REGISTRATION NO. 333-130961 and No. 333-130961-01
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3/A
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GREENWICH CAPITAL ACCEPTANCE, INC. FINANCIAL ASSET SECURITIES CORP.
(Exact name of co-registrant as (Exact name of co-registrant
specified in its charter) as specified in its charter)
Delaware Delaware
(State of Incorporation) (State of Incorporation)
06-1199884 06-1442101
(I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number)
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
(Address, including ZIP code, and telephone number,
including area code, of principal executive offices)
John C. Anderson
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
(Address, including ZIP code, and telephone number,
including area code, of principal executive offices)
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Copies to:
Edward E. Gainor Richard M. Horowitz, Esq.
McKee Nelson LLP Thacher Proffitt & Wood LLP
1919 M Street, NW Two World Financial Center
Washington, District of Columbia 20036 New York, New York 10281
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Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING AMOUNT TO BE AGGREGATE PRICE PRICE REGISTRATION
REGISTERED (1) REGISTERED PER UNIT (1) FEE(2)
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Asset-Backed/Mortgage-Backed $1,000,000 100% $1,000,000 $107.00
Securities
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(1) This amount was estimated in order to calculate the amount of the fee.
(2) The $85,432,340,861.00 aggregate principal principal amount of
Asset-Backed/ Mortgage-Backed Securities registered by the Registrants
under Registration Statement No. 333-127352 and No. 333-127352-01 on Form
S-3 referred to below and not previously sold are consolidated into this
Registration Statement pursuant to Rule 429 and Rule 457. All registration
fees in connection with such unsold amount of Asset-Backed/Mortgage-Backed
Securities have been previously paid by the Registrant under the foregoing
Registration Statement. Accordingly, the total amount registered under this
Registration Statement as so consolidated as of the date of this filing is
$85,433,340,861.00. In addition, the registration fee in connection with
the $1,000,000.00 aggregate principal amount of Asset-Backed/Mortgage-
Backed Securities to be registered by the Registrants under this
Registration Statement has been paid by the Registrants in connection with
the original filing on January 11, 2006.
----------------------
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus included in this Registration Statement is a combined prospectus and
also relates to Registration Statement No. 333-127352/01 as previously filed by
the Registrants on Form S-3. Such Registration Statement No. 333-127352/01 was
declared effective on September 1, 2005.
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this 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 basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of
Asset-Backed Notes consisting of senior and subordinate note classes and (iii)
an illustrative form of prospectus supplement for use in an offering of
Asset-Backed Certificates consisting of senior and subordinate certificate
classes.
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THE INFORMATION 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 IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 31, 2006
PROSPECTUS
MORTGAGE-BACKED/ASSET-BACKED SECURITIES
(ISSUABLE IN SERIES)
GREENWICH CAPITAL ACCEPTANCE, INC. OR FINANCIAL ASSET SECURITIES CORP.
DEPOSITOR
THE SECURITIES
Each issue of securities will have its own series designation and will
evidence either the ownership of assets in the related trust or debt obligations
secured by trust assets. o Each series of securities will consist of one or more
classes.
o Each class of securities will represent the entitlement to a
specified portion of interest payments and a specified portion
of principal payments on the trust assets.
o A series may include classes of securities that are senior in
right of payment to other classes. Classes of securities may
be entitled to receive principal, interest or both prior to
other classes or before or after specified events.
o No market will exist for the securities of any series before
they are issued. In addition, even after the securities of a
series have been issued and sold, there can be no assurance
that a resale market for them will develop.
THE TRUST AND ITS ASSETS
As specified in the related prospectus supplement, the assets of a
trust will include one or more of the following:
o mortgage loans secured generally by senior liens on one- to
four-family residential properties,
o closed-end and/or revolving home equity loans generally
secured by junior liens on one- to four-family residential
properties,
o mortgage loans secured by senior liens on multifamily
residential properties,
o conditional sales contracts, installment sales agreements or
loan agreements secured by manufactured housing,
o home improvement installment sales contracts and loan
agreements that are either unsecured or secured generally by
junior liens on one- to four-family residential properties or
by purchase money security interests in the related home
improvements,
o mortgage pass-through securities issued or guaranteed by
Ginnie Mae, Fannie Mae or Freddie Mac, or
o private label mortgage-backed or asset-backed securities.
OFFERS OF THE SECURITIES
Offers of the securities may be made through one or more different
methods. All securities will be distributed by, or sold through underwriters
managed by, Greenwich Capital Markets, Inc.
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CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
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.
This prospectus may be used to offer and sell the securities only if
accompanied by a prospectus supplement.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[_______], 2006
TABLE OF CONTENTS
Important Notice About Information in This Prospectus and Each Accompanying
Prospectus Supplement......................................................
Risk Factors....................................................................
The Trust Fund..................................................................
The Mortgage Loans--General................................................
Single Family Loans........................................................
Home Equity Loans..........................................................
Multifamily Loans..........................................................
Manufactured Housing Contracts.............................................
Home Improvement Contracts.................................................
Agency Securities..........................................................
Private Label Securities...................................................
Incorporation of Certain Information by Reference..........................
Static Pool Information.........................................................
Use of Proceeds.................................................................
The Sponsor.....................................................................
The Depositors..................................................................
Loan Program....................................................................
Underwriting Standards.....................................................
Qualifications of Sellers..................................................
Representations by Sellers; Repurchases or Substitutions...................
Description of the Securities...................................................
General....................................................................
Distributions on Securities................................................
Advances...................................................................
Reports to Securityholders.................................................
Credit Enhancement and Other Support............................................
General....................................................................
Subordination..............................................................
Pool Insurance Policies....................................................
Primary Mortgage Insurance Policies........................................
FHA Insurance; VA Guarantees...............................................
Special Hazard Insurance Policies..........................................
Bankruptcy Bonds...........................................................
FHA Insurance on Multifamily Loans.........................................
Reserve Accounts...........................................................
Cross Support..............................................................
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar
Instruments or Agreements..................................................
Derivatives................................................................
Yield and Prepayment Considerations.............................................
Operative Agreements............................................................
Assignment of Trust Fund Assets............................................
Payments on Loans; Deposits to Security Account............................
Pre-Funding Account........................................................
Sub-Servicing of Loans.....................................................
Collection Procedures......................................................
Hazard Insurance...........................................................
Realization upon Defaulted Mortgage Loans..................................
Servicing and Other Compensation and Payment of Expenses...................
Evidence as to Compliance..................................................
Certain Matters Regarding the Master Servicer and the Depositors...........
Events of Default; Rights upon Event of Default............................
Amendment..................................................................
Termination; Optional Termination; Calls...................................
The Trustee................................................................
Material Legal Aspects of the Loans.............................................
General....................................................................
Foreclosure................................................................
Repossession of Manufactured Homes.........................................
Rights of Redemption.......................................................
Equitable Limitations on Remedies..........................................
Anti-Deficiency Legislation and Other Limitations on Lenders...............
Homeownership Act and Similar State Laws...................................
Due-on-Sale Clauses........................................................
Prepayment Charges; Late Fees..............................................
Applicability of Usury Laws................................................
Servicemembers Civil Relief Act............................................
Environmental Risks........................................................
The Home Improvement Contracts.............................................
Installment Contracts......................................................
Junior Mortgages; Rights of Senior Mortgagees..............................
The Title I Program........................................................
Material Federal Income Tax Consequences........................................
General....................................................................
Taxation of Debt Securities................................................
Non-REMIC Certificates.....................................................
Single Class of Senior Certificates........................................
Multiple Classes of Senior Certificates....................................
Possible Application of Contingent Payment Regulations to Certain
Non-REMIC Certificates...................................................
Sale or Exchange of a Senior Certificate...................................
Non-U.S. Persons...........................................................
Information Reporting and Backup Withholding...............................
REMIC Certificates.........................................................
General....................................................................
Tiered REMIC Structures....................................................
Regular Certificates.......................................................
Residual Certificates......................................................
Prohibited Transactions and Other Taxes....................................
Liquidation and Termination................................................
Administrative Matters.....................................................
Tax-Exempt Investors.......................................................
Non-U.S. Persons...........................................................
Tax-Related Restrictions on Transfers of Residual Certificates.............
Reportable Transactions.........................................................
Penalty Avoidance...............................................................
State Tax Considerations........................................................
ERISA Considerations............................................................
Insurance Company General Accounts.........................................
Prohibited Transaction Class Exemption 83-1................................
Underwriter Exemption......................................................
Legal Investment Considerations.................................................
Method of Distribution..........................................................
Legal Matters...................................................................
Financial Information...........................................................
Available Information...........................................................
Reports to Securityholders......................................................
Ratings.........................................................................
Glossary of Terms...............................................................
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of securities is contained in two
separate documents:
o this prospectus, which provides general information, some of
which may not apply to a particular series; and
o the accompanying prospectus supplement for a particular
series, which describes the specific terms of the securities
of that series.
Although the accompanying prospectus supplement for a particular series
of securities cannot contradict the information contained in this prospectus,
insofar as the prospectus supplement contains specific information about the
series that differs from the more general information contained in this
prospectus, you should rely on the information in the prospectus supplement.
You should rely only on the information contained in this prospectus
and the accompanying prospectus supplement. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus and the accompanying prospectus supplement.
We include cross-references in this prospectus and each accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. There is a Glossary of Terms beginning on page 165 of this
prospectus where you will find definitions of the capitalized terms used in this
prospectus. The preceding Table of Contents and the Table of Contents included
in each accompanying prospectus supplement provide the pages on which these
captions are located.
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You may obtain additional information by contacting either depositor. The
mailing address of the depositor's principal executive offices is either
Greenwich Capital Acceptance, Inc. or Financial Acceptance Securities Corp., at
600 Steamboat Road, Greenwich, Connecticut 06830 and the telephone number is
(203) 625- 2700. For other means of acquiring additional information about us or
a series of securities, see "The Trust Fund -- Incorporation of Certain
Information by Reference" on page 33 of this prospectus.
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TRANSACTION STRUCTURE
[GRAPHIC OMITTED]
FLOW OF FUNDS
[GRAPHIC OMITTED]
SUBORDINATE/CREDIT ENHANCEMENT
Allocation of Realized Losses
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B-8
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B-7
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B-6
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|
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B-5
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| In each case, until the
| current principal balance
-------- equals zero.
B-4
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|
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B-3
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B-2
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B-1
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|
|
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Senior Certificates
(Losses are allocated on a pro rata basis based on current
principal amounts when the current principal amount equals
zero, the loss is allocated to the remaining classes.)
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION, TOGETHER WITH
THE INFORMATION SET FORTH UNDER "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT, SINCE IT IDENTIFIES THE PRINCIPAL RISK FACTORS ASSOCIATED WITH AN
INVESTMENT IN THE SECURITIES.
PRINCIPAL PREPAYMENTS ON THE
LOANS MAY ADVERSELY AFFECT THE
AVERAGE LIFE OF, AND RATE OF
RETURN ON, YOUR SECURITIES ....... You may be unable to reinvest the principal
payments on your securities at a rate of
return at least equal to the rate on your
securities. The timing of principal payments
on the securities of a series will be
affected by a number of factors, including
the following:
o the extent of prepayments on the
loans in the trust or, if the trust
is comprised of underlying
securities, on the loans backing
the underlying securities;
o how payments of principal are
allocated among the classes of
securities of the series as
specified in the related prospectus
supplement;
o if any party has an option to
terminate the related trust early
or to call your securities, the
effect of the exercise of the
option;
o the rate and timing of defaults and
losses on the assets in the related
trust; and
o repurchases of assets in the
related trust as a result of
material breaches of
representations and warranties made
by the depositor or master
servicer.
The rate of prepayment of the loans included
in, or underlying the assets held in, each
trust may affect the average life of the
securities.
ONLY THE ASSETS OF THE RELATED
TRUST ARE AVAILABLE TO PAY YOUR
SECURITIES ....................... Unless the applicable prospectus supplement
provides otherwise, the securities of each
series will be payable solely from the
assets of the related trust, including any
applicable credit enhancement, and will not
have a claim against the assets of any other
trust. If the assets of the related trust
are not sufficient, you may suffer a loss on
your securities. Moreover, at the times
specified in the related prospectus
supplement, assets of the trust may be
released to the applicable depositor, master
servicer, any servicer, credit enhancement
provider or other specified person, if all
payments then due on the securities have
been made and adequate provision for future
payments on the remaining securities has
been made. Once released, these assets will
no longer be available to make payments on
your securities There will be no recourse
against the depositor, the master servicer,
any servicer or any of their affiliates if a
required distribution on the securities is
not made. The securities will not represent
an interest in, or an obligation of, the
depositor, the master servicer, any servicer
or any of their affiliates.
The depositor's obligations are limited to
its representations and warranties
concerning the trust assets. Because the
depositor has no significant assets, if it
is required to repurchase trust assets due
to the breach of a representation or
warranty, the depositor's source of funds
for the repurchase would be limited to:
o moneys obtained from enforcing any
similar obligation of the seller or
originator of the asset, or
o funds from a reserve account or
other credit enhancement
established to pay for asset
repurchases.
CREDIT ENHANCEMENT MAY NOT BE
ADEQUATE TO PREVENT LOSSES ON
YOUR SECURITIES.................... Credit enhancement is intended to reduce the
effect of delinquent payments or loan losses
on those classes of securities that have the
benefit of the credit enhancement.
Nevertheless, the amount of any credit
enhancement is subject to the limits
described in the related prospectus
supplement. Moreover, the amount of credit
enhancement may decline or be depleted under
certain circumstances before the securities
are paid in full. As a result,
securityholders may suffer losses. In
addition, credit enhancement may not cover
all potential sources of risk of loss, such
as fraud or negligence by a loan originator
or other parties.
OVERCOLLATERALIZATION: The mortgage loans
are expected to generate more interest than
is needed to pay interest on the related
securities because the weighted average
interest rate on the mortgage loans is
expected to be higher than the weighted
average interest rate on the related
securities. If the mortgage loans generate
more interest than is needed to pay interest
on the related securities the "excess
spread" will be used to make additional
principal payments on those securities,
which will reduce the total outstanding
principal balance of those securities below
the aggregate principal balance of the
related mortgage loans, thereby creating
"overcollateralization."
Overcollateralization is intended to provide
limited protection to securityholders by
absorbing the security's share of losses
from liquidated mortgage loans. However,
there can be no guaranty that enough excess
spread will be generated on the mortgage
loans to maintain the required level of
overcollateralization. The excess spread
available on any distribution date will be
affected by the actual amount of interest
received, advanced or recovered in respect
of the mortgage loans during the preceding
month. Such amount may be influenced by
changes in the weighted average of the
mortgage rates resulting from prepayments,
defaults and liquidations of the mortgage
loans. If the protection afforded by
overcollateralization is insufficient, then
you could experience a loss on your
investment.
