name of the
Indenture Trustee for the benefit of Noteholders. To the extent provided in the
Servicing Agreement, amounts on deposit in a Protected Account may be invested
in Permitted Investments in the name of the Securities Administrator on behalf
of the Indenture Trustee for the benefit of Noteholders and not commingled with
any other funds. Such Permitted Investments shall mature, or shall be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn for deposit in the Distribution Account, and shall be
held until required for such deposit. The income earned from Permitted
Investments made shall be paid to the Servicer under the Servicing Agreement,
and the risk of loss of moneys required to be distributed to the Noteholders
resulting from such investments shall be borne by and be the risk of the
Servicer. The Servicer (to the extent provided in the Servicing Agreement) shall
deposit the amount of any such loss in the Protected Account within two Business
Days of receipt of notification of such loss but not later than the second
Business Day prior to the Servicer Remittance Date on which the moneys so
invested are required to be distributed to the Securities Administrator.
Any one or more of the following obligations or securities held in the
name of the Indenture Trustee for the benefit of the Noteholders will be
considered a Permitted Investment:
(i) obligations of or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than one month from the date of acquisition thereof,
provided that the unsecured obligations of the party agreeing to repurchase such
obligations are at the time rated by each Rating Agency in its highest
short-term rating available;
(iii) federal funds, certificates of deposit, demand deposits,
time deposits and bankers' acceptances (which shall each have an original
maturity of not more than 90 days and, in the case of bankers' acceptances,
shall in no event have an original maturity of more than 365 days or a remaining
maturity of more than 30 days) denominated in United States dollars of any U.S.
depository institution or trust company incorporated under the laws of the
United States or any state thereof or of any domestic branch of a foreign
depository institution or trust company; provided that the debt obligations of
such depository institution or trust company (or, if the only Rating Agency is
Standard & Poor's, in the case of the principal depository institution in a
depository institution holding company, debt obligations of the depository
institution holding company) at the date of acquisition thereof have been rated
by each Rating Agency in its highest short-term rating available; and provided
further that, if the only Rating Agency is Standard & Poor's or Fitch Ratings
and if the depository or trust company is a principal subsidiary of a bank
holding company and the debt obligations of such subsidiary are not separately
rated, the applicable rating shall be that of the bank holding company; and,
provided further that, if the original maturity of such short-term obligations
of a domestic branch of a foreign depository institution or trust company shall
exceed 30 days, the short-term rating of such institution shall be A-1+ in the
case of Standard & Poor's if Standard & Poor's is the Rating Agency;
(iv) commercial paper (having original maturities of not more
than 365 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated by
Moody's, Fitch Ratings and Standard & Poor's in their highest short-term ratings
available; provided that such commercial paper shall have a remaining maturity
of not more than 30 days;
(v) a money market fund or a qualified investment fund rated
by Moody's and Fitch Ratings, if so rated, in its highest long-term ratings
available and rated AAAm or AAAm-G by Standard & Poor's, including any such
funds for which Wells Fargo Bank, N.A. or any affiliate thereof serves as an
investment advisor, manager, administrator, shareholder, servicing agent, and/or
custodian or sub-custodian; and
(vi) other obligations or securities that are acceptable to
each Rating Agency as a Permitted Investment hereunder and will not reduce the
rating assigned to any Class of Certificates by such Rating Agency below the
lower of the then-current rating or the rating assigned to such Certificates as
of the Closing Date by such Rating Agency, as evidenced in writing;
PROVIDED, HOWEVER, that no instrument shall be a Permitted Investment
if it represents, either (1) the right to receive only interest payments with
respect to the underlying debt instrument or (2) the right to receive both
principal and interest payments derived from obligations underlying such
instrument and the principal and interest payments with respect to such
instrument provide a yield to maturity greater than 120% of the yield to
maturity at par of such underlying obligations. SEE "DESCRIPTION OF THE
SECURITIES-THE DISTRIBUTION ACCOUNT" IN THE PROSPECTUS.
TABLE OF FEES AND EXPENSES
The following table indicates the fees and expenses to be paid from the
cash flows from the mortgage loans and other assets of the trust fund, while the
Notes are outstanding.
All fees are expressed in basis points, at an annualized rate, applied
to the outstanding aggregate principal balance of the mortgage loans.
ITEM FEE PAID FROM
-------------------------- ------ ----------------------------------
Master Servicing Fee(1)(2) ___bp Mortgage Loan Interest Collections
Indenture Trustee Fee ___bp Master Servicing Fee
Servicer Fee ___bp Master Servicing Fee
(1) Master servicing fee including securities administrator,
paying agent and certificate registrar fees. The Master
Servicer receives a single combined fee that covers all of
these functions. The Master Servicer performs these functions.
(2) Master Servicer pays indenture trustee and servicer fees out
of its fee.
(3) The master servicing fee is paid on a first priority basis
from collections allocable to interest on the mortgage loans,
prior to distributions to noteholders.
SERVICER EVENTS OF DEFAULT
In addition to those Events of Default (as defined in the prospectus)
pertaining to the servicing of the mortgage loans and described under
"Description of the Securities--Events of Default" in the prospectus, upon the
occurrence of various loss triggers with respect to the mortgage loans, the
Servicer may be removed as servicer of the mortgage loans serviced by it in
accordance with the terms of the related Servicing Agreement. If any Servicer is
removed in connection with an Event of Default applicable to that Servicer under
the terms of the related Servicing Agreement, the Master Servicer will become
the successor Servicer of the mortgage loans serviced by that terminated
Servicer.
THE MASTER SERVICER
[Name of Master Servicer] ("[Name of Master Servicer]") will act as
Securities Administrator and Master Servicer under the Servicing Agreement.
[Name of Master Servicer] is a [form of organization]. [Description of Master
Servicer's business]. The [Depositor, the Sponsor and the Servicer] may maintain
banking and other commercial relationships with [Name of Master Servicer] and
its affiliates. [Name of Master Servicer]'s principal corporate trust offices
are located at _______________________ and its office for certificate transfer
services is located at ___________________.
[Name of Master Servicer] acts as Master Servicer pursuant to the
Servicing Agreement. The Master Servicer is responsible for the aggregation of
monthly Servicer reports and remittances and for the oversight of the
performance of the Servicers under the terms of their respective [Servicing
Agreements]. In addition, upon the occurrence of certain Servicer events of
default under the terms of [any Servicing Agreement], the Master Servicer may be
required to enforce certain remedies on behalf of the Trust [and at the
direction of the Indenture Trustee] against such defaulting Servicer. As of
__________, [Name of Master Servicer] was acting as master servicer for
approximately ____ series of residential mortgage-backed securities with an
aggregate outstanding principal balance of approximately $___________.
[The following table describes size, composition and growth of [Name of
Master Servicer]'s total residential mortgage loan servicing portfolio as of the
dates indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
----------------- ------------------- ------------------ -------------------
TOTAL TOTAL TOTAL TOTAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS NUMBER OF LOANS
- --------------------- ------ -------- ------ -------- ------ -------- ------ --------
Residential Mortage
Loans..............
[Describe any material changes in [Name of Master Servicer]'s servicing
policies and procedures for residential mortgage loans, any failure to make any
required advance as to any securitization, and any default or early amortization
triggering event as to any prior securitization that occurred due to servicing,
over the preceding three years.]
The Master Servicer shall not be under any liability to the Trust or
the Noteholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Servicing Agreement, or for errors in
judgment except that the Master Servicer shall be liable for any breach of
warranties or representations made in the Servicing Agreement. In addition the
Master Servicer shall be liable for willful misfeasance, bad faith or gross
negligence in the performance of its duties or for reckless disregard of its
obligations and duties under the transaction documents. The Master Servicer and
any director, officer, employee or agent of the Master Servicer may rely in good
faith on any document of any kind PRIMA FACIE properly executed and submitted by
any Person respecting any matters arising under the transaction documents The
Master Servicer and any director, officer, employee or agent of the Master
Servicer shall be indemnified and held harmless by the Trust, against any loss,
liability or expense incurred in connection with the Servicing Agreement or the
Notes or the Mortgage Loans (including, without limitation, reasonable legal
fees and disbursements of counsel), other than (a) any loss, liability or
expense related to the Master Servicer's failure to perform its master servicing
obligations with respect to any specific Mortgage Loan or Mortgage Loans (except
as any such loss, liability or expense shall be otherwise reimbursable pursuant
to the Servicing Agreement) or (b) any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties by reason of reckless disregard of obligations and duties under
the Servicing Agreement.
The Master Servicer may sell and assign its rights and delegate its
duties and obligations in their entirety as Master Servicer according to the
terms of the Servicing Agreement; PROVIDED, HOWEVER, that: (i) the purchaser or
transferee accepting such assignment and delegation (a) shall be a person which
shall be qualified to service Mortgage Loans for Fannie Mae or Freddie Mac; (b)
shall, in the case of successor master servicers only, have a net worth of not
less than $10,000,000 (unless otherwise approved by each Rating Agency pursuant
to clause (ii) below); (c) shall execute and deliver to the Indenture Trustee an
agreement, in form and substance reasonably satisfactory to the Indenture
Trustee, which contains an assumption by such person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by it as master servicer under the servicing agreement and any
custodial agreement, from and after the effective date of such agreement; (ii)
each Rating Agency shall be given prior written notice of the identity of the
proposed successor to the Master Servicer and each Rating Agency's rating of the
Notes in effect immediately prior to such assignment, sale and delegation will
not be downgraded or withdrawn as a result of such assignment, sale and
delegation, as evidenced by a letter to such effect obtained by the Master
Servicer at its expense and delivered to the Indenture Trustee; and (iii) the
Master Servicer assigning and selling the master servicing shall deliver to the
Indenture Trustee an officer's certificate and an opinion of counsel (at the
expense of the Master Servicer), each stating that all conditions precedent to
such action have been completed and such action is permitted by and complies
with the terms of the Indenture and related Servicing Agreement. No such
assignment or delegation shall affect any liability of the Master Servicer
arising prior to the effective date thereof.
THE INDENTURE AND OWNER TRUST AGREEMENT
The following summary describes some of the terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Owner Trust Agreement and
Indenture. Whenever particular defined terms of the Indenture are referred to,
those defined terms are incorporated in this prospectus supplement by reference.
The Depositor will provide to a prospective or actual noteholder without charge,
on written request, a copy (without exhibits) of the Indenture and the Owner
Trust Agreement. Requests should be addressed to the ____________, MILA Mortgage
Acceptance, Inc., 6021 244th Street SW, Mountlake Terrace, WA 98043.
GENERAL
The notes will be issued pursuant to the Indenture, a form of which is
filed as an exhibit to the registration statement. A Current Report on Form 8-K
relating to the notes containing a copy of the Indenture and the Owner Trust
Agreement as executed will be filed by the Depositor with the Securities and
Exchange Commission after the initial issuance of the notes. Reference is made
to the prospectus for important information in addition to that presented in
this prospectus supplement regarding the Trust Estate, the terms and conditions
of the Indenture and the Owner Trust Agreement and the notes. The notes will be
transferable and exchangeable at the corporate trust offices of the Indenture
Trustee, located in _______________.
ASSIGNMENT OF MORTGAGE LOANS
On or prior to the date the notes are issued, the Sponsor will convey
each mortgage loan to __________, who in turn will convey each that mortgage
loan to the Depositor, who in turn will convey each mortgage loan to MILA
Mortgage Acceptance, Inc. Trust Series ____-__.
At the time of issuance of the notes, MILA Mortgage Acceptance, Inc.
Trust Series ____-__ will pledge all of its right, title and interest in and to
the mortgage loans, including all principal and interest due on that mortgage
loan after the Cut-off Dates, without recourse, to the Indenture Trustee
pursuant to the Indenture as collateral for the notes; provided, however, that
the Sponsor will reserve and retain all its right, title and interest in and to
principal and interest due on that mortgage loan on or prior to the Cut-off Date
(whether or not received on or prior to the Cut-off Date), and to prepayments
received prior to the Cut-off Date. The Indenture Trustee, concurrently with
that assignment, will authenticate and deliver the notes at the direction of
MILA Mortgage Acceptance, Inc. Trust Series ____-__ in exchange for, among other
things, the mortgage loans.
The Indenture will require MILA Mortgage Acceptance, Inc. Trust Series
____-__ to deliver to the Indenture Trustee or to a custodian with respect to
each mortgage loan (i) the mortgage note endorsed without recourse to the
Indenture Trustee, (ii) the original mortgage with evidence of recording
indicated on that mortgage and (iii) an assignment of the mortgage in recordable
form to the Indenture Trustee. Those assignments of mortgage loans are required
to be recorded by or on behalf of the Sponsor, at the expense of the Sponsor, in
the appropriate offices for real property records.
EVENTS OF DEFAULT
Notwithstanding, the prospectus, if an Event of Default occurs and is
continuing, the Indenture Trustee or the holders of a majority of the Voting
Rights may declare the Note Balance of all the notes to be due and payable
immediately. That declaration may, under various circumstances, be rescinded and
annulled by the holders of a majority of the aggregate outstanding Voting
Rights.
If following an Event of Default, the notes have been declared to be
due and payable, the Indenture Trustee may, in its discretion, notwithstanding
that acceleration, elect to maintain possession of the collateral securing the
notes and to continue to apply payments on that collateral as if there had been
no declaration of acceleration if that collateral continues to provide
sufficient funds for the payment of principal of and interest on the notes as
they would have become due if there had not been that declaration. In addition,
the Indenture Trustee may not sell or otherwise liquidate the collateral
securing the notes following an Event of Default, unless (a) the holders of 100%
of the then aggregate outstanding Voting Rights consent to that sale, (b) the
proceeds of that sale or liquidation are sufficient to pay in full the principal
of and accrued interest, due and unpaid at their respective Note Accrual Rates,
on the outstanding notes at the date of that sale or (c) the Indenture Trustee
determines that the collateral would not be sufficient on an ongoing basis to
make all payments on those notes as those payments would have become due if
those notes had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders of 66 2/3% of the then aggregate outstanding
Voting Rights.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default, the Indenture provides that the Indenture
Trustee will have a prior lien on the proceeds of that liquidation for unpaid
fees and expenses. As a result, upon the occurrence of that Event of Default,
the amount available for payments to the noteholders would be less than would
otherwise be the case. However, the Indenture Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the noteholders after the occurrence of that Event of Default.
In the event the principal of the notes is declared due and payable, as
described above, the holders of any those notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of that discount that is unamortized.
No noteholder will have any right under the Indenture to institute any
proceeding with respect to that Indenture unless (a) that holder previously has
given to the Indenture Trustee written notice of default and the continuance
thereof, (b) the holders of notes of any class evidencing not less than 25% of
the aggregate outstanding Note Balance constituting that class (i) have made
written request upon the Indenture Trustee to institute that proceeding in its
own name as Indenture Trustee under the Indenture and (ii) have offered to the
Indenture Trustee reasonable indemnity, (c) the Indenture Trustee has neglected
or refused to institute that proceeding for 60 days after receipt of that
request and indemnity and (d) no direction inconsistent with that written
request has been given to the Indenture Trustee during that 60 day period by the
holders of a majority of the Note Balance of that class. However, the Indenture
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Indenture or to institute, conduct or defend any litigation
under that Indenture or in relation thereto at the request, order or direction
of any of the holders of notes covered by that Indenture, unless those holders
have offered to the Indenture Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or thereby.