SUBORDINATION: This form of credit
enhancement uses collections on the mortgage
loans otherwise payable to the holders of
the subordinated classes to pay amounts due
on the more senior classes. Such collections
are the sole source of funds from which such
credit enhancement is provided. Realized
losses will be allocated, first, to reduce
the amount of excess spread, second, to
reduce the overcollateralization amount,
third, to each class of subordinate
securities, beginning with the class with
the lowest payment priority, in each case
until the principal amount of that class has
been reduced to zero, and fourth, to the
senior securities. Accordingly, if the
aggregate principal balance of a
subordinated class were to be reduced to
zero, delinquencies and defaults on the
mortgage loans would reduce the amount of
funds available for distributions to holders
of the remaining subordinated class or
classes and, if the aggregate principal
balance of all the subordinated classes were
to be reduced to zero, delinquencies and
defaults on the mortgage loans would reduce
the amount of funds available for monthly
distributions to holders of the senior
securities.
The weighted average lives of, and the
yields to maturity on the subordinate
securities will be progressively more
sensitive, based on their payment priority,
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 are
higher than those assumed by an investor in
such securities, the actual yield to
maturity of such securities may be lower
than the yield anticipated by such holder
based on such 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 loans 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.
Realized losses on the mortgage loans, to
the extent they exceed the amount of excess
spread for the related distribution date and
the overcollateralization following
distributions of principal on the related
distribution date, will reduce the
certificate principal balance of each of the
subordinate securities. As a result of such
reductions, less interest will accrue on
such class of subordinated securities than
would otherwise be the case. Once a realized
loss is allocated to a subordinated
security, no interest will be distributable
with respect to such written down amount.
Subordinated securities will not be entitled
to any principal distributions during any
period in which delinquencies or losses on
the mortgage loans exceed certain levels. As
a result, the weighted average lives of the
subordinated securities will be longer than
would otherwise be the case if distributions
of principal were allocated among all of the
securities at the same time. As a result of
the longer weighted average lives of the
subordinated securities, the holders of such
securities have a greater risk of suffering
a loss on their investments. Further,
because such securities might not receive
any principal if certain delinquency or loss
levels occur, it is possible for such
securities to receive no principal
distributions even if no losses have
occurred on the mortgage pool.
You should fully consider the risks of
investing in a subordinated certificate,
including the risk that you may not fully
recover your initial investment as a result
of realized losses.
DERIVATIVES: Payments made by the derivative
contract counterparty will be used first, to
cover basis risk shortfalls on the related
securities with any remaining amounts to be
used as net monthly excess cashflow as
described in the prospectus supplement.
However, if the derivative contract
counterparty defaults on its obligations,
then there may be insufficient funds to
cover basis risk shortfalls on the bonds or
interest on the bonds, and the amount of net
monthly excess cashflow may be reduced. As a
result, investors in the securities will be
subject to the credit risk of the derivative
contract counterparty.
Net amounts payable under the derivative
contracts are based on the parameters
described in the prospectus supplement, and
to the extent the actual performance of the
mortgage loans differs from the expectations
on which these parameters were based, the
derivative contracts may provide
insufficient funds to cover these
shortfalls.
Net monthly excess cashflow, including
amounts from the derivative contracts, will
provide some protection against any basis
risk shortfalls on the securities, subject
to the priorities described in the
prospectus supplement. However, there can be
no assurance that available net monthly
excess cashflow will be sufficient to cover
these shortfalls, particularly because in a
situation where the interest rate on a class
of securities is limited to the related
available funds rate, there will be little
or no related net monthly excess cashflow,
except to the extent provided by the
derivative contracts.
THE INTEREST ACCRUAL PERIOD MAY
REDUCE THE EFFECTIVE YIELD
ON YOUR SECURITIES................. Interest payable on the securities on any
distribution date will include all interest
accrued during the related interest accrual
period. The interest accrual period for the
securities of each series will be specified
in the applicable prospectus supplement. If
the interest accrual period ends two or more
days before the related distribution date,
your effective yield will be less than it
would be if the interest accrual period
ended the day before the distribution date.
As a result, your effective yield at par
would be less than the indicated coupon
rate.
MORTGAGE LOANS ORIGINATED ACCORDING
TO NON-AGENCY UNDERWRITING
GUIDELINES MAY HAVE HIGHER
EXPECTED DELINQUENCIES............. If specified in the related prospectus
supplement, the mortgage loans may have been
originated according to underwriting
guidelines that do not comply with Fannie
Mae or Freddie Mac guidelines. These types
of mortgage loans are sometimes referred to
as "subprime," "non-prime" or
"non-conforming" mortgage loans. Whereas
"prime" loans are typically made to
borrowers who have a strong credit history
and can demonstrate a capacity to repay
their loans, subprime loans are typically
made to borrowers who are perceived as
deficient in either or both of these
respects. The borrowers may have imperfect
credit histories, ranging from minor
delinquencies to bankruptcy, or relatively
high ratios of monthly mortgage payments to
income or relatively high ratios of total
monthly credit payments to income. While
lenders consider a borrower's credit history
when determining whether a loan is other
than prime, they also consider the mortgage
loan characteristics, such as loan-to-value
ratio, or attributes of the property that
may cause the loan to carry elevated credit
risk.
Compared with prime loans, subprime loans
typically have higher loan-to-value ratios,
reflecting the greater difficulty that
subprime borrowers have in making down
payments and the propensity of these
borrowers to extract equity during
refinancing. Historically, subprime
borrowers pay higher rates of interest, go
into delinquency more often, and have their
properties foreclosed at a higher rate than
either prime borrowers or borrowers of
mortgage loans originated in accordance with
Fannie Mae or Freddie Mac guidelines. A
significant portion of the mortgage loans in
the trust fund may have been classified in
these relatively low (i.e., relatively
higher risk) credit categories.
Rising unemployment, higher interest rates,
or a decline in housing prices generally or
in certain regions of the United States may
have a greater effect on the delinquency,
foreclosure, bankruptcy and loss experience
of subprime mortgage loans and other
mortgage loans of relatively low credit
quality than on mortgage loans originated
under stricter guidelines. We cannot assure
you that the values of the mortgaged
properties have remained or will remain at
levels in effect on the dates of origination
of the related mortgage loans. These risks
are magnified with respect to adjustable
payment mortgage loans, interest- only
mortgage loans, loans with balloon payments
and loans which provide for negative
amortization. See "--Changes in U.S.
Economic Conditions May Adversely Affect the
Performance of Mortgage Loans, Particularly
Adjustable Payment Loans of Various Types"
for a discussion of risks related to
economic conditions generally and adjustable
payment mortgage loans.
Consequently, mortgage loans originated
according to underwriting guidelines that
are not as strict as Fannie Mae or Freddie
Mac guidelines may be likely to experience
rates of delinquency, foreclosure and
bankruptcy that are higher, and that may be
substantially higher, than those experienced
by mortgage loans underwritten in accordance
with higher standards.
"ALT-A "MORTGAGE LOANS: If specified in the
related prospectus supplement, the trust
fund may include mortgage loans originated
according to "Alternative-A" or "Alt-A"
underwriting guidelines. Although Alt- A
loans are typically made to borrowers who
have a strong credit history and can
demonstrate a capacity to repay their loans,
Alt-A mortgage loans may have some of the
characteristics and risks of subprime
mortgage loans described above. In
particular, Alt-A mortgage loans (1) are
often originated under underwriting
guidelines with more limited and reduced
documentation requirements, (2) have higher
loan-to- value ratios than prime loans, (3)
are more likely to be secured by properties
not primarily occupied by the related
borrower than prime loans and (4) often have
prepayment penalties. You should consider
the risks discussed above if the trust fund
contains Alt-A mortgage loans.
SEE "LOAN UNDERWRITING PROCEDURES AND
STANDARDS" IN THIS PROSPECTUS AND SEE THE
PROSPECTUS SUPPLEMENT FOR A DESCRIPTION OF
THE CHARACTERISTICS OF THE RELATED MORTGAGE
LOANS AND FOR A GENERAL DESCRIPTION OF THE
UNDERWRITING GUIDELINES APPLIED IN
ORIGINATING THE RELATED MORTGAGE LOANS.
ASPECTS OF THE MORTGAGE LOAN
ORIGINATION PROCESS MAY RESULT
IN HIGHER EXPECTED DELINQUENCIES... Various factors in the process of
originating the mortgage loans in the trust
fund may have the effect of increasing
delinquencies and defaults on the mortgage
loans. These factors may include any or all
of the following:
APPRAISAL QUALITY: During the mortgage loan
underwriting process, appraisals are
generally obtained on each prospective
mortgaged property. The quality of these
appraisals may vary widely in accuracy and
consistency. Because in most cases the
appraiser is selected by the mortgage loan
broker or lender, the appraiser may feel
pressure from that broker or lender to
provide an appraisal in the amount necessary
to enable the originator to make the loan,
whether or not the value of the property
justifies such an appraised value.
Inaccurate or inflated appraisals may result
in an increase in the number and severity of
losses on the mortgage loans.
STATED INCOME UNDERWRITING GUIDELINES: Most
underwriting guidelines applied in the
origination of mortgage loans have several
different levels of documentation
requirements applicable to prospective
borrowers. There has recently been an
increasing number of mortgage loans
originated under "stated income" programs,
which permit an applicant to qualify for a
mortgage loan based upon monthly income as
stated on the mortgage loan application, if
the applicant meets certain criteria.
Typically no verification of monthly income
is required under stated income programs,
which increases the risk that these
borrowers have overstated their income and
may not have sufficient income to make their
monthly mortgage loan payments. You should
consider the risk that a higher number of
mortgage loans originated under stated
income programs may result in increased
delinquencies and defaults on the mortgage
loans in the trust fund.
UNDERWRITING GUIDELINE EXCEPTIONS: Although
mortgage originators generally underwrite
mortgage loans in accordance with their
pre-determined loan underwriting guidelines,
from time to time and in the ordinary course
of business, originators will make
exceptions to these guidelines. Loans
originated with exceptions may result in a
higher number of delinquencies and loss
severities than loans originated in strict
compliance with the designated underwriting
guidelines.
NON-OWNER OCCUPIED PROPERTIES: Mortgage
Loans secured by properties acquired by
investors for the purposes of rental income
or capital appreciation, or properties
acquired as second homes, tend to have
higher seventies of default than properties
that are regularly occupied by the related
borrowers. In a default, real property
investors who do not reside in the mortgaged
property may be more likely to abandon the
related mortgaged property, increasing the
severity of the default.
BROKER AND CORRESPONDENT ORIGINATION VERSUS
RETAIL ORIGINATION: Mortgage loans that have
been originated on behalf of the originators
by unaffiliated brokers or correspondents
rather than directly by the originators
themselves may experience a higher rate of
delinquencies and defaults. In particular, a
substantial number of subprime mortgage
loans are originated by brokers rather than
directly by the related originators.
FRAUD: Fraud committed in the origination
process may increase delinquencies and
defaults on the mortgage loans. For example,
a borrower may present fraudulent
documentation to a lender during the
mortgage loan underwriting process, which
may enable the borrower to qualify for a
higher balance or lower interest rate
mortgage loan than the borrower would
otherwise qualify for. In addition,
increasingly frequent incidences of identity
theft involving borrowers, particularly in
the case of mortgage loans originated by
brokers and under streamlined origination
programs, may result in an increased number
of fraudulent mortgage loans that are not
secured by a mortgaged property. To the
extent that the trust fund includes any
mortgage loans originated electronically
over the Internet, these originations are
more likely to be fraudulent. You should
consider the potential effect of fraud by
borrowers, brokers and other third parties
on the yield on your securities.
SELF-EMPLOYED BORROWERS: Self-employed
borrowers may be more likely to default on
their mortgage loans than salaried or
commissioned borrowers and generally have
less predictable income. In addition, many
self-employed borrowers are small business
owners who may be personally liable for
their business debt. Consequently, you
should consider that a higher number of
self-employed borrowers may result in
increased defaults on the mortgage loans in
the trust fund.
FIRST TIME BORROWERS: First time home buyers
are often younger, have shorter credit
histories, are more highly leveraged and
have less experience with undertaking
mortgage debt and maintaining a residential
property than other borrowers. The presence
of loans with first time buyers in the
mortgage pool may increase the number of
defaults on the mortgage loans.
Although the aspects of the mortgage loan
origination process described above may be
indicative of the performance of the
mortgage loans, information regarding these
factors may not be available for the
mortgage loans in the trust fund, unless
specified in the prospectus supplement.
SEE "LOAN UNDERWRITING PROCEDURES AND
STANDARDS" IN THIS PROSPECTUS AND SEE THE
PROSPECTUS SUPPLEMENT FOR A DESCRIPTION OF
THE CHARACTERISTICS OF THE RELATED MORTGAGE
LOANS AND FOR A GENERAL DESCRIPTION OF THE
UNDERWRITING GUIDELINES APPLIED IN
ORIGINATING THE RELATED MORTGAGE LOANS.
CHANGES IN U.S. ECONOMIC
CONDITIONS MAY ADVERSELY AFFECT
THE PERFORMANCE OF MORTGAGE
LOANS, PARTICULARLY ADJUSTABLE
PAYMENT LOANS OF VARIOUS
TYPES.............................. Recently, an increasingly large proportion
of residential mortgage loans originated in
the United States have been adjustable
payment mortgage loans, including loans that
have interest-only or negative amortization
features. Mortgage loans that are referred
to generally as adjustable payment or
adjustable rate mortgage loans may include
any of the following types of loans:
o mortgage loans whose interest rate
adjusts on the basis of a variable
index plus a margin, with the
initial adjustment typically
occurring six months after
origination of the related mortgage
loan and adjustments occurring
every six months thereafter; these
loans may or may not have a low
introductory interest rate;
o "hybrid" mortgage loans, whose
interest rate is fixed for the
initial period specified in the
related mortgage note, and
thereafter adjusts periodically
based on the related index;
o "interest-only" mortgage loans,
which provide for payment of
interest at the related mortgage
interest rate, but no payment of
principal, for the period specified
in the related mortgage note;
thereafter, the monthly payment is
increased to an amount sufficient
to amortize the principal balance
of the mortgage loan over the
remaining term and to pay interest
at the applicable mortgage interest
rate;
o "negative amortization" mortgage
loans, which may have a low
introductory interest rate, and
thereafter have a mortgage interest
rate which adjusts periodically
based on the related index;
however, the borrower is only
required to make a minimum monthly
payment which may not be sufficient
to pay the monthly interest
accrued, resulting in an increase
to the principal balance of the
mortgage loan by the amount of
unpaid interest; and
o "option ARMs," which combine
several of the features described
above and permit the borrower to
elect whether to make a monthly
payment sufficient to pay accrued
interest and amortize the principal
balance, make an interest-only
payment or make a minimum payment
that may be insufficient to pay
accrued interest (with the unpaid
interest added to the principal
balance of the loan).
If specified in the related prospectus
supplement, the trust fund may include
significant concentrations of these types of
adjustable payment mortgage loans, which
present special default and prepayment
risks.