VOTING RIGHTS
At all times, 100% of all Voting Rights will be allocated among the
holders of the Class A Notes (or, after the Class A Notes have been paid in
full, the class of Subordinate Notes then outstanding with the lowest numerical
class designation) in proportion to the then outstanding Note Balances of their
respective notes.
OPTIONAL REDEMPTION
The circumstances under which the obligations created by the Indenture
will terminate in respect of the notes are described in "Description of the
Securities--Termination" in the prospectus.
At its option, the majority holder of the Equity Certificates may
redeem the notes, in whole but not in part, on any Payment Date on or after the
Payment Date on which the aggregate Note Balance is reduced to less than 20% of
the aggregate initial Note Balance. That redemption will be paid in cash at a
price equal to the sum of (w) 100% of the aggregate Note Balance then
outstanding, (x) the aggregate of any Allocated Realized Loss Amounts on the
notes remaining unpaid immediately prior to that Payment Date, (y) the aggregate
of the Interest Payment Amounts on the notes for that Payment Date and (z) the
aggregate of any Interest Carry Forward Amounts for that Payment Date. Upon that
redemption, the remaining assets in the Trust Estate shall be released from the
lien of the Indenture.
In addition, with respect to the ____-___ Mortgage Loans, the majority
holder of the Equity Certificates may at its option obtain the release of that
portion of the mortgage pool (together with any properties acquired in respect
thereof) remaining in the Trust Estate from the lien of the Indenture, and in
connection therewith effect a partial redemption of the notes, on any Payment
Date on or after the Payment Date following the Due Period in which the
aggregate principal balance of the ____-___ Mortgage Loans (and properties
acquired in respect thereof) remaining in the Trust Estate is reduced to less
than $_____________. The ____-___ Mortgage Loans have an aggregate principal
balance of approximately $__________ as of the Cut-off Date. That redemption
shall be paid in cash at a price generally equal to the sum of (x) 100% of the
then-outstanding principal balance of that mortgage loan plus accrued interest
on that mortgage loan at their respective mortgage rates through the last day of
the calendar month preceding the month in which that redemption occurs, (y) the
then fair market value of that property and (z) the amount of any servicing
advances reimbursable to the related Servicer in respect of those mortgage
loans. For purposes of payments on the notes and Equity Certificates on the
Payment Date of that redemption, that redemption price shall be applied by the
Indenture Trustee as a final liquidation of each of those mortgage loans and
properties. The redemption price relating to those properties, at their then
fair market value, may result in a shortfall in payment to, and/or the
allocation of Realized Losses to, one or more classes of the notes. Furthermore,
the Master Servicing Fee, the Servicing Fee and the Indenture Trustee Fee, as
well as expenses and reimbursements permitted to be paid from the assets of the
Trust Estate under the Indenture or the applicable Servicing Agreement, in each
case to the extent payable or reimbursable with respect to those mortgage loans,
will be payable from the amount received in respect of that redemption price and
therefore, as provided in the Indenture, will be excluded from the Available
Payment Amount for the Payment Date of that redemption.
In no event will the trust created by the Indenture continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the Indenture. SEE "THE AGREEMENTS--TERMINATION; RETIREMENT OF THE SECURITIES"
IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood LLP, counsel to
the Depositor, will deliver its opinion generally to the effect that based on
the application of existing law and assuming compliance with the Owner Trust
Agreement, for federal income tax purposes, (a) the notes will be characterized
as indebtedness to a noteholder, other than the owner of the Equity
Certificates, and not as representing an ownership interest in the Trust Estate
or an equity interest in MILA Mortgage Acceptance, Inc. Trust Series ____-__ or
the Depositor and (b) MILA Mortgage Acceptance, Inc. Trust Series ____-__ will
not be (i) classified as an association taxable as a corporation for federal
income tax purposes, (ii) a "publicly traded partnership" as defined in Treasury
Regulation Section 1.7704 or (iii) a "taxable mortgage pool" within the meaning
of Section 7701(i) of the Code. The notes will not be treated as having been
issued with "original issue discount" (as defined in the prospectus). The
prepayment assumption that will be used in determining the rate of amortization
of market discount and premium, if any, for federal income tax purposes will be
based on the assumption that the mortgage loans will prepay at a rate equal to
__% CPR. No representation is made that the mortgage loans will prepay at that
rate or at any other rate. SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THE
PROSPECTUS.
The notes will not be treated as assets described in Section
7701(a)(19)(C) of the Code or "real estate assets" under Section 856(c)(4)(A) of
the Code. In addition, interest on the notes will not be treated as "interest on
obligations secured by mortgages on real property" under Section 856(c)(3)(B) of
the Code. The notes will also not be treated as "qualified mortgages" under
Section 860G(a)(3)(C) of the Code.
Prospective investors in the notes should SEE "FEDERAL INCOME TAX
CONSEQUENCES" AND "STATE AND OTHER TAX CONSEQUENCES" in the prospectus for a
discussion of the application of some federal income and state and local tax
laws to MILA Mortgage Acceptance, Inc. Trust Series ____-__ and purchasers of
the notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions provided in the Underwriting
Agreement, dated ________ __, ____, the Depositor has agreed to sell, and the
Underwriter has agreed to purchase the notes. The Underwriter is obligated to
purchase all notes of the respective classes offered by this prospectus
supplement if it purchases any. The Underwriter is an affiliate of the
Depositor.
The notes will be purchased from the Depositor by the Underwriter and
will be offered by the Underwriter to the public from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the notes, before deducting
expenses payable by the Depositor, will be approximately ___% of the aggregate
initial Note Balance of the notes. In connection with the purchase and sale of
the notes, the Underwriter may be deemed to have received compensation from the
Depositor in the form of underwriting discounts.
The offered notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the offered notes will be made through the
facilities of DTC on or about the Closing Date.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against some civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There can be no assurance that a secondary market for the notes will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the notes will be the monthly
statements discussed in the prospectus under "Description of the
Securities--Reports to Securityholders", which will include information as to
the outstanding principal balance of the notes and the status of the applicable
form of credit enhancement. There can be no assurance that any additional
information regarding the notes will be available through any other source. In
addition, the Depositor is not aware of any source through which price
information about the notes will be generally available on an ongoing basis. The
limited nature of that information regarding the notes may adversely affect the
liquidity of the notes, even if a secondary market for the notes becomes
available.
LEGAL OPINIONS
Legal matters relating to the offered certificates will be passed upon
for the Depositor by Thacher Proffitt & Wood LLP, New York, New York and for the
Underwriter by [______________________].
LEGAL PROCEEDINGS
[There are no material legal proceedings pending against the Sponsor,
the Depositor, the Trustee, The Issuing Entity, the Master Servicer, [any
affiliated Servicer, any 20% concentration unaffiliated Servicer, any 20%
concentration Originator], the Securities Administrator or the Custodians, or
with respect to which the property of any of the foregoing transaction parties
is subject, that are material to the Certificateholders. No legal proceedings
against any of the foregoing transaction parties is known to be contemplated by
governmental authorities, that are material to the Certificateholders.]
AFFILIATIONS, RELATIONSHIPS AND RELATED TRANSACTIONS
[There are no affiliations between the Sponsor, the Depositor or the
Issuing Entity and any of the Master Servicer, [any affiliated Servicer, any 20%
concentration unaffiliated Servicer], the Trustee, [any 10% concentration
Originator], [any credit enhancement provider or derivatives counterparty], the
Securities Administrator or the Custodians. There are no affiliations among the
Master Servicer, [any affiliated Servicer, any 20% concentration unaffiliated
Servicer], the Trustee, [any 10% concentration Originator], [any credit
enhancement provider or derivatives counterparty], the Securities Administrator
or the Custodians. There are currently no business relationships, agreements,
arrangements, transactions or understandings between (a) the Sponsor, the
Depositor or the Issuing entity and (b) any of the parties referred to in the
preceding sentence, or any of their respective affiliates, that were entered
into outside the normal course of business or that contain terms other than
would be obtained in an arm's length transaction with an unrelated third party
and that are material to the investor's understanding of the Certificates, or
that relate to the Certificates or the pooled assets. No such business
relationship, agreement, arrangement, transaction or understanding has existed
during the past two years.]
RATINGS
It is a condition of the issuance of the notes that the Class A Notes
be rated "AAA" by _____________ and "AAA" by _______________, that the Class M-1
Notes be rated at least "AA" by ____ and at least "AA" by ____, that the Class
M-2 Notes be rated at least "A" by ____ and at least "A" by _____ and that the
Class M-3 Notes be rated at least "BBB" by _____.
The ratings of _____ and _____ assigned to the notes address the
likelihood of the receipt by noteholders of all payments to which those
noteholders are entitled, other than payments of interest to the extent of any
Interest Carry Forward Amounts. The rating process addresses structural and
legal aspects associated with the notes, including the nature of the underlying
mortgage loans. The ratings assigned to the notes do not represent any
assessment of the likelihood that principal prepayments will be made by the
mortgagors or the degree to which the rate of those prepayments will differ from
that originally anticipated. The ratings do not address the possibility that
noteholders might suffer a lower than anticipated yield due to non-credit
events.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the notes are subsequently lowered for any reason, no
person or entity is obligated to provide any additional credit support or credit
enhancement with respect to the notes.
The Depositor has not requested that any rating agency rate the notes
other than as stated above. However, there can be no assurance as to whether any
other rating agency will rate the notes, or, if it does, what rating would be
assigned by another rating agency. A rating on the notes by another rating
agency, if assigned at all, may be lower than the ratings assigned to the notes
as stated above.
The rating agencies have stated that it is their standard policy to
monitor ratings on publicly offered securities for which a rating has been
provided, as to each rating agency rating each class of offered Notes in
accordance with the rating agencies' particular surveillance policies, unless
the issuing entity requests a rating without surveillance. A rating agency will
monitor the rating it issues on an ongoing basis and may update the rating after
conducting its regular review of the issuing entity's creditworthiness or after
conducting a review of the status of the rating upon becoming aware of any
information that might reasonably be expected to result in a change of rating.
The Depositor has not requested that any rating agency not monitor their ratings
of the offered Notes, and the Depositor has not requested that any rating agency
use any monitoring procedures other than their standard monitoring procedures.
AVAILABLE INFORMATION
The depositor is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports and other information
with the Commission. Reports and other information filed by the depositor can be
inspected and copied at the Public Reference Room maintained by the Commission
at 100 F Street NE, Washington, DC 20549, and its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison, 14th Floor, Chicago,
Illinois 60661; New York Regional Office, 233 Broadway, New York, New York
10279. Copies of the material can also be obtained from the Public Reference
Section of the Commission, 100 F Street NE, Washington, DC 20549, at prescribed
rates and electronically through the Commission's Electronic Data Gathering,
Analysis and Retrieval system at the Commission's Website (http://www.sec.gov).
Information about the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at (800) SEC-0330. Exchange Act
reports as to any series filed with the Commission will be filed under the
issuing entity's name. The depositor does not intend to send any financial
reports to securityholders.
The issuing entity's annual reports on Form 10-K (including reports of
assessment of compliance with the AB Servicing Criteria, attestation reports,
and statements of compliance, discussed in "Description of the Securities --
Reports to Securityholders" and "Servicing of Mortgage Loans -- Evidence as to
Compliance", required to be filed under Regulation AB), periodic distribution
reports on Form 10-D, current reports on Form 8-K and amendments to those
reports, together with such other reports to security holders or information
about the securities as shall have been filed with the Commission will be posted
on the [sponsor's][depositor's] internet web site as soon as reasonably
practicable after it has been electronically filed with, or furnished to, the
Commission. The address of the website is: __________________.
The prospectus and this prospectus supplement do not contain all of the
information set forth in the registration statement (of which the prospectus
forms a part) and exhibits thereto which the depositor has filed with the
Commission under the Securities Act and to which reference is hereby made.
REPORTS TO SECURITYHOLDERS
The master servicer or another designated person will be required to
provide periodic unaudited reports concerning the trust fund to all registered
holders of the offered securities with respect to each trust fund as are
required under the Exchange Act and the Commission's related rules and
regulations, and under the terms of the applicable agreements.
So long as it is required to file reports under the Exchange Act, those
reports will be made available as described above under "Available Information".
Periodic distribution reports will be posted on the
[sponsor's][depositor's] website referenced above under "Available Information"
as soon as practicable. Annual reports of assessment of compliance with the AB
Servicing Criteria, attestation reports, and statements of compliance will be
provided to registered holders of the securities upon request free of charge.
See "Servicing of Mortgage Loans -- Evidence as to Compliance" and "Description
of the Securities -- Reports to Securityholders."
LEGAL INVESTMENT
The Class A Notes and the Class M-1 Notes will constitute "mortgage
related securities" for purposes of SMMEA for so long as they are rated not
lower than the second highest rating category by a Rating Agency (as defined in
the prospectus) and, as such, will be legal investments for various entities to
the extent provided in SMMEA. SMMEA, however, provides for state limitation on
the authority of those entities to invest in "mortgage related securities",
provided that this restricting legislation was enacted prior to October 3, 1991.
Some states have enacted legislation which overrides the preemption provisions
of SMMEA. The Class M-2 Notes and the Class M-3 Notes will not constitute
"mortgage related securities" for purposes of SMMEA.
The Depositor makes no representations as to the proper
characterization of the notes for legal investment or other purposes, or as to
the ability of particular investors to purchase the notes under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of the notes. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their legal
advisors in determining whether and to what extent the notes constitute a legal
investment or are subject to investment, capital or other restrictions.
SEE "LEGAL INVESTMENT" IN THE PROSPECTUS.
ERISA CONSIDERATIONS
ERISA and the Code impose a number of requirements on Plans and on
persons who are fiduciaries with respect to those Plans. ERISA and the Code
prohibit various transactions involving the assets of a Plan and Disqualified
Persons and Parties in Interest who have a number of specified relationships to
the Plan. Accordingly, prior to making an investment in the notes, investing
Plans should determine whether MILA Mortgage Acceptance, Inc. Trust Series
____-__, the Depositor, the Sponsor, the Trust Estate, the Underwriter, any
other underwriter, the Owner Trustee, the Indenture Trustee, the Master
Servicer, the Servicers, any other servicer, any administrator, any provider of
credit support, or any insurer or any of their affiliates is a Party in Interest
or Disqualified Person with respect to that Plan and, if so, whether that
transaction is subject to one or more statutory or administrative exemptions.