The primary attraction to borrowers of these
adjustable payment mortgage loan products is
that initial monthly mortgage loan payments
can be significantly lower than fixed rate
or level pay mortgage loans under which the
borrower pays both principal and interest at
an interest rate fixed for the life of the
mortgage loan. As a result, many borrowers
are able to incur substantially greater
mortgage debt using one of these adjustable
payment mortgage loan products than if they
used a standard amortizing fixed rate
mortgage loan.
In addition, a substantial number of these
adjustable payment mortgage loans have been
originated in regions of the United States
that have seen substantial residential
housing price appreciation over the past few
years, such as California and major
metropolitan areas in other states. Many
borrowers in these markets have used
adjustable payment mortgage loan products to
purchase homes that are comparatively larger
or more expensive than they would otherwise
have purchased with a fixed rate mortgage
loan with relatively higher monthly
payments. These borrowers may have taken out
these mortgage loan products in the
expectation that either (1) their income
will rise by the time their fixed rate
period or interest-only period expires, thus
enabling them to make the higher monthly
payments, or (2) in an appreciating real
estate market, they will be able to sell
their property for a higher price or will be
able to refinance the mortgage loan before
the expiration of the fixed rate or
interest- only period.
Borrowers with adjustable payment mortgage
loans will likely be exposed to increased
monthly payments (1) when the mortgage
interest rate adjusts upward from a low
introductory rate to the rate computed in
accordance with the applicable index and
margin, (2) if interest rates rise
significantly, (3) in the case of
interest-only mortgage loans, from the large
increases in monthly payments when the
interest-only terms expire and the monthly
payments on these loans are recalculated to
amortize the outstanding principal balance
over the remaining term or (4) in the case
of loans with negative amortization
features, from the large increases in
monthly payments when the payments are
recalculated to amortize the outstanding
principal balance.
When evaluating a mortgage loan application
from a prospective borrower for an
adjustable payment or interest-only mortgage
loan, many mortgage originators determine
the amount of loan that borrower can afford
based on the borrower's initial scheduled
monthly payments, or the scheduled monthly
payments on the first mortgage interest rate
reset date, rather than based on the
adjusted monthly payments as of future
mortgage interest reset dates (in the case
of adjustable rate mortgage loans) or the
principal amortization date (in the case of
interest-only mortgage loans). Mortgage loan
characteristics and debt-to-income ratios
set forth in the prospectus supplement will
reflect the scheduled mortgage loan payments
due or being made as of the "cut-off date,"
and will not reflect the mortgage loan
payment resets that will occur during the
life of the mortgage loan. These origination
practices may increase the sensitivity of
mortgage loan performance and defaults to
changes in U.S. economic conditions.
In recent years, mortgage interest rates
have been at historically low levels.
Although short-term interest rates have
increased from their lowest levels, long-
term interest rates have remained low. If
mortgage interest rates rise, borrowers will
experience increased monthly payments on
their adjustable rate mortgage loans. As the
fixed interest rates on hybrid mortgage
loans expire and convert to adjustable
rates, borrowers may find that the new
minimum monthly payments are considerably
higher and they may not be able to make
those payments.
In addition, without regard to changes in
interest rates, the monthly payments on
mortgage loans with interest- only or
negative amortization features will increase
substantially when the principal must be
repaid.
Any of these factors, or a combination of
these factors, could cause mortgage loan
defaults to increase substantially.
Borrowers who intend to avoid increased
monthly payments by refinancing their
mortgage loans may find that lenders may not
in the future be willing or able to offer
these adjustable payment mortgage loan
products, or to offer these products at
relatively low interest rates. A decline in
housing prices generally or in certain
regions of the United States could also
leave borrowers with insufficient equity in
their homes to permit them to refinance. In
addition, if the recent rapid increase in
house prices ceases or housing prices
decline, borrowers who intend to sell their
properties on or before the expiration of
the fixed rate periods or interest-only
periods on their mortgage loans may find
that they cannot sell their properties for
an amount equal to or greater than the
unpaid principal balance of their loans,
especially in the case of negative
amortization mortgage loans. These events
could cause borrowers to default on their
mortgage loans.
Rising unemployment and slow wage growth in
certain regions of the United States or
generally could also impact the ability of
many borrowers with adjustable payment
mortgage loans to make the higher monthly
payments resulting from the expiration of
fixed rate periods or interest-only periods,
or from increases in interest rates. If
borrowers become unemployed in a slowing
economy, or if they find that expected
increases in personal income have not
occurred, they may be unable to make the
higher monthly mortgage payments.
It is likely that borrowers with adjustable
payment mortgage loans will over the next
several years be required to spend a larger
proportion of their income to service their
mortgage debt. This increase could, in the
absence of strong wage growth, come at the
expense of other expenditures by these
borrowers, particularly consumer spending.
It is possible that a decline in consumer
spending could cause the U.S. economy to
slow or decline, which could give rise to
increased unemployment and falling property
values.
These factors would negatively impact the
ability of many borrowers to meet their
increased monthly mortgage payments as
described above. As a consequence, defaults
on adjustable payment mortgage loans may
increase significantly.
Any of the factors described above, alone or
in combination, could adversely affect the
yield on your securities. Depending upon the
type of security purchased and the price
paid, the adverse yield effect could be
substantial.
These risks are magnified with respect to
mortgage loans made on the basis of
relatively low credit standards. See
"--Mortgage Loans Originated According to
Non-Agency Underwriting Guidelines May Have
Higher Expected Delinquencies" for a
discussion of risks related to mortgage
loans that are sometimes referred to as
"subprime," "nonconforming" or "Alt-A," or
are otherwise originated in accordance with
credit standards that do not conform to
those of Fannie Mae or Freddie Mac.
Several types of adjustable payment mortgage
loans discussed above, in particular "option
ARMs" and interest-only mortgage loans, have
only been originated in any significant
numbers in relatively recent years.
Consequently, there is no material
statistical information showing payment and
default trends under a variety of
macroeconomic conditions. In particular, it
is unclear how these mortgage loan products
will perform in a declining housing market
or under other negative macroeconomic
conditions.
SEE "--MORTGAGE LOANS WITH INTEREST-ONLY
PAYMENTS" AND "--SPECIAL RISKS OF MORTGAGE
LOANS THAT PROVIDE FOR NEGATIVE AMORTIZATION
"FOR FURTHER DISCUSSION OF MORTGAGE LOANS
WITH INTEREST-ONLY OR NEGATIVE AMORTIZATION
FEATURES, RESPECTIVELY.
LEGAL AND OTHER FACTORS COULD
REDUCE THE AMOUNT AND DELAY
THE TIMING OF RECOVERIES
ON DEFAULTED LOANS................. The following factors, among others, could
adversely affect property values in such a
way that the outstanding balance of the
related loans would equal or exceed those
values:
o an overall decline in the
residential real estate markets
where the properties are located,
o failure of borrowers to maintain
their properties adequately, and
o natural disasters that are not
necessarily covered by hazard
insurance, such as earthquakes and
floods.
Even if you assume that the mortgaged
properties provide adequate security for the
loans, substantial delays could occur before
defaulted loans are liquidated and the
proceeds forwarded to investors. Property
foreclosure actions are regulated by state
statutes and rules and are subject to many
of the delays and expenses that characterize
other types of lawsuits if defenses or
counterclaims are made. As a result,
foreclosure actions can sometimes take
several years to complete. Moreover, some
states prohibit a mortgage lender from
obtaining a judgment against the borrower
for amounts not covered by property proceeds
if the property is sold outside of a
judicial proceeding. As a result, if a
borrower defaults, these restrictions may
impede the servicer's ability to dispose of
the borrower's property and obtain
sufficient proceeds to repay the loan in
full. In addition, the servicer is entitled
to deduct from liquidation proceeds all the
expenses it reasonably incurs in trying to
recover on the defaulted loan, including
legal fees and costs, real estate taxes, and
property preservation and maintenance
expenses.
State laws generally regulate interest rates
and other loan charges, require certain
disclosures, and often require licensing of
loan originators and servicers. In addition,
most states have other laws and public
policies for the protection of consumers
that prohibit unfair and deceptive practices
in the origination, servicing and collection
of loans. Depending on the provisions of the
particular law or policy and the specific
facts and circumstances involved, violations
may limit the ability of the servicer to
collect interest or principal on the loans.
Also, the borrower may be entitled to a
refund of amounts previously paid and the
servicer may be subject to damage claims and
administrative sanctions.
RISKS RELATED TO MORTGAGE LOANS
WITH INTEREST-ONLY PAYMENTS........ If specified in the related prospectus
supplement, some of the mortgage loans to be
included in the trust fund may provide for
payment of interest at the related mortgage
interest rate, but no payment of principal,
for the period following origination
specified in the related prospectus
supplement. Following the applicable
interest-only period, the monthly payment
with respect to each of these mortgage loans
will be increased to an amount sufficient to
amortize the principal balance of the
mortgage loan over the remaining term and to
pay interest at the applicable mortgage
interest rate.
If applicable, the presence of these
mortgage loans in the trust fund will,
absent other considerations, result in
longer weighted average lives of the related
securities than would have been the case had
these loans not been included in the trust
fund. In addition, borrowers may view the
absence of any obligation to make a payment
of principal during the interest-only period
following origination specified in the
related prospectus supplement as a
disincentive to prepayment. Conversely,
however, borrowers may be more likely to
refinance their mortgage loans when the
related interest-only period expires,
resulting in increased prepayments.
After a borrower's monthly payment has been
increased to include principal amortization,
and assuming the borrower does not refinance
the related mortgage loan, delinquency or
default may be more likely.
SEE ALSO "--CHANGES IN U.S. ECONOMIC
CONDITIONS MAY ADVERSELY AFFECT THE
PERFORMANCE OF MORTGAGE LOANS, PARTICULARLY
ADJUSTABLE PAYMENT LOANS OF VARIOUS TYPES
"FOR A DISCUSSION OF RISKS RELATED TO
INTEREST-ONLY MORTGAGE LOANS AND ECONOMIC
CONDITIONS.
RISKS RELATED TO MORTGAGE LOANS
THAT PROVIDE FOR NEGATIVE
AMORTIZATION....................... If specified in the related prospectus
supplement, the trust fund may include
mortgage loans that provide for so-called
"negative amortization." Negative
amortization mortgage loans generally
provide the borrower with a low initial
introductory interest rate. Thereafter, the
mortgage interest rate is calculated at the
index specified in the related mortgage note
plus the applicable margin. However, the
borrower is only required to make (or may
elect to make) for the period specified in
the related mortgage note a minimum monthly
payment on the mortgage loan that may be
sufficient to amortize the principal balance
of the mortgage loan over the remaining term
but not to pay all accrued interest, or may
be insufficient to pay accrued interest and
not amortize the principal balance at all.
At the end of this initial period, and
periodically thereafter, the borrower's
minimum monthly payment is adjusted to
reflect the prevailing interest rate,
consisting of the current applicable index
plus the applicable margin, plus a principal
amount sufficient to amortize the mortgage
loan over the remaining applicable term.
Typically, the borrower's monthly payment
will not be increased or decreased by more
than a periodic cap and is subject to a
maximum interest rate, as specified in the
related mortgage note. Nevertheless,
although each year's recalculated monthly
payment will be based on the prevailing rate
of the applicable index at the time of the
annual payment adjustment date, this index
may continue to adjust up or down throughout
the course of the year.
During a period of rising interest rates, as
well as before the annual adjustment to the
minimum monthly payment made by the
borrower, the amount of interest accruing on
the principal balance of the related
mortgage loan may exceed the amount of the
scheduled monthly payment. As a result, a
portion of the accrued interest on the
related mortgage loan may become deferred
interest that will be added to its principal
balance and will also bear interest at the
applicable interest rate.
In addition, the amount by which a monthly
payment may be adjusted on an annual payment
adjustment date is generally limited and may
not be sufficient to amortize fully the
unpaid principal balance of a negative
amortization mortgage loan over its
remaining term to maturity.
Generally, under the circumstances and at
the intervals provided in the related
mortgage note, the monthly payment due on a
negative amortization mortgage loan will be
"recast" without regard to the related
payment cap in order to provide for payment
of the outstanding balance of the mortgage
loan over its remaining term.
In summary, then, as interest rates increase
(or, in some cases, even if market interest
rates remain stable), the principal balance
of a negative amortization mortgage loan
will increase over time, thereby increasing
the monthly payments to be paid by the
borrower when principal must be repaid,
making refinancing more difficult and
increasing the potential adverse effect of
macroeconomic trends. See "--- Changes in
U.S. Economic Conditions May Adversely
Affect the Performance of Mortgage Loans,
Particularly Adjustable Payment Loans of
Various Types" above.
In addition, any deferral of interest on
negative amortization mortgage loans will
result in a reduction of the amount of
interest available to be distributed as
interest to the securities. If specified in
the related prospectus supplement, the
reduction in interest collections may be
offset, in part, by applying certain
prepayments received on the mortgage loans
to interest payments on the securities. In
that case, the excess of any deferred
interest on the mortgage loans over the
prepayments received on the mortgage loans,
or net deferred interest, will be allocated
among the classes of securities in an amount
equal to the excess of the interest accrued
on each such class at its applicable
interest rate over the amount of interest
that would have accrued if the applicable
interest rate for each class had been equal
to a rate adjusted for net deferred interest
on the related mortgage loans, as described
in the related prospectus supplement. Any
such allocation of net deferred interest
could, as a result, affect the weighted
average maturity of the affected class of
securities.
LOANS SECURED BY JUNIOR LIENS ARE
SUBJECT TO ADDITIONAL RISKS........ If a loan is in a junior lien position, a
decline in property values could extinguish
the value of the junior lien loan before
having any effect on the related senior lien
loan or loans. In general, the expenses of
liquidating defaulted loans do not vary
directly with the unpaid amount. So,
assuming that a servicer would take the same
steps to recover a defaulted loan with a
small unpaid balance as it would a loan with
a large unpaid balance, the net amount
realized after paying liquidation expenses
would be a smaller percentage of the balance
of the small loan than of the large loan.
Since the mortgages securing home equity
loans typically will be in a junior lien
position, the proceeds from any liquidation
will be applied first to the claims of the
related senior mortgageholders, including
foreclosure costs. In addition, a junior
mortgage lender may only foreclose subject
to any related senior mortgage. As a result,
the junior mortgage lender generally must
either pay each related senior mortgage
lender in full at or before the foreclosure
sale or agree to make the regular payments
on each senior mortgage. Since the trust
will not have any source of funds to satisfy
any senior mortgages or to continue making
payments on them, the trust's ability as a
practical matter to foreclose on any junior
lien will be limited.