Additionally, an investment of the assets of a Plan in securities may cause the
assets included in the Trust Estate to be deemed "Plan Assets" of that Plan, and
any person with specified relationships to the Trust Estate to be deemed a Party
in Interest or Disqualified Person. The DOL has promulgated the Plan Asset
Regulations defining the term "Plan Assets" for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code. Under the Plan Asset
Regulations, generally, when a Plan acquires an "equity interest" in another
entity (such as the Trust Estate), the underlying assets of that entity may be
considered to be Plan Assets. The Plan Asset Regulations provide that the term
"equity interest" means any interest in an entity other than an instrument which
is treated as indebtedness under applicable local law and which has no
"substantial equity features." Although not entirely free from doubt, it is
believed that, as of the date hereof, the notes will be treated as debt
obligations without significant equity features for the purposes of the Plan
Asset Regulations. However, there is increased uncertainty regarding the
characterization of debt instruments that do not carry an investment grade
rating. Consequently, in the event of a withdrawal or downgrade to below
investment grade of the rating of a class of notes, the subsequent transfer of
such notes or any interest therein to a Plan trustee or other person acting on
behalf of a Plan, or using Plan assets to effect such transfer, will be
restricted. By acquiring a note, each purchaser will be deemed to represent that
either (1) it is not acquiring the note with plan assets; or (2) (A) either (x)
none of MILA Mortgage Acceptance, Inc. Trust Series ____-__, the Depositor, the
Sponsor, the Indenture Trustee, the Owner Trustee, the Underwriter, the Master
Servicer, any other servicer, any provider of credit support or any of their
affiliates is a party in interest with respect to such purchaser that is an
ERISA plan or (y) PTCE 90-1, PTCE 91-38, PTCE 84-14, PTCE 95-60, PTCE 96-23 or
some other prohibited transaction exemption is applicable to the acquisition and
holding of the note by such purchaser and (B) the notes are rated investment
grade or better and such person believes that the notes are properly treated as
indebtedness without substantial equity features for purposes of the DOL
Regulations, and agrees to so treat the notes. Alternatively, regardless of the
rating of the notes, such person may provide the Indenture Trustee with an
opinion of counsel, which opinion of counsel will not be at the expense of the
Depositor, MILA Mortgage Acceptance, Inc. Trust Series ____-__, the Sponsor, the
Indenture Trustee, the Owner Trustee, the Underwriter, the Trust Estate, any
provider of credit support, the Master Servicer or any other servicer, which
opines that the purchase, holding and transfer of such note or interest therein
is permissible under applicable law, will not constitute or result in a non
exempt prohibited transaction under ERISA or Section 4975 of the Code and will
not subject the Depositor, MILA Mortgage Acceptance, Inc. Trust Series ____-__,
the Sponsor, the Indenture Trustee, the Owner Trustee, the Underwriter, the
Trust Estate, any provider of credit support, the Master Servicer or any other
servicer to any obligation in addition to those undertaken in the Indenture.
Because of the factual nature of some of the above-described provisions of
ERISA, the Code and the Plan Asset Regulations, Plans or persons investing Plan
Assets should carefully consider whether that investment might constitute or
give rise to a prohibited transaction under ERISA or the Code. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the notes are
encouraged to consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
those notes.
GLOSSARY
ADJUSTMENT DATE - With respect to the adjustable rate mortgage loans,
each date on which the related mortgage rate adjusts.
ALLOCATED REALIZED LOSS AMOUNT - With respect to any class of
Subordinate Notes and any Payment Date, the sum of (i) any Realized Loss
allocated to that class of Subordinate Notes on that Payment Date and (ii) any
Allocated Realized Loss Amount for that class remaining unpaid from previous
Payment Dates plus accrued interest on that class at the Note Accrual Rate for
that class.
AVAILABLE INTEREST RATE - With respect to any Payment Date, a rate per
annum equal to the fraction, expressed as a percentage, the numerator of which
is (i) the Current Interest Payment Amount for that Payment Date, and the
denominator of which is (ii) the aggregate Note Balance of the notes immediately
prior to that Payment Date multiplied by the actual number of days elapsed in
the related Interest Accrual Period and divided by 360.
AVAILABLE PAYMENT AMOUNT - With respect to the notes and any Payment
Date, an amount equal to the sum, net of amounts reimbursable therefrom to the
Master Servicer, the Servicers, the Indenture Trustee or the Owner Trustee, of
(i) the aggregate amount of scheduled monthly payments on the mortgage loans due
on the related Due Date and received on or prior to the related Determination
Date, after deduction of the Master Servicing Fee, the Servicing Fees and the
Indenture Trustee Fee, (ii) various unscheduled payments in respect of the
mortgage loans, including prepayments, insurance proceeds, liquidation proceeds
and proceeds from repurchases of and substitutions for the mortgage loans
occurring during the preceding calendar month and (iii) all P&I Advances with
respect to the mortgage loans received for that Payment Date.
BALLOON PAYMENT - The final payment made with respect to each Balloon
Loan.
CEDE - Cede & Co., or its successors in interest.
CLASS A PRINCIPAL PAYMENT AMOUNT - With respect to the Class A Notes
and any Payment Date on or after the Stepdown Date and on which a Trigger Event
is not in effect, an amount equal to the excess of (x) the Note Balance of the
Class A Notes immediately prior to that Payment Date over (y) the lesser of (A)
the product of (i) _____% and (ii) the aggregate principal balance of the
mortgage loans as of the last day of the related Due Period and (B) the
aggregate principal balance of the mortgage loans as of the last day of the
related Due Period minus $_________.
CLASS M-1 PRINCIPAL PAYMENT AMOUNT - With respect to any Payment Date
on or after the Stepdown Date and on which a Trigger Event is not in effect, an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on that Payment Date) and (ii) the Note Balance of the Class M-1 Notes
immediately prior to that Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the mortgage loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the mortgage loans as of the last day of the related Due Period minus
$_________.
CLASS M-2 PRINCIPAL PAYMENT AMOUNT - With respect to any Payment Date
on or after the Stepdown Date and on which a Trigger Event is not in effect, an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on that Payment Date), (ii) the Note Balance of the Class M-1 Notes
(after taking into account the payment of the Class M-1 Principal Payment Amount
on that Payment Date) and (iii) the Note Balance of the Class M-2 Notes
immediately prior to that Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the mortgage loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the mortgage loans as of the last day of the related Due Period minus
$__________.
CLASS M-3 PRINCIPAL PAYMENT AMOUNT - With respect to any Payment Date
on or after the Stepdown Date and on which a Trigger Event is not in effect, an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on that Payment Date), (ii) the Note Balance of the Class M-1 Notes
(after taking into account the payment of the Class M-1 Principal Payment Amount
on that Payment Date), (iii) the Note Balance of the Class M-2 Notes (after
taking into account the payment of the Class M-2 Principal Payment Amount on
that date) and (iv) the Note Balance of the Class M-3 Notes immediately prior to
that Payment Date over (y) the lesser of (A) the product of (i) _____% and (ii)
the aggregate principal balance of the mortgage loans as of the last day of the
related Due Period and (B) the aggregate principal balance of the mortgage loans
as of the last day of the related Due Period minus
$----------.
CLEARSTREAM PARTICIPANTS - The participating organizations of
Clearstream.
COLLATERAL ACCOUNT - Each segregated account maintained by the related
Servicer.
COOPERATIVE - With respect to Euroclear, Euroclear Clearance Systems
S.C., a Belgian cooperative corporation.
CPR - With respect to the mortgage loans, the constant prepayment rate
model.
CREDIT ENHANCEMENT PERCENTAGE - With respect to the notes and any
Payment Date, the percentage obtained by dividing (x) the sum of the
Overcollateralized Amount and the aggregate Note Balance of the Subordinate
Notes by (y) the aggregate principal balance of the mortgage loans, calculated
after taking into account payments of principal on the mortgage loans and
payment of the Principal Payment Amount to the notes on that Payment Date.
CURRENT INTEREST PAYMENT AMOUNT - With respect to any Payment Date, an
amount equal to interest collections or advances on the mortgage loans during
the related Due Period (net of the Master Servicing Fee, the Servicing Fees and
the Indenture Trustee Fee).