RISKS RELATED TO ANY INTEREST
RATE SWAP AGREEMENT................ If the related prospectus supplement
specifies that the trust fund or related
supplemental interest trust includes one or
more interest rate swap agreements, then any
net swap payment payable to the swap
counterparty under the terms of those
interest rate swap agreements will reduce
amounts available for payment to
securityholders, and may reduce payments of
interest on the securities. If the rate of
prepayments on the mortgage loans is faster
than anticipated, the scheduled notional
amounts on which payments due under the
interest rate swap agreements are calculated
may exceed the total principal balance of
the mortgage loans, thereby increasing the
relative proportion of interest collections
on the mortgage loans that must be applied
to make swap payments to the swap
counterparty and, under certain
circumstances, requiring application of
principal received on the mortgage loans to
make net swap payments to the swap
counterparty. Therefore, a rapid rate of
prepayments during periods in which the
trust fund makes net payments to a swap
counterparty could adversely affect the
yields on the securities.
EFFECT OF CREDITWORTHINESS OF
SWAP COUNTERPARTY ON RATINGS
OF SECURITIES...................... If the related prospectus supplement
specifies that the trust fund includes one
or more interest rate swap agreements, in
the event that the trust fund, after
application of all interest and principal
received on the related mortgage loans,
cannot make the required swap payments to
the swap counterparty, a swap termination
payment as described in the related
prospectus supplement may be owed to the
swap counterparty. Any termination payment
payable to the swap counterparty in the
event of early termination of any interest
rate swap agreement will likely reduce
amounts available for payment to
securityholders.
If the related prospectus supplement
specifies that the trust fund includes one
or more interest rate swap agreements, the
ratings on your securities will be dependent
in part upon the credit ratings of the swap
counterparty or its credit support provider.
If a credit rating of the swap counterparty
or its credit support provider is qualified,
reduced or withdrawn, or if the swap
counterparty or its credit support provider
defaults on its obligations, and a
substitute counterparty or credit support
provider is not obtained in accordance with
the terms of the interest rate swap
agreement, the ratings of your securities
may be qualified, reduced or withdrawn. In
such event, the value and marketability of
those securities will be adversely affected.
SEE THE DESCRIPTIONS OF ANY INTEREST RATE
SWAP AGREEMENT AND THE SWAP COUNTERPARTY IN
THE PROSPECTUS SUPPLEMENT.
SPECIAL RISKS FOR CERTAIN
CLASSES OF SECURITIES.............. The related prospectus supplement may
specify that certain classes of securities
are interest-only or principal-only
securities. These securities will have
yields to maturity (or early
termination)---the yield you will receive if
you hold a security until it has been paid
in full--that are highly sensitive to
prepayments on the related mortgage loans.
If you purchase any of these classes of
securities, you should consider the risk
that you may receive a lower than expected
yield under the following circumstances:
o in the case of any interest-only
securities, a faster than expected
rate of prepayments on the mortgage
loans in the trust fund; and
o in the case of any principal-only
securities, a slower than expected
rate of prepayments on the mortgage
loans in the trust fund.
Prepayments on the mortgage loans, including
liquidations, purchases and insurance
payments, could result in the failure of
investors in any interest-only securities to
fully recover their initial investments.
Prepayments on the mortgage loans may occur
as a result of solicitations of the
borrowers by mortgage loan providers,
including the seller and its affiliates and
any master servicer or servicer.
Exercise by a party that has a right to
purchase the mortgage loans, as described in
the related prospectus supplement, will
adversely affect the yields on any
interest-only securities.
MILITARY ACTION AND TERRORIST
ATTACKS The effects that military action by U.S.
forces in Iraq, Afghanistan or other
regions, terrorist attacks in the United
States or other incidents and related
military action may have on the performance
of the mortgage loans in the trust fund or
on the values of mortgaged properties cannot
be determined at this time. Investors should
consider the possible effects on
delinquency, default and prepayment
experience of the related mortgage loans.
Federal agencies and non- government lenders
may defer, reduce or forgive payments and
delay foreclosure proceedings in respect of
loans to borrowers affected in some way by
possible future events. In addition, the
activation of additional U.S. military
reservists or members of the National Guard
may significantly increase the proportion of
mortgage loans whose mortgage rates are
reduced by application of the Servicemembers
Civil Relief Act or similar state or local
laws. The amount of interest available for
payment to securityholders will be reduced
by any reductions in the amount of interest
collectible as a result of application of
the Servicemembers Civil Relief Act or
similar state or local laws and no servicer,
master servicer nor any other party will be
required to fund any interest shortfall
caused by any such reduction.
THE SERVICERS' COLLECTIONS
PROCEDURES MAY AFFECT THE TIMING
OF COLLECTIONS ON THE MORTGAGE
LOANS.............................. In order to reduce borrower defaults, the
servicer or servicers may from time to time
use servicing and collections practices that
have the effect of accelerating or deferring
prepayments or borrower defaults of mortgage
loans. The servicers may generally waive,
modify or vary any term of any mortgage
loan, or postpone strict compliance by the
borrower with any term of any mortgage loan,
so long as that waiver, modification or
postponement is not materially adverse to
the trust fund. For example, qualifying
borrowers might be permitted to skip a
payment or be offered other benefits that
have the effect of deferring or otherwise
altering the timing of the trust fund's
receipt of interest or principal payments.
RISKS RELATING TO DEFAULTS OR
RESIGNATION OF THE MASTER SERVICER
OR SERVICER........................ If the master servicer or servicer were to
default in their obligations under the
related master servicing or servicing
agreement, the trustee or the seller may
attempt to terminate the defaulting party.
However, certain aspects of the servicing of
mortgage loans are subject to various
interpretations of what actions are
"accepted" or "market standard" practices,
and the parties' determination of what
servicing actions are in the best interest
for the securityholders may, at such times,
be in disagreement between the trustee, the
sponsor and the seller on the one hand, and
the master servicer or servicer, as
applicable, on the other. As a consequence,
if the trustee or the seller attempts to
terminate a defaulting master servicer or
servicer, the master servicer or servicer
may challenge that termination. While such a
dispute is being resolved, the performance
of the servicing function of the master
servicer or servicer may continue to suffer
and may adversely affect the mortgage loans.
If the master servicer or servicer were to
become a debtor in a bankruptcy proceeding,
it could seek to reject its obligations
under the relevant agreements under the
bankruptcy laws, thus forcing the trustee to
appoint a successor servicer or master
servicer.
If the master servicer or servicer resigns
or is in default and the cost of servicing
the mortgage loans has increased, the
trustee may not be able to find a successor
master servicer or servicer willing to
service the loans for the master servicing
fee or servicing fee specified in the
relevant governing agreement. These
circumstances might cause the trustee to
seek authority from securitybolders to
increase the applicable fee to an amount
necessary to provide acceptable compensation
to the then current master servicer or
servicer or any replacement master servicer
or servicer. If that approval was not
granted by securityholders, under the law
generally applicable to trusts the trustee
could seek approval for such an increase
from a court if such increase were necessary
for the preservation or continued
administration of the trust. Any increase in
the master servicing fee or servicing fee
would reduce amounts available for
distribution to securityholders,
particularly holders of subordinate
securities.
RISK OF DELINQUENCIES DUE
TO SERVICING TRANSFERS............. Servicing of mortgage loans may be
transferred in the future to other servicers
in accordance with the provisions of the
trust agreement or transfer and servicing
agreement, as applicable, and the related
servicing agreement as a result of, among
other things, (1) the occurrence of
unremedied events of default in servicer
performance under a servicing agreement or
(2) the exercise by the seller of its right
to terminate a servicer without cause.
All transfers of servicing involve some risk
of disruption in collections due to data
input errors, misapplied or misdirected
payments, inadequate borrower notification,
system incompatibilities and other reasons.
As a result, the affected mortgage loans may
experience increased delinquencies and
defaults, at least for a period of time,
until all of the borrowers are informed of
the transfer and the related servicing
mortgage files and records and all the other
relevant data has been obtained by the new
servicer. There can be no assurance as to
the extent or duration of any disruptions
associated with the transfer of servicing or
as to the resulting effects on the yields on
the securities.
BANKRUPTCY OR INSOLVENCY PROCEEDINGS
COULD DELAY OR REDUCE PAYMENTS
ON THE SECURITIES.................. Each transfer of a mortgage loan to Lehman
Brothers Holdings Inc. (or to such other
seller specified in the related prospectus
supplement), from the seller to the
depositor and, in connection with the
issuance of any asset-backed notes, from the
depositor to the issuer, will be intended to
be an absolute and unconditional sale of
that mortgage loan and will be reflected as
such in the applicable documents. However,
in the event of the bankruptcy or insolvency
of a prior owner of a mortgage loan, a
trustee in bankruptcy or a receiver or
creditor of the insolvent party could
attempt to recharacterize the sale of that
mortgage loan by the insolvent party as a
borrowing secured by a pledge of the
mortgage loan. Such an attempt, even if
unsuccessful, could result in delays in
payments on the securities. If such an
attempt were successful, it is possible that
the affected mortgage loans could be sold in
order to liquidate the assets of the
insolvent entity. In the case of the
bankruptcy or insolvency of the applicable
seller, there can be no assurance that the
proceeds of such a liquidation would be
sufficient to repay the securities in full.
LOANS TO LOWER CREDIT QUALITY
BORROWERS ARE MORE LIKELY
TO EXPERIENCE LATE PAYMENTS
AND DEFAULTS AND INCREASE YOUR
RISK OF LOSS....................... Trust assets may have been made to lower
credit quality borrowers who fall into one
of two categories:
o customers with moderate income,
limited assets and other income
characteristics that cause
difficulty in borrowing from banks
and other traditional lenders; or
o customers with a history of
irregular employment, previous
bankruptcy filings, repossession of
property, charged-off loans or
garnishment of wages.
The average interest rate charged on loans
made to these types of borrowers is
generally higher than that charged by
lenders that typically impose more stringent
credit requirements. There is a greater
likelihood of late payments on loans made to
these types of borrowers than on loans to
borrowers with a higher credit quality. In
particular, payments from borrowers with a
lower credit quality are more likely to be
sensitive to changes in the economic climate
in the areas in which they reside.
As much as 20% (by principal balance) of the
trust assets for any particular series of
securities may be contractually delinquent
as of the related cut-off date.
Early or multiple payment defaults may be
indicative of higher rates of delinquencies
and losses
IN THE FUTURE...................... As specified in the related prospectus
supplement, a certain number of mortgage
loans included in the trust fund may be
delinquent as of the applicable cut-off date
or may have been delinquent in payment in
the last twelve months on one or more due
dates.
Prior delinquencies and, in particular,
first or early payment defaults, may be an
indication of underwriting errors in
assessing the financial means and/or credit
history of the borrower or of an adverse
change in the financial status of the
borrower. These mortgage loans are likely to
experience rates of delinquency, foreclosure
and bankruptcy that are higher, and that may
be substantially higher, than those
experienced by mortgage loans whose
borrowers have more favorable payment
histories.
MORTGAGE LOANS WITH HIGH ORIGINAL
LOAN-TO-VALUE RATIOS MAY PRESENT
A GREATER RISK OF LOSS............. As specified in the related prospectus
supplement, some of the mortgage loans
included in the trust fund may have original
loan-to-value ratios of greater than 80%.
Mortgage loans with high loan-to-value
ratios, particularly those in excess of
100%, may be more likely to experience
default and foreclosure than mortgage loans
with low original loan-to-value ratios.
Moreover, mortgage loans with high original
loan-to- value ratios are more likely to be
subject to a judicial reduction of the loan
amount in bankruptcy or other proceedings
than mortgage loans with lower original
loan-to-value ratios. If a court relieves a
borrower's obligation to repay amounts
otherwise due on a mortgage loan, none of
the servicers or the master servicer will be
required to advance funds in respect of
relieved amounts, and any related loss may
reduce the amount available to be paid to
securityholders. In such event, holders of
subordinate classes of securities may suffer
losses.
GEOGRAPHIC CONCENTRATION OF
MORTGAGE LOANS..................... The mortgage loans to be included in the
trust fund may be concentrated in one or
more states, as specified in the related
prospectus supplement. The rate of
delinquencies, defaults and losses on the
mortgage loans may be higher than if fewer
of the mortgage loans were concentrated in
those states because the following
conditions will have a disproportionate
impact on the mortgage loans in general:
o Weak economic conditions in those
states, which may or may not affect
real property values, may affect
the ability of borrowers to repay
their loans on time.
o Declines in the residential real
estate market in those states may
reduce the values of properties
located in those states, which
would result in an increase in the
loan-to-value ratios of the related
mortgage loans.
o Properties in California, Florida
and the Gulf of Mexico coast, in
particular, may be more susceptible
than homes located in other parts
of the country to certain types of
uninsurable hazards, such as
hurricanes, as well as earthquakes,
floods, wildfires, mudslides and
other natural disasters.
o Predatory lending laws or other
laws which tend to restrict the
availability of credit in certain
cities, counties or states may
limit a borrower's refinancing
options and increase the chances of
default and foreclosure.
Natural disasters affect regions of the
United States from time to time, and may
result in increased losses on mortgage loans
in those regions, or in insurance payments
that will constitute prepayments of
principal of those mortgage loans.
FOR ADDITIONAL INFORMATION REGARDING THE
GEOGRAPHIC CONCENTRATION OF THE MORTGAGE
LOANS TO BE INCLUDED IN THE TRUST FUND, SEE
THE GEOGRAPHIC DISTRIBUTION TABLE OR TABLES
IN THE PROSPECTUS SUPPLEMENT.
FAILURE TO PERFECT SECURITY
INTERESTS IN MANUFACTURED
HOMES MAY RESULT IN LOSSES
ON YOUR SECURITIES................. Each manufactured housing conditional sales
contract or installment loan agreement that
is included in a trust fund will be secured
by a security interest in the related
manufactured home. The steps necessary to
perfect the security interest in a
manufactured home will vary from
state-to-state. If, as a result of clerical
error or otherwise, the master servicer
fails to take the appropriate steps to
perfect the security interest in a
manufactured home that secures a conditional
sales contract or installment loan agreement
included in the trust, the trustee may not
have a first priority security interest in
that manufactured home. Moreover, the master
servicer will not amend the certificate of
title to a manufactured home to name the
trustee as lienholder, note the trustee's
interest on the certificate of title or
deliver the certificate of title to the
trustee. As a result, in some states the
assignment of the security interest in the
manufactured home to the trustee may not be
perfected or may not be effective against
creditors of the master servicer or a
bankruptcy trustee in the event of a
bankruptcy of the master servicer.
In addition, courts in many states have held
that manufactured homes may, in certain
circumstances, become subject to real estate
title and recording laws. As a result, the
security interest in each manufactured home
could be rendered subordinate to the
interests of other parties claiming an
interest in that manufactured home under
applicable state real estate law.
The failure to properly perfect a valid,
first priority security interest in a
manufactured home that secures a conditional
sales contract or installment loan agreement
included in the trust could lead to losses
that, to the extent not covered by any
credit enhancement, could adversely affect
the yield to maturity of the related
securities.
MULTIFAMILY AND MIXED USE LOANS
GENERALLY ARE RISKIER THAN SINGLE
FAMILY LOANS....................... Loans that are secured by first liens on
rental apartment buildings or projects
containing five or more residential units,
together with loans that are secured by
first liens on mixed-use properties, shall
not in the aggregate constitute 10% or more
of any pool by principal balance.
Multifamily loans are generally considered
riskier than single-family loans for the
following reasons:
o Multifamily loans typically are
much larger in amount, which
increases the risk represented by
the default of a single borrower.
o Repayment of a multifamily loan
usually depends upon successful
management of the related mortgaged
property.
o Changing economic conditions in
particular markets can affect the
supply and demand of rental units
and the rents that those markets
will bear.
o Government regulations, including
rental control laws, may adversely
affect future income from mortgaged
properties that are subject to
those regulations.
In addition, because individual multifamily
loans often are relatively large in amount,
principal prepayments resulting from
defaults, casualties, condemnations or
breaches of representations and warranties
may adversely affect your yield.
Default risk on high balance
MORTGAGE LOANS..................... If specified in the related prospectus
supplement, a certain percentage of the
mortgage loans included in the trust fund
may have a principal balance as of the
cut-off date in excess of $l,000,000. You
should consider the risk that the loss and
delinquency experience on these high balance
loans may have a disproportionate effect on
the trust fund as a whole.
LOANS WITH BALLOON PAYMENTS
MAY INCREASE YOUR RISK OF LOSS..... Certain loans may not be fully amortizing
and may require a substantial principal
payment (a "balloon" payment) at their
stated maturity. Loans of this type involve
greater risk than fully amortizing loans
since the borrower must generally be able to
refinance the loan or sell the related
property prior to the loan's maturity date.
The borrower's ability to do so will depend
on such factors as the level of available
mortgage rates at the time of sale or
refinancing, the relative strength of the
local housing market, the borrower's equity
in the property, the borrower's general
financial condition and tax laws.
MORTGAGE LOAN INTEREST RATES MAY
LIMIT INTEREST RATES ON THE VARIABLE
RATE SECURITIES.................... The securities generally will have either
fixed or variable interest rates. However,
as specified in the related prospectus
supplement, the interest rates on your
securities may be subject to certain
limitations, generally based on the weighted
average interest rates of the mortgage loans
in the trust fund or as otherwise described
in the related prospectus supplement, net of
certain allocable fees and expenses of the
trust fund and any payments owed on
derivative instruments. The mortgage loans
to be included in the trust fund will have
interest rates that either are fixed or
adjust based on a variable index, as
described in the related prospectus
supplement.
Any adjustable rate mortgage loans in the
trust fund may also have periodic maximum
and minimum limitations on adjustments to
their interest rates, and may have the first
adjustment to their interest rates a number
of years after their first payment dates. In
addition, adjustable rate mortgage loans
generally have lifetime maximum interest
rates. As a result, your variable rate
securities may accrue less interest than
they would accrue if their interest rates
were solely based on the specified index
plus the specified margin.
A variety of factors could limit the
interest rates and adversely affect the
yields to maturity on the variable rate
securities. Some of these factors are
described below.
o The interest rates for your
securities may adjust monthly based
on the one-month LIBOR index or
another index, while the interest
rates on the mortgage loans to be
included in the trust fund may
either adjust less frequently,
adjust based on a different index
or not adjust at all. Consequently,
the limits on the interest rates on
these securities may prevent
increases in the interest rates for
extended periods in a rising
interest rate environment.
o The interest rates on adjustable
rate mortgage loans may respond to
economic and market factors that
differ from those that affect the
one-month LIBOR index or the index
applicable to your variable rate
securities. It is possible that the
interest rates on any adjustable
rate mortgage loans may decline
while the interest rates on the
related securities are stable or
rising. It is also possible that
the interest rates on any
adjustable rate mortgage loans and
the interest rates on the related
securities may both decline or
increase during the same period,
but that the interest rates on your
securities may decline or may
increase more slowly or rapidly.
o To the extent that fixed rate or
adjustable rate mortgage loans are
subject to default or prepayment,
the interest rates on the related
securities may be reduced as a
result of the net funds cap
limitations described in the
related prospectus supplement.
SEE "YIELD AND PREPAYMENT CONSIDERATIONS" IN
THIS PROSPECTUS AND SEE THE PROSPECTUS
SUPPLEMENT FOR A DESCRIPTION OF THE INTEREST
RATES APPLICABLE TO YOUR SECURITIES AND FOR
A GENERAL DESCRIPTION OF THE INTEREST RATES
OF THE RELATED MORTGAGE LOANS.
IF AMOUNTS IN ANY PRE-FUNDING
ACCOUNT ARE NOT USED TO
PURCHASE TRUST ASSETS, YOU WILL
RECEIVE A PREPAYMENT ON THE
RELATED SECURITIES................. The related prospectus supplement may
provide that the depositor transfer a
specified amount into a pre-funding account
on the date the securities are issued. In
this case, the transferred funds may be used
only to acquire additional assets for the
trust during a set period after the
issuance. Any amounts remaining in the
account at the end of the period will be
distributed as a prepayment of principal to
the holders of the related securities. The
resulting prepayment could adversely affect
the yield on those securities.
VIOLATIONS OF APPLICABLE FEDERAL
LAWS MAY REDUCE OR DELAY
MORTGAGE LOAN COLLECTIONS.......... The loans may also be subject to federal
laws relating to the origination and
underwriting. These laws
o require certain disclosures to the
borrowers regarding the terms of
the loans;
o 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;
o regulate the use and reporting of
information related to the
borrower's credit experience; and
o require additional application
disclosures, limit changes that may
be made to the loan documents
without the borrower's consent and
restrict a lender's ability to
declare a default or to suspend or
reduce a borrower's credit limit to
certain enumerated events.
Loans may also be subject to federal laws
that impose additional disclosure
requirements on creditors for nonpurchase
money loans with high interest rates or high
upfront fees and charges. These laws can
impose specific statutory liabilities upon
creditors that fail to comply and may affect
the enforceability of the related loans. In
addition, any assignee of the creditor
(including the trust) would generally be
subject to all claims and defenses that the
borrower could assert against the creditor,
including the right to rescind the loan.
Loans relating to home improvement contracts
may be subject to federal laws that protect
the borrower from defective or incomplete
work by a contractor. These laws permit the
borrower to withhold payment if the work
does not meet the quality and durability
standards agreed to between the borrower and
the contractor. These laws have the effect
of subjecting any assignee of the seller
(including the trust) to all claims and
defenses which the borrower in a sale
transaction could assert against the seller
of defective goods.
If certain provisions of these federal laws
are violated, the master servicer may be
unable to collect all or part of the
principal or interest on the loans. The
trust also could be subject to damages and
administrative enforcement.
ORIGINATORS AND SERVICERS MAY BE
SUBJECT TO LITIGATION OR
GOVERNMENTAL PROCEEDINGS........... The mortgage lending and servicing business
involves the collection of numerous accounts
and compliance with various federal, state
and local laws that regulate consumer
lending. Lenders and servicers may be
subject from time to time to various types
of claims, legal actions (including class
action lawsuits), investigations, subpoenas
and inquiries in the course of their
business. It is impossible to predict the
outcome of any particular actions,
investigations or inquiries or the resulting
legal and financial liability. If any such
proceeding were determined adversely to an
originator or servicer of mortgage loans
included in the trust fund and were to have
a material adverse effect on its financial
condition, the ability of the affected
servicer to service the mortgage loans in
accordance with the applicable servicing
agreement, or the ability of the affected
originator to fulfill its obligation to
repurchase or substitute for defective
mortgage loans, could be impaired.
PROCEEDS OF LIQUIDATED LOANS
GENERALLY ARE PAID FIRST TO
PROVIDERS OF TRUST SERVICES........ There is no assurance that the value of the
trust assets for any series of securities at
any time will equal or exceed the principal
amount of the outstanding securities of that
series. If trust assets have to be sold
because of an event of default or otherwise,
providers of services to the trust
(including the trustee, the master servicer
and the credit enhancer, if any) generally
will be entitled to receive the proceeds of
the sale to the extent of their unpaid fees
and other amounts due them before any
proceeds are paid to investors. As a result,
the proceeds of such a sale may be
insufficient to pay the full amount of
interest and principal of the related
securities.
MORTGAGED PROPERTIES MAY BE
SUBJECT TO ENVIRONMENTAL RISKS
THAT COULD RESULT IN LOSSES........ Federal, state and local laws and
regulations impose a wide range of
requirements on activities that may affect
the environment, health and safety. In
certain circumstances, these laws and
regulations impose obligations on owners or
operators of residential properties such as
those that secure the loans included in a
trust. Failure to comply with these laws and
regulations can result in fines and
penalties that could be assessed against the
trust as owner of the related property.
In some states, a lien on the property due
to contamination has priority over the lien
of an existing mortgage. Further, a mortgage
lender may be held liable as an "owner" or
"operator" for costs associated with the
release of petroleum from an underground
storage tank under certain circumstances. If
the trust is considered the owner or
operator of a property, it will suffer
losses as a result of any liability imposed
for environmental hazards on the property.
YOU MAY HAVE DIFFICULTY
SELLING YOUR SECURITIES OR
OBTAINING YOUR DESIRED PRICE....... No market will exist for the securities
before they are issued. In addition, there
can be no assurance that a secondary market
will develop following the issuance and sale
of the securities. Even if a secondary
market does develop, you may not be able to
sell your securities when you wish to or at
the price you want.
RATINGS OF THE SECURITIES DO NOT
ADDRESS ALL INVESTMENT RISKS AND
MUST BE VIEWED WITH CAUTION........ Any class of securities issued under this
prospectus and the accompanying prospectus
supplement will be rated in one of the four
highest generic rating categories of a
nationally recognized rating agency. A
rating is based on the adequacy of the value
of the trust assets and any credit
enhancement for that class and reflects the
rating agency's assessment of how likely it
is that holders of the class of securities
will receive the payments to which they are
entitled. A rating does not constitute an
assessment of how likely it is that
principal prepayments on the loans will be
made, the degree to which the rate of
prepayments might differ from that
originally anticipated or the likelihood of
early, optional termination of the
securities. You must not view a rating as a
recommendation to purchase, hold or sell
securities because it does not address the
market price or suitability of the
securities for any particular investor.
There is no assurance that any rating will
remain in effect for any given period of
time or that the rating agency will not
lower or withdraw it entirely in the future.
The rating agency could lower or withdraw
its rating due to:
o any decrease in the adequacy of the
value of the trust assets or any
related credit enhancement,
o an adverse change in the financial
or other condition of a credit
enhancement provider, or
o a change in the rating of the
credit enhancement provider's
long-term debt.
THE SECURITIES MAY NOT BE
SUITABLE INVESTMENTS............... The securities may not be a suitable
investment if you require a regular or
predictable schedule of payment, or payment
on any specific date. Because the mortgage
loans in the trust fund may include a
substantial proportion of loans as to which
the borrowers have blemished credit
histories (including prior bankruptcy
proceedings) or loans whose future
performance is difficult to predict, such as
adjustable payment mortgage loans,
interest-only loans, and for the other
factors relating to the mortgage loans
discussed above, the yields and the
aggregate amount and timing of distributions
on your securities may be subject to
substantial variability from period to
period and over the lives of the securities.
An investment in these types of securities
involves significant risks and uncertainties
and should only be considered by
sophisticated investors who, either alone or
with their financial, tax and legal
advisors, have carefully analyzed the
mortgage loans and the securities and
understand the risks. In addition, investors
should not purchase classes of securities
that are susceptible to special risks, such
as subordinate securities, interest- only
securities and principal-only securities,
unless the investors have the financial
ability to absorb a substantial loss on
their investment.
THE TRUST FUND
The trust fund for each series of certificates will be held by the
trustee named in the related prospectus supplement for the benefit of the
related securityholders. Each trust fund will consist of one or more pools of
the following asset types:
o Single Family Loans,
o Home Equity Loans,
o Multifamily Loans,
o Manufactured Housing Contracts,
o Home Improvement Contracts,
o Agency Securities or
o Private Label Securities,
in each case as specified in the related prospectus supplement, as well as
payments relating to the assets, as specified in the related prospectus
supplement.
Whenever the terms "pool," "certificates" and "notes" are used in this
prospectus, these terms are intended to apply, unless the context indicates
otherwise, to a discrete asset pool and the certificates representing undivided
interests in, or the notes secured by the assets of, a particular trust fund
consisting primarily of the loans in that pool. Similarly, the term
"pass-through rate" refers to the pass-through rate borne by the certificates of
a particular series, the term "interest rate" refers to the coupon borne by
notes of a particular series and the term "trust fund" refers to the related
trust fund.
Unless the context indicates otherwise, the term "loan" includes Single
Family Loans, Home Equity Loans, Multifamily Loans, Manufactured Housing
Contracts and Home Improvement Contracts. Unless the context indicates
otherwise, the term "underlying loan" refers to the Single Family Loans, Home
Equity Loans, Multifamily Loans, Manufactured Housing Contracts or Home
Improvement Contracts backing or securing Agency Securities or Private Label
Securities.
The securities will be entitled to payment from the assets of the
related trust fund as specified in the related prospectus supplement. The
securities will not be entitled to payments from the assets of any other trust
fund established by the depositor.
The loans, Agency Securities and Private Label Securities will be
acquired by the applicable depositor, either directly or through affiliates,
from sellers and conveyed by that depositor to the trustee named in the related
prospectus supplement for the benefit of the holders of the securities of the
related series. Sellers may have originated or purchased the assets. Loans
acquired by the applicable depositor will have been originated principally in
accordance with the general underwriting criteria specified in this prospectus
under the heading "Loan Program-- Underwriting Standards" and as more
specifically provided in a related prospectus supplement.
Because the securities issued by a trust will be secured by assets
transferred to that trust by one of the depositors you should construe all
references in this prospectus to the "depositor" as referring to the applicable
depositor that transfers assets to your trust under the applicable operative
documents.
The master servicer named in the related prospectus supplement will
service the trust fund assets, either directly or through sub-servicers, under a
servicing agreement for the related series of securities. If the securities are
certificates, the servicing agreement will be in the form of a pooling and
servicing agreement among the depositor, the master servicer and the trustee. If
the securities are notes, the servicing agreement generally will be between the
trustee and the master servicer.
The following sections contain a brief description of the assets
expected to be included in the trust funds. If specific information respecting
the assets is not known at the time the related series of securities initially
is offered, more general information of the nature described below will be
provided in the related prospectus supplement, and specific information will be
set forth in a report on Form 8-K to be filed with the SEC after the initial
issuance of the securities. A copy of the operative agreements with respect to
the related series of securities will be attached to the Form 8-K and will be
available for inspection at the corporate trust office of the trustee specified
in the related prospectus supplement. A schedule of the assets relating to the
series will be attached to the related servicing agreement delivered to the
trustee upon 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 MORTGAGE LOANS--GENERAL
The loans in each trust fund are secured by the related mortgaged
properties. 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. Except in the case of Multifamily Loans, the related
mortgaged properties generally consist of detached or semi-detached one- to
four-family dwellings, town houses, rowhouses, individual units in condominiums,
individual units in planned unit developments and certain other dwelling units.