CUT-OFF DATE-- _________, ___.
DEBT SERVICE REDUCTION - With respect to any mortgage loan, any
reduction in the amount which a mortgagor is obligated to pay on a monthly basis
as a result of any proceeding initiated under the United States Bankruptcy Code,
other than a reduction attributable to a Deficient Valuation.
DEFICIENT VALUATION - With respect to any mortgage loan, a valuation by
a court of competent jurisdiction of the related mortgaged property in an amount
less than the then outstanding indebtedness under the mortgage loan, which
valuation results from a proceeding initiated under the United States Bankruptcy
Code.
DELAYED FIRST ADJUSTMENT MORTGAGE LOAN - The adjustable rate mortgage
loans for which the first Adjustment Date will occur after an initial period
from the date of origination of that adjustable rate mortgage loan as specified
in this prospectus supplement.
DISQUALIFIED PERSONS - Certain specified persons as defined under the
Code.
DISTRIBUTION DATE - With respect to the offered notes, the 25th day of
each month, or, if that day is a not a business day, on the next succeeding
business day, beginning in _________, ___.
DIRECTING HOLDER - The holder of a majority in Percentage Interest of
the Equity Certificates.
DTC SERVICES - The timely payment of distributions (including principal
and income payments) to securityholders, book-entry deliveries and settlement of
trades within DTC.
DUE DATE - With respect to each mortgage loan, the first day of the
month on which scheduled monthly payments are due.
EQUITY CERTIFICATES - The certificates be issued pursuant to the Owner
Trust Agreement, representing the beneficial ownership interest in MILA Mortgage
Acceptance, Inc. Trust Series ____-__.
EUROCLEAR OPERATOR - With respect to Euroclear, Euroclear Bank,
S.A./N.V..
EUROCLEAR PARTICIPANTS - The participating organizations of Euroclear.
EUROPEAN DEPOSITARIES - Collectively, Citibank, N.A. and JPMorgan Chase
Bank, acting in their respective capacities as depositaries.
EVENT OF DEFAULT - With respect to the notes, any one of the following:
(a) the failure of MILA Mortgage Acceptance, Inc. Trust Series ____-__ to pay
the Interest Payment Amount, the Principal Payment Amount or any
Overcollateralization Increase Amount on any Payment Date, in each case to the
extent that funds are available on that Payment Date to make those payments,
which continues unremedied for a period of five days; (b) the failure by MILA
Mortgage Acceptance, Inc. Trust Series ____-__ on the Final Maturity Date to
reduce the Note Balances of any notes then outstanding to zero; (c) a default in
the observance or performance of any covenant or agreement of MILA Mortgage
Acceptance, Inc. Trust Series ____-__ in the Indenture and the continuation of
that default for a period of thirty days after notice to MILA Mortgage
Acceptance, Inc. Trust Series ____-__ by the Indenture Trustee or by the holders
of at least 25% of the Voting Rights of the notes; (d) any representation or
warranty made by MILA Mortgage Acceptance, Inc. Trust Series ____-__ in the
Indenture or in any certificate or other writing delivered pursuant thereto
having been incorrect in any material respect as of the time made, and the
circumstance in respect of which that representation or warranty being incorrect
not having been cured within thirty days after notice thereof is given to MILA
Mortgage Acceptance, Inc. Trust Series ____-__ by the Indenture Trustee or by
the holders of at least 25% of the Voting Rights of the notes; or (e) various
events of bankruptcy, insolvency, receivership or reorganization of MILA
Mortgage Acceptance, Inc. Trust Series ____-__.
FINAL MATURITY DATE - With respect to the notes, the Payment Date
occurring in _______ ____.
GLOBAL SECURITIES - The globally offered MILA Mortgage Acceptance,
Inc., Mortgage-Backed Notes, Series ____-__, Class A, Class M-1, Class M-2 and
Class M-3 Notes.
GROSS MARGIN - With respect to each adjustable rate mortgage loan, the
fixed percentage amount described in this prospectus supplement.
INDENTURE - The indenture dated as of ________ __, ____, between MILA
Mortgage Acceptance, Inc. Trust Series ____-__ and the Indenture Trustee.
INDENTURE TRUSTEE - ______________.
INDENTURE TRUSTEE FEE - The principal compensation paid to the
Indenture Trustee in respect of its obligations under the Indenture, equal to
(i) the Indenture Trustee Fee Rate on the Scheduled Principal Balance of each
mortgage loan, payable monthly, and (ii) any interest or other income earned on
funds held in the Distribution Account (to the extent not payable as
compensation to the related Servicer) as provided in the Indenture.
INDENTURE TRUSTEE FEE RATE - With respect to any mortgage loan, a rate
equal to ________% per annum.
INDIRECT PARTICIPANTS - Entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly, having indirect access to the DTC
system.
INDUSTRY - Collectively, the participants and other members of the
financial community.
INTEREST ACCRUAL PERIOD - With respect to any class of notes and any
Payment Date, the period commencing on the Payment Date of the month immediately
preceding the month in which that Payment Date occurs (or, in the case of the
first period, commencing on the Closing Date) and ending on the day preceding
that Payment Date.
INTEREST CARRY FORWARD AMOUNT - With respect to any class of notes and
any Payment Date, any shortfall in payment of interest represented by the
excess, if any, of the Interest Payment Amount that would be payable on that
class at the applicable Note Accrual Rate over the Interest Payment Amount
actually paid on that class at the Available Interest Rate, together with that
shortfall in payment of interest remaining unpaid from previous Payment Dates
plus interest accrued on such excess at the related Note Accrual Rate.
INTEREST DETERMINATION DATE - With respect to each Interest Accrual
Period, the second business day preceding that Interest Accrual Period.
INTEREST PAYMENT AMOUNT - With respect to any class of notes and any
Payment Date, an amount equal to interest accrued during the related Interest
Accrual Period on the Note Balance of those notes immediately prior to that
Payment Date at the then-applicable Note Interest Rate for that class.
ISSUING ENTITY - MILA Mortgage Acceptance, Inc. Trust Series
______-___.
LOAN APPRAISAL - With respect to the mortgage loans, an appraisal of
the related mortgaged property which the Directing Holder will provide to the
related Servicer.
MASTER SERVICER - ______________.
MASTER SERVICING FEE - The principal compensation paid to the Master
Servicer in respect of its obligations under the Servicing Agreement equal to
accrued interest at the Master Servicing Fee Rate on the Scheduled Principal
Balance of each mortgage loan, payable monthly.
MASTER SERVICING FEE RATE - A rate equal to (i) ____% per annum in the
case of each ____-____ Mortgage Loan and (ii) ____% per annum in the case of
each other mortgage loan.
MAXIMUM MORTGAGE RATE - With respect to each adjustable rate mortgage
loan, a specified maximum mortgage rate which will not be exceeded over the life
of that adjustable rate mortgage loan.
MINIMUM MORTGAGE RATE - With respect to each adjustable rate mortgage
loan, a specified minimum mortgage rate beyond which that mortgage rate will not
be reduced over the life of that adjustable rate mortgage loan.
NET MONTHLY EXCESS CASHFLOW - With respect to any Payment Date, an
amount equal to the sum of (a) any Overcollateralization Reduction Amount and
(b) the excess of (x) the Available Payment Amount for that Payment Date over
(y) the sum for that Payment Date of the aggregate of the Interest Payment
Amounts payable to the holders of the notes and the sum of the amounts described
in clauses (b)(i) through (iii) of the definition of Principal Payment Amount.