In addition, if the related prospectus supplement so provides, the mortgaged
properties may include mixed-use properties. Mixed-use properties consist of
structures principally containing residential units but also including other
space used for retail, professional and other commercial uses. Loans that are
secured by multifamily and mixed-use properties shall not in the aggregate
constitute 10% or more of any pool by principal balance.
The mortgaged properties may include vacation and second homes,
investment properties and leasehold interests as specified in the related
prospectus supplement. The mortgaged properties may be located in any one of the
fifty states, the District of Columbia, Guam, Puerto Rico or any other territory
of the United States. If a loan has a loan-to-value ratio or principal balance
in excess of a particular benchmark, it may be covered in whole or in part by a
primary mortgage insurance policy. If the loans in a pool are covered by this
type of policy, the related prospectus supplement will describe the existence,
extent and duration of the coverage.
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 15 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 30 years;
o Fully-amortizing ARM Loans having an original or modified term
to maturity of not more than approximately 30 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, which will be of a type that is customarily
used in the debt and fixed income markets to measure the cost
of borrowed funds, 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 30 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
15 years with monthly payments during the first year
calculated on the basis of an assumed interest rate which is a
specified percentage below the mortgage rate on 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 15-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
30 years with monthly payments during the first year
calculated on the basis of an assumed interest rate which is a
specified percentage below the mortgage rate 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 30-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.
All of the loans in a pool will have monthly payments due on the first
day of each month. The payment terms of the mortgage loans to be included in a
trust fund will be described in the related prospectus supplement and may
include one or more of the following features or other features described in the
related prospectus supplement:
o Interest may be payable at
o a fixed rate,
o a rate that adjusts from time to time in relation to
an index that will be of a type that is customarily
used in the debt and fixed income markets to measure
the cost of borrowed funds and that will be specified
in the related prospectus supplement,
o a rate that is fixed for a period of time or under
certain circumstances and is followed by an
adjustable rate,
o a rate that otherwise varies from time to time, or
o a rate that is convertible from an adjustable rate to
a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of these limitations.
Accrued interest may be deferred and added to the principal of a loan
for the periods and under the circumstances specified in the related
prospectus supplement. A mortgage loan may provide for the payment of
interest at a rate lower than the specified interest rate borne by the
loan for a period of time or for the life of the loan, and the amount
of any difference may be contributed from funds supplied by the seller
of the related mortgaged property or another source.
o Principal may be
o payable on a level debt service basis to fully
amortize the loan over its term,
o calculated on the basis of an assumed amortization
schedule that is significantly longer than the
original term to maturity or on an interest rate that
is different from the loan rate, or
o nonamortizing during all or a portion of the original
term.
Payment of all or a substantial portion of the principal may be due on
maturity in the form of a "balloon" payment. Principal may include
interest that has been deferred and added to the principal balance of
the loan.
o Monthly payments of principal and interest may
o be fixed for the life of the loan,
o increase over a specified period of time, or
o change from period to period.
Loans may include limits on periodic increases or decreases in the
amount of monthly payments and may include maximum or minimum amounts
of monthly payments.
o Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the loan or may decline
over time, and may be prohibited for the life of the loan or
during any lockout periods. Some loans may permit prepayments
after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection with any
subsequent prepayment. Other loans may permit prepayments
without payment of a fee unless the prepayment occurs during
specified time periods. The loans may include "due-on-sale"
clauses which permit the lender to demand payment of the
entire loan in connection with the sale or certain transfers
of the related mortgaged property. Other loans may be
assumable by persons meeting the then applicable underwriting
standards of the related seller.
Each prospectus supplement will contain information, as of the date of
the prospectus supplement and to the extent then specifically known to the
depositor, with respect to the loans contained in the related pool, including
o the aggregate outstanding principal balance and the average
outstanding principal balance of the loans as of the
applicable cut-off date,
o the type of mortgaged property securing each loan,
o the original terms to maturity of the loans,
o the largest principal balance and the smallest principal
balance of the loans,
o the earliest origination date and latest maturity date of the
loans,
o the aggregate principal balance of loans having loan-to-value
ratios at origination exceeding 80%,
o the loan rates or fixed percentage rates (APRs) or range of
loan rates or APRs borne by the loans, and
o the geographical location of the related mortgaged properties
on a state-by-state basis.
The loan-to-value ratio of a loan at any given time is the ratio,
expressed as a percentage, of the then outstanding principal balance of the loan
to the collateral value of the related mortgaged property. The collateral value
of a mortgaged property, other than with respect to loans used to refinance an
existing loan, is the lesser of (a) the appraised value determined in an
appraisal obtained by the originator at origination of the loan and (b) the
sales price for the property. In the case of refinance loans, the collateral
value of the related mortgaged property is the appraised value of the property
determined in an appraisal obtained at the time of refinancing. For purposes of
calculating the loan-to-value ratio of a Manufactured Housing Contract relating
to a new manufactured home, the collateral value is no greater than the sum of
o a fixed percentage of the list price of the unit actually
billed by the manufacturer to the dealer, net of freight to
the dealer site but including any accessories identified in
the invoice (I.E., the "manufacturer invoice price"),
o the actual cost of any accessories depending on the size of
the unit, and
o the cost of state and local taxes, filing fees and up to three
years' prepaid hazard insurance premiums.
The collateral value of a used manufactured home is the least of the
sales price, appraised value, and National Automobile Dealers' 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.
The loan-to-value ratio of a Home Improvement Contract will be computed
in the manner described in the related prospectus supplement.
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 loans. If the residential real estate market should experience an
overall decline in property values such that the outstanding principal balances
of the loans in a particular pool, and any secondary financing on the mortgaged
properties, become equal to or greater than the value of the mortgaged
properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors which may or may not
affect real property values may affect the timely payment by borrowers of
scheduled payments of principal and interest on the loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any pool.
In the case of Multifamily Loans, these other factors could include
o excessive building resulting in an oversupply of rental
housing stock,
o a decrease in employment reducing the demand for rental units
in an area,
o federal, state or local regulations and controls affecting
rents, prices of goods and energy,
o environmental restrictions,
o increasing labor and material costs, and
o the relative attractiveness to tenants of the mortgaged
properties.
To the extent that losses are not covered by subordination provisions
or alternative arrangements, losses will be borne, at least in part, by the
securityholders of the securities of the related series.
The only obligations of the depositor with respect to a series of
certificates will be to obtain certain representations and warranties from the
related seller and to assign to the trustee for that series of certificates the
depositor's rights with respect to those representations and warranties. SEE
"Operative Agreements--Assignment of Trust Fund Assets" in this prospectus.
The obligations of the master servicer with respect to the mortgage
loans will consist principally of:
o its contractual servicing obligations under the related
servicing agreement, including its obligation to enforce the
obligations of the sub-servicers or sellers, or both, as more
fully described in this prospectus under the headings
"Mortgage Loan Program--Representations by Sellers;
Repurchases" and "Operative Agreements-- Sub-Servicing by
Sellers" and "--Assignment of Trust Fund Assets"; and
o its obligation to make certain cash advances in the event of
delinquencies in payments with respect to the mortgage loans
in the amounts described in this prospectus under the heading
"Description of the Certificates--Advances."
The obligations of the master servicer to make advances may be subject
to limitations, to the extent provided in this prospectus and in the related
prospectus supplement.
SINGLE FAMILY LOANS
Single Family Loans will consist of loans secured by mortgages or deeds
of trust that create first liens on one- to four-family residential properties.
If specified in the related prospectus supplement, Single Family Loans may
include cooperative loans secured by security interests in shares issued by
private, non-profit, cooperative housing corporations and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. Single Family Loans may
be conventional loans (loans that are not insured or guaranteed by any
governmental agency), loans insured by the Federal Housing Administration (FHA)
or partially guaranteed by the Veterans Administration (VA), as specified in the
related prospectus supplement. Single Family Loans will have individual
principal balances at origination of not less than $25,000 and not more than
$1,000,000, and original terms to stated maturity of from ten to 40 years.
If specified in the related prospectus supplement, the mortgaged
properties securing Single Family Loans may include five- to eight-family
residential properties and small mixed-use properties. In the case of leasehold
interests, the term of the leasehold will exceed the scheduled maturity of the
related mortgage loan by at least five years.
HOME EQUITY LOANS
Home Equity Loans will consist of closed-end and/or revolving home
equity loans generally secured by junior liens on one- to four-family
residential properties.
As more fully described in the related prospectus supplement, interest
on each revolving credit line loan, excluding introductory rates offered from
time to time during promotional periods, is computed and payable monthly on the
average daily outstanding principal balance of the loan. Principal amounts on a
revolving credit line loan may be drawn down (up to the maximum amount specified
in the related prospectus supplement) or repaid from time to time, but may be
subject to a minimum periodic payment. Except to the extent provided in the
related prospectus supplement, the trust fund will not include any amounts
borrowed under a revolving credit line loan after the cut-off date. The full
amount of a closed-end loan is advanced at the inception of the loan and
generally is repayable in equal (or substantially equal) installments in an
amount necessary to fully amortize such loan at its stated maturity. Except to
the extent provided in the related prospectus supplement, the original terms to
stated maturity of closed-end loans will not exceed 360 months. Under certain
circumstances, under either a revolving credit line loan or a closed-end loan, a
borrower may choose an interest only payment option, in which event the borrower
is obligated to pay only the amount of interest which accrued on the loan during
the billing cycle. An interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance of
the loan.
MULTIFAMILY LOANS
Multifamily Loans will consist of loans or other beneficial interests
in loans secured by mortgages that create first liens on rental apartment
buildings or projects containing five or more residential units. Multifamily
Loans may be conventional loans or FHA-insured loans, as specified in the
related prospectus supplement. All Multifamily Loans will have original terms to
stated maturity of not more than 40 years.
Multifamily Loans shall not constitute 10% or more of any pool by
principal balance.
Mortgaged properties securing Multifamily Loans may include high-rise,
mid-rise and garden apartments. Multifamily Loans may be secured by apartment
buildings owned by cooperatives. A cooperative owns all the apartment units in
its building and all common areas and is owned by tenant-stockholders who,
through ownership of stock, shares or membership certificates in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific apartments or units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for the cooperative's mortgage loan, real property taxes,
maintenance expenses and other capital or ordinary expenses. Those payments are
in addition to any payments of principal and interest the tenant-stockholder
must make on any loans to the tenant-stockholder secured by his shares in the
cooperative. The cooperative will be directly responsible for building
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. A cooperative's ability to meet debt service obligations on
a Multifamily Loan, as well as all other operating expenses, will be dependent
in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
MANUFACTURED HOUSING CONTRACTS
Manufactured Housing Contracts will consist of manufactured housing
conditional sales contracts and installment sales or loan agreements, each
secured by a manufactured home. Manufactured Housing Contracts may be
conventional, insured by the FHA or partially guaranteed by the VA, as specified
in the related prospectus supplement. Each Manufactured Housing Contract will be
fully amortizing and will bear interest at a fixed percentage rate or APR.
Manufactured Housing Contracts will all have individual principal balances at
origination of not less than $10,000 and not more than $1,000,000 and original
terms to stated maturity of from five to 30 years.
When we use the term "manufactured home" in this prospectus, we mean,
as stated in 42 U.S.C. ss. 5402(6), "a structure, transportable in one or more
sections which, in the traveling mode, is eight body feet or more in width or
forty body feet or more in length or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under this chapter."
Each prospectus supplement will specify for the Manufactured Housing
Contracts contained in the related trust fund, among other things, the dates of
origination of the Manufactured Housing Contracts, the APRs on the Manufactured
Housing Contracts, the loan-to-value ratios of the Manufactured Housing
Contracts, the minimum and maximum outstanding principal balances as of the
cut-off date and the average outstanding principal balance, the outstanding
principal balances of the Manufactured Housing Contracts included in the related
trust fund, and the original maturities of the Manufactured Housing Contracts
and the last maturity date of any Manufactured Housing Contract.
HOME IMPROVEMENT CONTRACTS
Home Improvement Contracts are originated by home improvement
contractors, thrifts or commercial mortgage bankers in the ordinary course of
business. The Home Improvement Contracts will either be unsecured or secured by
mortgages or deeds of trust generally creating a junior lien on the related
mortgaged properties, or secured by purchase money security interests in the
financed home improvements. The Home Improvement Contracts will be fully
amortizing and may have fixed interest rates or adjustable interest rates and
may provide for other payment characteristics as described in the related
prospectus supplement.
The home improvements securing the Home Improvement Contracts will
include, but are not limited to, replacement windows, house siding, new roofs,
swimming pools, satellite dishes, kitchen and bathroom remodeling goods and
solar heating panels.
AGENCY SECURITIES
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR GINNIE MAE. The Government
National Mortgage Association (Ginnie Mae) is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. Section 306(g) of Title II of the National Housing Act of 1934, as
amended, authorizes Ginnie Mae to guarantee the timely payment of the principal
of and interest on certificates which represent an interest in a pool of FHA
loans, which are mortgage loans insured by the FHA under the National Housing
Act or under Title V of the Housing Act of 1949, or VA loans, which are mortgage
loans partially guaranteed by the VA under the Servicemen's Readjustment Act of
1944, as amended, or Chapter 37 of Title 38 of the United States Code.
Section 306(g) of the National Housing Act provides that "the full
faith and credit of the United States is pledged to the payment of all amounts
which may be required to be paid under any guaranty under this subsection." In
order to meet its obligations under any such guarantee, Ginnie Mae may, under
Section 306(d) of the National Housing Act, borrow from the United States
Treasury in an unlimited amount which is at any time sufficient to enable Ginnie
Mae to perform its obligations under its guarantee.
GINNIE MAE CERTIFICATES. Each Ginnie Mae Certificate held in a trust
fund will be a "fully modified pass-through" mortgage-backed certificate issued
and serviced by a Ginnie Mae issuer that is a mortgage banking company or other
financial concern approved by Ginnie Mae or approved by Fannie Mae as a
seller-servicer of FHA loans and/or VA loans. The Ginnie Mae Certificates may be
either Ginnie Mae I Certificates issued under the Ginnie Mae I program or Ginnie
Mae II Certificates issued under the Ginnie Mae II program. The mortgage loans
underlying the Ginnie Mae Certificates will consist of FHA loans and/or VA
loans. Each such mortgage loan is secured by a one- to four-family or
multifamily residential property. Ginnie Mae will approve the issuance of each
Ginnie Mae Certificate in accordance with a guaranty agreement between Ginnie
Mae and the Ginnie Mae issuer. Pursuant to its guaranty agreement, a Ginnie Mae
issuer will be required to advance its own funds in order to make timely
payments of all amounts due on each Ginnie Mae Certificate, even if the payments
received by the Ginnie Mae issuer on the underlying FHA loans or VA loans are
less than the amounts due on the related Ginnie Mae Certificate.
The full and timely payment of principal of and interest on each Ginnie
Mae Certificate will be guaranteed by Ginnie Mae, which obligation is backed by
the full faith and credit of the United States. Each Ginnie Mae Certificate will
have an original maturity of not more than 30 years, but may have original
maturities of substantially less than 30 years. Each Ginnie Mae Certificate will
be based on and backed by a pool of FHA loans or VA loans secured by one- to
four-family residential properties and will provide for the payment by or on
behalf of the Ginnie Mae issuer to the registered holder of the Ginnie Mae
Certificate scheduled monthly payments of principal and interest equal to the
registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
the Ginnie Mae Certificate, less the applicable servicing and guarantee fee
which together equal the difference between the interest on the FHA Loan or VA
Loan and the pass-through rate on the Ginnie Mae Certificate. In addition, each
payment will include proportionate pass-through payments of any prepayments of
principal on the FHA loans or VA loans underlying the Ginnie Mae Certificate and
liquidation proceeds in the event of a foreclosure or other disposition of any
such FHA loans or VA loans.
If a Ginnie Mae issuer is unable to make the payments on a Ginnie Mae
Certificate as they become due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make the payments. Upon notification and request, Ginnie Mae will
make payments directly to the registered holder of the Ginnie Mae Certificate.
In the event no payment is made by a Ginnie Mae issuer and the Ginnie Mae issuer
fails to notify and request Ginnie Mae to make the payment, the holder of the
Ginnie Mae Certificate will have recourse only against Ginnie Mae to obtain
payment. The trustee or its nominee, as registered holder of the Ginnie Mae
Certificates held in a trust fund, will have the right to proceed directly
against Ginnie Mae under the terms of the guaranty agreements relating to those
Ginnie Mae Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular Ginnie Mae I Certificate
must have the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on a Ginnie Mae
I Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying the Ginnie Mae I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular Ginnie Mae II Certificate may
have per annum interest rates that vary from one another by up to one percentage
point. The interest rate on each Ginnie Mae II Certificate will be between
one-half percentage point and one and one-half percentage points lower than the
highest interest rate on the mortgage loans included in the pool of mortgage
loans underlying the Ginnie Mae II Certificate (except for pools of mortgage
loans secured by manufactured homes).
Regular monthly installment payments on each Ginnie Mae Certificate
held in a trust fund will be comprised of interest due as specified on the
Ginnie Mae Certificate plus the scheduled principal payments on the FHA loans or
VA loans underlying the Ginnie Mae Certificate due on the first day of the month
in which the scheduled monthly installments on the Ginnie Mae Certificate are
due. Regular monthly installments on each Ginnie Mae Certificate are required to
be paid to the trustee as registered holder by the 15th day of each month in the
case of a Ginnie Mae I Certificate, and are required to be mailed to the trustee
by the 20th day of each month in the case of a Ginnie Mae II Certificate. Any
principal prepayments on any FHA loans or VA loans underlying a Ginnie Mae
Certificate held in a trust fund or any other early recovery of principal on
such loan will be passed through to the trustee as the registered holder of the
Ginnie Mae Certificate.
Ginnie Mae Certificates may be backed by graduated payment mortgage
loans or by "buydown" mortgage loans for which funds will have been provided
(and deposited into escrow accounts) for application to the payment of a portion
of the borrowers' monthly payments during the early years of such mortgage
loans. Payments due the registered holders of Ginnie Mae Certificates backed by
pools containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other Ginnie Mae Certificates and will include amounts to
be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of the graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequent years. The obligations of
Ginnie Mae and of a Ginnie Mae Issuer will be the same irrespective of whether
the Ginnie Mae Certificates are backed by graduated payment mortgage loans or
"buydown" mortgage loans. No statistics comparable to the FHA's prepayment
experience on level payment, non-"buydown" mortgage loans are available in
respect of graduated payment or "buydown" mortgages. Ginnie Mae Certificates
related to a series of certificates may be held in book-entry form.
If specified in a prospectus supplement, Ginnie Mae Certificates may be
backed by multifamily mortgage loans having the characteristics specified in the
prospectus supplement.
FEDERAL HOME LOAN MORTGAGE CORPORATION OR FREDDIE MAC. The Federal Home
Loan Mortgage Corporation (Freddie Mac) is a shareholder-owned, government
sponsored enterprise created pursuant to Title III of the Emergency Home Finance
Act of 1970, as amended. Freddie Mac was established primarily for the purpose
of increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of Freddie
Mac currently consists of the purchase of first lien conventional mortgage loans
and the sale of the mortgage loans so purchased in the form of mortgage
securities, primarily Freddie Mac Certificates. Freddie Mac is confined to
purchasing, so far as practicable, mortgage loans that it deems to be of such
quality, type and class as to meet generally the purchase standards imposed by
private institutional mortgage investors.
FREDDIE MAC CERTIFICATES. Each Freddie Mac Certificate represents an
undivided interest in a pool of mortgage loans that may consist of first lien
conventional loans, FHA loans or VA loans. A Freddie Mac Certificate may be
issued under either Freddie Mac's Cash Program or its Guarantor Program.
Mortgage loans underlying the Freddie Mac Certificates held by a trust
fund will consist of mortgage loans with original terms to maturity of from ten
to 40 years. Each such mortgage loan must meet the applicable standards set
forth in the legislation that established Freddie Mac. The pool of loans backing
a Freddie Mac Certificate may include whole loans. Under the Guarantor Program,
the pool of loans backing a Freddie Mac Certificate may include only whole
loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable certificate rate on the registered holder's pro
rata share of the unpaid principal balance outstanding on the underlying
mortgage loans represented by that Freddie Mac Certificate, whether or not
received. Freddie Mac also guarantees to each registered holder of a Freddie Mac
Certificate that the holder will collect all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the related prospectus supplement for a series of certificates, guarantee the
timely payment of scheduled principal. Under Freddie Mac's Gold PC Program,
Freddie Mac guarantees the timely payment of principal based on the difference
between the pool factor, published in the month preceding the month of
distribution, and the pool factor published in such month of distribution.
Pursuant to its guarantees, Freddie Mac indemnifies holders of Freddie Mac
Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. Freddie Mac may remit the amount
due on account of its guaranty of collection of principal at any time after
default on an underlying mortgage loan, but not later than (i) 30 days following
foreclosure sale, (ii) 30 days following payment of the claim by any mortgage
insurer or (iii) 30 days following the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand has
been made upon the mortgagor for accelerated payment of principal. In taking
actions regarding the collection of principal after default on the mortgage
loans underlying Freddie Mac Certificates, including the timing of demand for
acceleration, Freddie Mac reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for Freddie Mac to
determine that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and Freddie Mac has not adopted standards which
require that the demand be made within any specified period.
Freddie Mac Certificates are not guaranteed by the United States or by
any Federal Home Loan Bank and do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The obligations of Freddie Mac
under its guarantee are obligations solely of Freddie Mac and are not backed by,
or entitled to, the full faith and credit of the United States. If Freddie Mac
were unable to satisfy such obligations, distributions to holders of Freddie Mac
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Freddie Mac Certificates would be affected by delinquent payments and defaults
on such mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial repayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac Certificateholder's
pro rata share of principal payments on the underlying mortgage loans, interest
at the Freddie Mac pass-through rate and any other sums such as prepayment fees,
within 60 days of the date on which those payments are deemed to have been
received by Freddie Mac.
Under Freddie Mac's Cash Program, there is no limitation on the amount
by which interest rates on the mortgage loans underlying a Freddie Mac
Certificate may exceed the pass-through rate on the Freddie Mac Certificate.
Under this program, Freddie Mac purchases groups of whole mortgage loans from
sellers at specified percentages of their unpaid principal balances, adjusted
for accrued or prepaid interest, which, when applied to the interest rate of the
mortgage loans purchased, results in the yield (expressed as a percentage)
required by Freddie Mac. The required yield, which includes a minimum servicing
fee retained by the servicer, is calculated using the outstanding principal
balance. The range of interest rates on the mortgage loans in a particular
Freddie Mac pool under the Cash Program will vary since mortgage loans are
purchased and assigned to a Freddie Mac pool based upon their yield to Freddie
Mac rather than on the interest rate on the underlying mortgage loans. Under
Freddie Mac's Guarantor Program, the pass-through rate on a Freddie Mac
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of Freddie Mac's
management and guaranty income as agreed upon between the related seller and
Freddie Mac.
Freddie Mac Certificates duly presented for registration of ownership
on or before the last business day of a month are registered effective as of the
first day of the month. The first remittance to a registered holder of a Freddie
Mac Certificate will be distributed so as to be received normally by the 15th
day of the second month following the month in which the purchaser becomes a
registered holder of the Freddie Mac Certificates. Thereafter, such remittance
will be distributed monthly to the registered holder so as to be received
normally by the 15th day of each month. The Federal Reserve Bank of New York
maintains book-entry accounts with respect to Freddie Mac Certificates sold by
Freddie Mac, and makes payments of principal and interest each month to the
registered Freddie Mac Certificateholders in accordance with the holders'
instructions.
FEDERAL NATIONAL MORTGAGE ASSOCIATION OR FANNIE MAE. The Federal
National Mortgage Association (Fannie Mae) is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, as amended. Fannie Mae was originally
established in 1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a stockholder-owned
and privately-managed corporation by legislation enacted in 1968.
Fannie Mae provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing their funds for
additional lending. Fannie Mae acquires funds to purchase mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, Fannie Mae helps to redistribute mortgage funds from capital-surplus
to capital-short areas.
FANNIE MAE CERTIFICATES. Fannie Mae Certificates are Guaranteed
Mortgage Pass- Through Certificates representing fractional undivided interests
in a pool of mortgage loans formed by Fannie Mae. Each mortgage loan must meet
the applicable standards of the Fannie Mae purchase program. Mortgage loans
comprising a pool are either provided by Fannie Mae from its own portfolio or
purchased pursuant to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae Certificates held by a trust fund
will consist of conventional mortgage loans, FHA loans or VA loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a Fannie Mae Certificate are expected to be from eight to 15
years or from 20 to 40 years. The original maturities of substantially all of
the fixed rate level payment FHA loans or VA loans are expected to be 30 years.
Mortgage loans underlying a Fannie Mae Certificate may have annual
interest rates that vary by as much as two percentage points from one another.
The rate of interest payable on a Fannie Mae Certificate is equal to the lowest
interest rate of any mortgage loan in the related pool, less a specified minimum
annual percentage representing servicing compensation and Fannie Mae's guaranty
fee. Under a regular servicing option pursuant to which the mortgagee or each
other servicer assumes the entire risk of foreclosure losses, the annual
interest rates on the mortgage loans underlying a Fannie Mae Certificate will be
between 25 basis points and 250 basis points greater than is its annual
pass-through rate. Under a special servicing option pursuant to which Fannie Mae
assumes the entire risk for foreclosure losses, the annual interest rates on the
mortgage loans underlying a Fannie Mae Certificate will generally be between 30
basis points and 255 basis points greater than the annual Fannie Mae Certificate
pass-through rate. If specified in the related prospectus supplement, Fannie Mae
Certificates may be backed by adjustable rate mortgages.
Fannie Mae guarantees to each registered holder of a Fannie Mae
Certificate that it will distribute amounts representing the holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by the Fannie Mae Certificate on the
underlying mortgage loans, whether or not received, and the holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of Fannie Mae under its guarantees are
obligations solely of Fannie Mae and are not backed by, or entitled to, the full
faith and credit of the United States. Although the Secretary of the Treasury of
the United States has discretionary authority to lend Fannie Mae up to $2.25
billion outstanding at any time, neither the United States nor any of its
agencies or instrumentalities is obligated to finance Fannie Mae's operations or
to assist Fannie Mae in any other manner. If Fannie Mae were unable to satisfy
its obligations, distributions to holders of Fannie Mae Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of Fannie Mae Certificates
would be affected by delinquent payments and defaults on such mortgage loans.
Fannie Mae Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985 (other than Fannie Mae Certificates backed by
pools containing graduated payment mortgage loans or mortgage loans secured by
multifamily projects) are available in book-entry form only. Distributions of
principal and interest on each Fannie Mae Certificate will be made by Fannie Mae
on the 25th day of each month to the persons in whose name the Fannie Mae
Certificate is entered in the books of the Federal Reserve Banks (or registered
on the Fannie Mae Certificate register in the case of fully registered Fannie
Mae Certificates) as of the close of business on the last day of the preceding
month. With respect to Fannie Mae Certificates issued in book-entry form,
distributions will be made by wire and, with respect to fully registered Fannie
Mae Certificates, distributions will be made by check.
STRIPPED MORTGAGE-BACKED SECURITIES. Agency Securities may consist of
one or more stripped mortgage-backed securities as described in this prospectus
and in the related prospectus supplement. Each Agency Security of this type will
represent an undivided interest in all or part of the principal distributions -
but not the interest distributions, or the interest distributions - but not the
principal distributions, or in some specified portion of the principal and
interest distributions on certain Freddie Mac, Fannie Mae or Ginnie Mae
Certificates. The underlying securities will be held under a trust agreement by
Freddie Mac, Fannie Mae or Ginnie Mae, each as trustee, or by another trustee
named in the related prospectus supplement. Freddie Mac, Fannie Mae or Ginnie
Mae will guaranty each stripped Agency Security to the same extent as such
entity guarantees the underlying securities backing the stripped Agency
Security.
OTHER AGENCY SECURITIES. If specified in the related prospectus
supplement, a trust fund may include other mortgage pass-through certificates
issued or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. The
characteristics of any such mortgage pass-through certificates will be described
in the related prospectus supplement. If specified in the related prospectus
supplement, a combination of different types of Agency Securities may be held in
a trust fund.
PRIVATE LABEL SECURITIES
GENERAL. Private Label Securities or PLS (I.E., private mortgage-backed
or asset-backed securities) may consist of
o pass-through certificates evidencing an undivided interest in
a pool of Single Family Loans, Home Equity Loans, Multifamily
Loans, Manufactured Housing Contracts or Home Improvement
Contracts,
o collateralized mortgage obligations secured by Single Family
Loans, Home Equity Loans, Multifamily Loans, Manufactured
Housing Contracts or Home Improvement Contracts, or
o other Private Label Securities.
Private Label Securities may include stripped mortgage-backed
securities representing an undivided interest in all or a part of the principal
distributions - but not the interest distributions, or the interest
distributions - but not the principal distributions, or in some specified
portion of the principal and interest distributions on certain mortgage loans.
The Private Label Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement. The seller/servicer of
the underlying loans will have entered into a PLS Agreement with a trustee under
that agreement. The PLS trustee or its agent, or a custodian, will possess the
mortgage loans underlying the Private Label Securities. The loans underlying the
Private Label Securities will be serviced by a PLS servicer directly or by one
or more sub-servicers which may be subject to the supervision of the PLS
servicer. The PLS servicer will be a Fannie Mae- or Freddie Mac-approved
servicer and, if FHA loans underlie the Private Label Securities, approved by
HUD as an FHA mortgagee.