NOTE BALANCE - With respect to any class of notes and any date of
determination, an amount equal to the initial Note Balance thereof reduced by
the aggregate of (a) all amounts allocable to principal previously distributed
with respect to that note and (b) any reductions in the Note Balance thereof
deemed to have occurred in connection with allocations of Realized Losses in the
manner described in this prospectus supplement.
NOTE OWNER - Any person acquiring an interest in the notes.
NOTE ACCRUAL RATE - (i) In the case of the Class A Notes, the lesser of
(a) One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate; (ii) in the case of the Class M-1 Notes, the lesser of (a)
One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate; (iii) in the case of the Class M-2 Notes, the lesser of (a)
One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate; and (iv) in the case of the Class M-3 Notes, the lesser of (a)
One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate.
ONE-MONTH LIBOR - As of any Interest Determination Date, the London
interbank offered rate for one-month U.S. dollar deposits which appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on that date.
OVERCOLLATERALIZATION INCREASE AMOUNT - With respect to the notes and
any Payment Date, the Net Monthly Excess Cashflow actually applied as an
accelerated payment of principal to the extent the Required Overcollateralized
Amount exceeds the Overcollateralized Amount as of that Payment Date.
OVERCOLLATERALIZATION REDUCTION AMOUNT - The amount by which the
Overcollateralized Amount exceeds the Required Overcollateralized Amount.
OWNER TRUST AGREEMENT - The trust agreement, dated as of ________ __,
____, between the Depositor and the Owner Trustee.
PARTICIPANTS - The participating organizations for which DTC holds
securities.
P&I ADVANCE - With respect to the mortgage loans, an advance made by
the related Servicer, in an amount equal to the aggregate of all payments of
principal and interest, net of the related Servicing Fee, that were due during
the related Due Period on the mortgage loans serviced by that Servicer and that
were delinquent on the related Determination Date, plus various amounts
representing assumed payments not covered by any current net income on the
mortgaged properties acquired by foreclosure or deed in lieu of foreclosure.
PERIODIC RATE CAP - With respect to each adjustable rate mortgage loan,
a specified periodic adjustment limitation on the related mortgage rate on any
related Adjustment Date.
PLAN ASSET REGULATIONS - The regulations provided under 29 C.F.R.
Section 2510.3-101.
PREPAYMENT ASSUMPTION - The prepayment standard or model used in this
prospectus supplement which assumes a prepayment rate for the mortgage loans of
__% CPR.
PREPAYMENT INTEREST SHORTFALL - With respect to the mortgage loans,
interest shortfalls attributable to full and partial prepayments by the
mortgagors on those mortgage loans.
PRINCIPAL PAYMENT AMOUNT - With respect to any Payment Date, other than
the Final Maturity Date and the Payment Date immediately following the
acceleration of the notes due to an Event of Default, will be the lesser of (a)
the excess of the Available Payment Amount over the aggregate of the Interest
Payment Amounts for the notes; and (b) THE SUM OF: (i) the principal portion of
all scheduled monthly payments on the mortgage loans due during the related Due
Period, whether or not received on or prior to the related Determination Date;
(ii) the principal portion of all proceeds received during the related
Prepayment Period in respect of the repurchase of a mortgage loan (or, in the
case of a substitution, amounts representing a principal adjustment) as
contemplated in the Servicing Agreement; (iii) the principal portion of all
other unscheduled collections, including insurance proceeds, liquidation
proceeds and all full and partial principal prepayments, received during the
related Prepayment Period, to the extent applied as recoveries of principal on
the mortgage loans; (iv) the principal portion of any Realized Losses incurred
or deemed to have been incurred on any mortgage loans in the calendar month
preceding that Payment Date to the extent covered by Net Monthly Excess Cashflow
for that Payment Date; and (v) the amount of any Overcollateralization Increase
Amount for that Payment Date; MINUS the amount of any Overcollateralization
Reduction Amount for that Payment Date. With respect to the Final Maturity Date
or the Payment Date immediately following the acceleration of the notes due to
an Event of Default, the Principal Payment Amount will equal the amount
necessary to reduce the Note Balance of any notes outstanding to zero.
RECORD DATE - For each Payment Date (i) with respect to the notes
(other than any Definitive Notes), the close of business on the business day
immediately preceding that Payment Date or (ii) with respect to the Definitive
Notes, the close of business on the last business day of the month preceding the
month in which that Payment Date occurs.
REFERENCE BANKS - Leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) which have been
designated as such by the Indenture Trustee and (iii) not controlling,
controlled by, or under common control with, the Depositor or MILA Mortgage
Acceptance, Inc. Trust Series ____-__.
RELEVANT DEPOSITARY - With respect to Euroclear, JPMorgan Chase Bank,
and with respect to Clearstream, Citibank, N.A.
REQUIRED OVERCOLLATERALIZED AMOUNT - As of any date of determination,
the amount of overcollateralization required to be provided by the mortgage pool
under the Indenture, which is equal to approximately ____% of the aggregate
principal balance of the mortgage loans.
RESERVE INTEREST RATE - The rate per annum that the Indenture Trustee
determines to be either (i) the arithmetic mean (rounded upwards if necessary to
the nearest whole multiple of 0.0625%) of the one-month U.S. dollar lending
rates which New York City banks selected by the Indenture Trustee are quoting on
the relevant Interest Determination Date to the principal London offices of
leading banks in the London interbank market or, (ii) in the event that the
Indenture Trustee cannot determine this arithmetic mean, the lowest one-month
U.S. dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on that Interest Determination Date to leading European
banks.
RULES - The rules, regulations and procedures creating and affecting
DTC and its operations.
SCHEDULED PRINCIPAL BALANCE - With respect to any mortgage loan and as
of any date of determination, an amount equal to the principal balance of that
mortgage loan 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 (x) the principal portion of all monthly payments due on or before
the date of determination, whether or not received, (y) all amounts allocable to
unscheduled principal that were received prior to the calendar month in which
the date of determination occurs, and (z) any Bankruptcy Loss occurring out of a
Deficient Valuation that was incurred prior to the calendar month in which the
date of determination occurs.
SERVICER - With respect to ____ ___ Mortgage Loans, _________________,
and with respect to _____ ____ Mortgage Loans, _________________.
SERVICING AGREEMENT - The Servicing Agreement, dated as of __________
__, ____, among MILA Mortgage Acceptance, Inc. Trust Series ____-__, the
Indenture Trustee, the Master Servicer and the related Servicer.
SERVICING FEE - The principal compensation paid to each Servicer in
respect of its servicing activities for the notes equal to accrued interest at
the Servicing Fee Rate of ____% per annum with respect to each mortgage loan
serviced by it for each calendar month on the same principal balance on which
interest on that mortgage loan accrues for that calendar month.
SPONSOR -- _________________, in its capacity as mortgage loan seller.
STEPDOWN DATE - The later to occur of (x) the Payment Date occurring in
_______ ____ and (y) the first Payment Date on which the Credit Enhancement
Percentage (calculated for this purpose only after taking into account payments
of principal on the mortgage loans, but prior to any payment of the Principal
Payment Amount to the notes then entitled to payments of principal on that
Payment Date) is greater than or equal to _____%.
SUBORDINATE NOTES - The Class M-1 Notes, the Class M-2 Notes and the
Class M-3 Notes.
SYSTEMS - DTC's computer applications, systems and similar items for
processing data.
TELERATE PAGE 3750 - The display page currently so designated on the
Dow Jones Telerate Capital Markets Report (or another page as may replace that
page on that service for the purpose of displaying comparable rates or prices).
TERMS AND CONDITIONS - Collectively, the Terms and Conditions Governing
Use of Euroclear and the related Operating Procedures of the Euroclear System
and applicable Belgian law.
TRIGGER EVENT - With respect to the notes, any Payment Date in which
the percentage obtained by dividing (x) the principal amount of mortgage loans
delinquent 60 days or more by (y) the aggregate principal balance of the
mortgage loans, in each case, as of the last day of the previous calendar month,
exceeds the lesser of (i) _____% of the Credit Enhancement Percentage and (ii)
______%.
TRUST ESTATE - The trust estate established under the Owner Trust
Agreement, which consists primarily of the mortgage pool.
UNDERWRITER - _________________.
UNDERWRITING AGREEMENT - The underwriting agreement, dated ________ __,
____, between the Depositor and the Underwriter.
VALUATION - With respect to any mortgage loan, (i) in the case of an
election by the Directing Holder to delay foreclosure, an amount equal to the
greater of the outstanding principal balance of that mortgage loan and the fair
market value of that mortgage loan as provided in the related Loan Appraisal,
and (ii) in the case of an election by the Directing Holder to commence
foreclosure, an amount equal to the outstanding principal balance of that
mortgage loan.
$___________ (APPROXIMATE)
MILA MORTGAGE ACCEPTANCE, INC.
DEPOSITOR
MORTGAGE-BACKED NOTES, SERIES ____-___
Prospectus Supplement
Dated _______ __, ____
[NAME OF MASTER SERVICER]
MASTER SERVICER
[NAME OF UNDERWRITER]
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the offered notes offered by this prospectus
supplement and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the offered notes, whether or not participating in
this offering, may be required to deliver a prospectus supplement and prospectus
until _______ __, ____.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of
the securities, other than underwriting discounts and commissions, are as
follows:
Registration Fee ( Securities and Exchange Commission....... $ *
Printing and Engraving Fees................................. *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Trustee Fees and Expenses................................... *
Rating Agency Fees.......................................... *
Miscellaneous Expenses...................................... *
---------------
Total....................................................... $ *
---------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Pooling and Servicing Agreement with respect to each series of
Certificates, and the Servicing Agreement, Indenture and Trust Agreement with
respect to each series of Notes will provide that no director, officer, employee
or agent of the Depositor is liable to the Trust Fund or the Securityholders,
except for such person's own willful misfeasance, bad faith or gross negligence
in the performance of duties or reckless disregard of obligations and duties.
The Pooling and Servicing Agreement with respect to each series of Certificates,
and the Servicing Agreement, Indenture and Trust Agreement with respect to each
series of Notes will further provide that, with the exceptions stated above, a
director, officer, employee or agent of the Depositor is entitled to be
indemnified against any loss, liability or expense incurred in connection with
legal action relating to such Pooling and Servicing Agreement or such Servicing
Agreement, Indenture and Trust Agreement and related Securities other than such
expenses related to particular Mortgage Loans.
Any underwriters who execute an Underwriting Agreement in the form
filed as Exhibit 1.1 to this Registration Statement will agree to indemnify the
officers and directors of MILA Mortgage Acceptance, Inc. (the "Depositor" or the
"Registrant") who signed this Registration Statement, and certain controlling
persons of the Depositor, against certain liabilities which might arise under
the Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
as amended, 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 Restated Certificate of Incorporation and By-Laws of the Registrant
provide that, to the fullest extent and under the circumstances permitted by
Section 145 of the General Corporation Law of the State of Delaware, the
Registrant shall indemnify any person who was or is a party or is threatened to
be made a party to any action, suit or proceeding of the type described above by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Registrant or 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.
ITEM 16. EXHIBITS
Exhibit
Number
1.1 - Form of Underwriting Agreement
3.1* - Certificate of Incorporation of the Depositor
3.2* - By-Laws of the Depositor
4.1 - Form Pooling and Servicing Agreement for alternate forms
of credit support
4.2 - Form of Servicing Agreement for an offering of
Mortgage-Backed Notes
4.3 - Form of Trust Agreement for an offering of
Mortgage-Backed Notes
4.4 - Form of Indenture for an offering of Mortgage-Backed Notes
5.1 - Opinion of Thacher Proffitt & Wood LLP regarding the
legality of the Certificates and the
Notes issued pursuant to the Base Prospectus
8.1 - Opinion of Thacher Proffitt & Wood LLP regarding
certain tax matters related to the
Certificates and the Notes issued pursuant to the Base
Prospectus (included with Exhibit 5.1)
23.1 - Consent of Thacher Proffitt & Wood LLP (included as part
of Exhibit 5.1)
24.1* - Power of Attorney
* Incorporated by reference from the Registrant's Registration Statement on Form
S-3 (No. 333-126150).
- -------------------------
ITEM 17. UNDERTAKINGS
In accordance with Item 512 of Regulation S-K under the Securities Act of 1933:
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post- effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in 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 the Registration Statement or any material change to such
information in the Registration Statement; provided, however,
that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in this Registration Statement or is
contained in a form of prospectus filed pursuant to Rule
424(b) that is part of this Registration Statement; and
provided further, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to be
included in a post-effective amendment is provided pursuant to
Item 1100(c) of Regulation AB.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering
(4) That for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
If the registrant is relying on Rule 430B:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
shall be deemed to be part of this Registration Statement as of the
date the filed prospectus was deemed part of and included in this
Registration Statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a Registration Statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii) or (x) for the purpose of providing the information required by
section 10(a) of the Securities Act shall be deemed to be part of and
included in this Registration Statement as of the earlier of the date
such form of prospectus is first used after effectiveness or the date
of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of this Registration
Statement relating to the securities in this Registration Statement to
which that prospectus relates, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Provided, however, that no statement made in a Registration Statement
or prospectus that is part of this Registration Statement or made in a
document incorporated or deemed incorporated by reference into this
Registration Statement or prospectus that is part of this Registration
Statement will, as to a purchaser with a time of contract of sale prior
to such effective date, supersede or modify any statement that was made
in this Registration Statement or prospectus that was part of this
Registration Statement or made in any such document immediately prior
to such effective date.
(5) That, for the purpose of determining liability of the registrant
under the Securities Act to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this Registration Statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be filed
pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used or
referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about the
undersigned registrant or its securities provided by or on behalf of
the undersigned registrant; and
(iv) Any other communication that is an offer in the offering
made by the undersigned registrant to the purchaser.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act) 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 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 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 of a third party that is incorporated by reference in the registration
statement in accordance with Item 1100(c)(1) of Regulation AB 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.
(e) The Registrant hereby undertakes that, except as otherwise provided
by Item 1105 of Regulation AB, information provided in response to that Item
pursuant to Rule 312 of Regulation S-T through the specified Internet address in
the prospectus is deemed to be a part of the prospectus included in the
registration statement. In addition, the Registrant hereby undertakes to provide
to any person without charge, upon request, a copy of the information provided
in response to Item 1105 of Regulation AB pursuant to Rule 312 of Regulation S-T
through the specified Internet address as of the date of the prospectus included
in this Registration Statement if a subsequent update or change is made to the
information.
(f) The Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, reasonably believes that the
security rating requirement contained in Transaction Requirement B.5 of Form S-3
will be met by the time of the sale of the securities registered hereunder, and
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountlake Terrace, State
of Washington, on February 8, 2006.
MILA Mortgage Acceptance, Inc.
By: /s/ William Dougherty
-------------------------------
Name: William Dougherty
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------------------- --------------------------------- ----------------
* SEE BELOW Director and President (Principal February 8, 2006
_____________________ Executive Officer)
Layne Sapp
/s/ William Dougherty Director and Treasurer (Principal February 8, 2006
- ---------------------- Financial Officer and Principal
William Dougherty Accounting Officer)
*By: /s/ William Dougherty
-------------------------------------
William Dougherty
Attorney-in-fact pursuant to a power
of attorney previously filed with the
Registration Statement