If specified in the related prospectus supplement, the trust fund for a
series of securities may include mortgage securities, 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.
The PLS issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending, a public agency or
instrumentality of a state, local or federal government, or a limited purpose
corporation organized for the purpose of, among other things, establishing
trusts and acquiring and selling housing loans to trusts and selling beneficial
interests in trusts. If specified in the related prospectus supplement, the PLS
issuer may be an affiliate of the depositor. The obligations of the PLS issuer
will generally be limited to certain representations and warranties with respect
to the assets it conveys to the related trust. The PLS issuer will not have
guaranteed any of the assets conveyed to the related trust or any of the Private
Label Securities issued under the PLS agreement. Additionally, although the
loans underlying the Private Label Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Label Securities themselves
will not be so guaranteed, unless the related prospectus supplement specifies
otherwise.
Distributions of principal and interest will be made on the Private
Label Securities on the dates specified in the related prospectus supplement.
The Private Label Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal and interest
distributions will be made on the Private Label Securities by the PLS trustee or
the PLS servicer. The PLS issuer or the PLS servicer may have the right to
repurchase assets underlying the Private Label Securities after a particular
date or under other circumstances specified in the related prospectus
supplement.
UNDERLYING LOANS. The loans underlying the PMBS may consist of fixed
rate, level payment, fully amortizing loans or graduated payment mortgage loans,
buydown loans, adjustable rate mortgage loans, or loans having balloon or other
special payment features. The loans may be secured by one- to four-family
residential property, small mixed-use property, five-to eight-family residential
property, multifamily property, manufactured homes or by an assignment of the
proprietary lease or occupancy agreement relating to a specific dwelling within
a cooperative and the related shares issued by the cooperative. Except as
otherwise specified in the related prospectus supplement, the loans will have
the following characteristics:
o no loan will have had a loan-to-value ratio at origination in
excess of 95%;
o each Single Family Loan secured by a mortgaged property having
a loan-to-value ratio in excess of 80% at origination will be
covered by a primary mortgage insurance policy;
o each loan will have had an original term to stated maturity of
not less than five years and not more than 40 years;
o no loan that was more than 89 days delinquent as to the
payment of principal or interest will have been eligible for
inclusion in the assets under the related PLS agreement;
o each loan (other than a cooperative loan) will be required to
be covered by a standard hazard insurance policy (which may be
a blanket policy); and
o each loan (other than a cooperative loan or a Manufactured
Housing Contract) will be covered by a title insurance policy.
CREDIT SUPPORT RELATING TO PRIVATE LABEL SECURITIES. Credit support in
the form of reserve funds, subordination of other private label securities
issued under the PLS agreement, letters of credit, surety bonds, insurance
policies or other types of credit support may be provided with respect to the
loans underlying the Private Label Securities or with respect to the Private
Label Securities themselves.
ADDITIONAL INFORMATION. If the trust fund for a series of securities
includes Private Label Securities, the related prospectus supplement will
specify
o the aggregate approximate principal amount and type of Private
Label Securities to be included in the trust fund,
o the maximum original term-to-stated maturity of the PLS,
o the weighted average term-to-stated maturity of the PLS,
o the pass-through or certificate rate of the PLS,
o the weighted average pass-through or interest rate of the PLS,
o the PLS issuer, the PLS servicer (if other than the PLS
issuer) and the PLS trustee,
o certain characteristics of any credit support such as reserve
funds, insurance policies, surety bonds, letters of credit or
guaranties relating to the loans underlying the Private Label
Securities themselves,
o the terms on which the loans underlying the PLS may, or are
required to, be purchased prior to their stated maturity or
the stated maturity of the PLS and
o the terms on which mortgage loans may be substituted for those
originally underlying the PLS.
In addition, the related prospectus supplement will provide information
about the loans which comprise the underlying assets of the Private Label
Securities, including
o the payment features of the mortgage loans,
o the approximate aggregate principal balance, if known, of
underlying loans insured or guaranteed by a governmental
entity,
o the servicing fee or range of servicing fees with respect to
the loans, and
o the minimum and maximum stated maturities of the underlying
loans at origination.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We incorporate in this prospectus by reference all documents and
reports, including but not limited to the financial statements and reports filed
or caused to be filed or incorporated by reference by the applicable depositor,
Greenwich Capital Acceptance, Inc. (GCA) or Financial Acceptance Securities
Corp. (FASCO), 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. Upon request by any
person to whom this prospectus is delivered in connection with the offering of
one or more classes of certificates, the applicable depositor will provide
without charge a copy of any such documents and/or reports incorporated herein
by reference, in each case to the extent that the documents or reports relate to
those classes of certificates, other than the exhibits to the documents (unless
the exhibits are specifically incorporated by reference in such documents).
Requests to the depositors should be directed in writing to: Paul D. Stevelman,
Greenwich Capital Acceptance, Inc. or Financial Acceptance Securities Corp. as
applicable, 600 Steamboat Road, Greenwich, Connecticut 06830, telephone number
(203) 625-2700. Each depositor has determined that its financial statements are
not material to the offering of any of the securities.
Investors may read and copy the documents and/or reports incorporated
herein by reference at the Public Reference Room of the Securities and Exchange
Commission at 100 F Street NE, Washington, DC 20549. Investors may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a website at http:\\www.sec.gov
containing reports, proxy and information statements and other information
regarding issuers, including the depositor with respect to each trust fund, that
file electronically with the SEC.
STATIC POOL INFORMATION
For each trust fund discussed above, the depositor will provide, to the
extent material, static pool information with respect to the experience of the
sponsor, or other appropriate entity, in securitizing asset pools of the same
type. In addition, to the extent material, the depositor will provide static
pool information with respect to the portfolio of mortgage loans originated or
purchased by one or more originators, presented by vintage year, if specified in
the applicable prospectus supplement.
In addition, for each prior securitized pool or vintage origination
year, summary information of the original characteristics of the securitized
pool or the originated and purchased mortgage loans, as applicable, will be
provided.
Static pool information is not deemed part of this prospectus or of the
registration statement of which the prospectus is a part to the extent that the
static pool information relates to (a) any trust fund that was established by
the depositor or any other party before January 1, 2006 or (b) information with
respect to the portfolio of mortgage loans originated or purchased by an
originator for periods before January 1, 2006.
With respect to each series of securities, the information referred to
in this section will be provided through an internet web site at the address
disclosed in the related prospectus supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the securities will be
applied by the applicable depositor to the purchase of trust fund assets or will
be used by the depositor for general corporate purposes. The depositors expect
to sell securities in series from time to time, but the timing and amount of
offerings of securities will depend on a number of factors, including the volume
of assets acquired by the depositors, prevailing interest rates, availability of
funds and general market conditions.
THE SPONSOR
The sponsor will be Greenwich Capital Financial Products, Inc. for each
series of securities unless otherwise indicated in the related prospectus
supplement. The sponsor was incorporated in the State of Delaware on November
16, 1990 as a wholly owned subsidiary corporation of Greenwich Capital Holdings,
Inc. and is an affiliate of each of the depositors. The sponsor was organized
for the purpose of issuing securities through its affiliates Greenwich Capital
Acceptance, Inc. and Financial Asset Securities Corp., private secondary
mortgage market conduits.
The sponsor maintains its principal office at 600 Steamboat Road,
Greenwich, Connecticut 06830. Its telephone number is (203) 625-2700.
From January 2000 through and including December 2005, the Sponsor has
securitized mortgage loans with an aggregate principal balance of approximately
$92.5 billion. During the calendar years 2000, 2001, 2002, 2003, 2004 and 2005,
the Sponsor securitized mortgage loans with an aggregate principal balance of
approximately $0.8, $0.3, $2.4, $10.7, $30.4 and $47.9 billion, respectively.
Such securitizations have included fixed and adjustable rate residential
mortgage loans of prime, alt-a and sub-prime residential mortgage loans
originated by various third parties.
The sponsor is a purchaser of seasoned, program exception, and
non-performing residential mortgages. These loans are purchased from various
institutions and brokers on a bulk or flow basis by competitive bid or through a
pre-negotiated agreement. Portfolios may include second liens, REO and on a
limited basis, non-residential properties. Products purchased include both fixed
rate and ARM programs for Alt A, Jumbo (Prime) and Subprime mortgages as well as
fixed rate Second Liens. All loans acquired by the sponsor are subject to due
diligence prior to purchase. Portfolios are reviewed for issues including, but
not limited to, credit, documentation, litigation, default and servicing related
concerns as well as a thorough compliance review with loan level testing. Broker
Price Opinions (BPOs) are also obtained on a selective basis. SEE "THE
ORIGINATORS--UNDERWRITING GUIDELINES" IN THE PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
The sponsor has been securitizing residential mortgage loans since
1990.
THE DEPOSITORS
Greenwich Capital Acceptance, Inc. is a Delaware corporation organized
on April 23, 1987, and Financial Asset Securities Corp. is a Delaware
corporation organized on August 2, 1995, in each case for the limited purpose of
acquiring, owning and transferring mortgage assets and selling interests in
those assets or bonds secured by those assets. Each of the depositors is a
limited purpose finance subsidiary of Greenwich Capital Holdings, Inc. and an
affiliate of Greenwich Capital Markets, Inc. Greenwich Capital Markets, Inc. is
a registered broker-dealer engaged in the U.S. government securities market and
related capital markets business. Each of the depositors maintains its principal
office at 600 Steamboat Road, Greenwich, Connecticut 06830 and the telephone
number is (203) 625-2700.
The depositors do not have, nor are they expected in the future to
have, any significant assets.
From January 2000 through and including December 2005, the Depositor
has securitized mortgage loans with an aggregate principal balance of
approximately $55.3 billion. During the calendar years 2000, 2001, 2002, 2003,
2004 and 2005, the Depositor securitized mortgage loans with an aggregate
principal balance of approximately $0.7, $1.1, $3.6, $10.3, $16.9 and $22.7
billion, respectively. Such securitizations have included fixed and adjustable
rate residential mortgage loans of prime, alt-a and sub-prime residential
mortgage loans originated by various third parties.
In conjunction with Greenwich Capital Financial Products, Inc.'s
acquisition of seasoned, program exception, and non-performing residential
mortgages, the applicable depositor will execute a mortgage loan purchase
agreement to transfer the loans to itself. These loans are subsequently
deposited in a common law or statutory trust, described in the prospectus
supplement, which will then issue the securities.
After issuance and registration of the securities contemplated in this
prospectus and any supplement hereto, the depositors will have no duties or
responsibilities with respect to the pool assets or the securities.
Neither the depositors nor any of their affiliates will ensure or
guarantee distributions on the securities of any series.
LOAN PROGRAM
The depositor will have purchased the loans, either directly or through
affiliates, from sellers. The loans acquired by the depositor will have been
originated in accordance with the underwriting criteria specified under the
heading "--Underwriting Standards" below.
UNDERWRITING STANDARDS
Each seller will represent and warrant that all the loans that it
originated and/or sold to the depositor or one of the depositor's affiliates
will have been underwritten in accordance with standards consistent with those
utilized by institutional lenders generally during the period of origination for
similar types of loans. As to any loan insured by the FHA or partially
guaranteed by the VA, the related seller will represent that it has complied
with the underwriting policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate a prospective borrower's credit standing and repayment ability, and the
value and adequacy of the mortgaged property as collateral. In general, a
prospective borrower applying for a loan is required to fill out a detailed
application designed to provide to the underwriting officer pertinent credit
information, including the principal balance and payment history of any senior
lien loan on the related mortgaged property. As part of the description of the
borrower's financial condition, the borrower generally is required to provide a
current list of assets and liabilities and a statement of income and expenses,
as well as an authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants and lenders and any record of
bankruptcy. Generally, an employment verification is obtained from an
independent source, which is typically the borrower's employer. The verification
reports the borrower's length of employment with its employer, current salary,
and expectations of continued employment. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
Underwriting standards which pertain to the creditworthiness of borrowers
seeking Multifamily Loans will be described in the related prospectus
supplement.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal generally is based on
the market value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the subject home. In
connection with a Manufactured Housing Contract, the appraisal is based on
recent sales of comparable manufactured homes and, when deemed applicable, a
replacement cost analysis based on the cost of a comparable manufactured home.
In connection with a Multifamily Loan, 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 multifamily project's
cashflow, expenses, capitalization and other operational information in
determining the property's value. The market approach to value focuses its
analysis on the prices paid for the purchase of similar properties in the
multifamily project's area, with adjustments made for variations between these
other properties and the multifamily project being appraised. The cost approach
calls for the appraiser to make an estimate of land value and then determine the
current cost of reproducing the building less any accrued depreciation. In any
case, the value of the property being financed, as indicated by the appraisal,
must be such that it currently supports, and is anticipated to support in the
future, the outstanding loan balance.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available
o to meet the borrower's monthly obligations on the proposed
loan, generally determined on the basis of the monthly
payments due in the year of origination, and other expenses
related to the mortgaged property such as property taxes and
hazard insurance, and
o to meet monthly housing expenses and other financial
obligations and monthly living expenses.
The underwriting standards applied by sellers, particularly with
respect to the level of loan documentation and the borrower's income and credit
history, may be varied in appropriate cases where factors such as low
loan-to-value ratios or other favorable credit exist.
In the case of a loan secured by a leasehold interest in real property,
the title to which is held by a third-party lessor, the related seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least five years longer than the remaining term of the
related mortgage note.
Some types of loans which may be included in the pools may involve
additional uncertainties not present in traditional types of loans. For example,
loans may provide for escalating or variable payments by the borrower. These
types of loans are generally underwritten on the basis of a judgment that
borrowers will have the ability to make the monthly payments required initially.
In some instances, however, their incomes may not be sufficient to permit
continued loan payments as payments increase. These types of loans may also be
underwritten primarily upon the basis of loan-to-value ratios or other favorable
credit factors.
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 generally will have been
calibrated to indicate the same level of credit risk regardless of which credit
repository is used. The FICO Score is used by an originator along with
information such as, 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 SELLERS
Each seller will be required to satisfy the qualifications set forth in
the following sentence. Each seller must
o be an institution experienced in originating and servicing
loans of the type contained in the related pool in accordance
with accepted practices and prudent guidelines,
o maintain satisfactory facilities to originate and service the
loans,
o be a seller/servicer approved by either Fannie Mae or Freddie
Mac, and
o be a mortgagee approved by the FHA or an institution the
deposit accounts in which are insured by the Federal Deposit
Insurance Corporation (FDIC).
REPRESENTATIONS BY SELLERS; REPURCHASES OR SUBSTITUTIONS
Each seller will have made representations and warranties in respect of
the loans sold by that seller and evidenced by a series of securities. These
representations and warranties, unless otherwise provided in the related
prospectus supplement, generally include the following:
o Except in the case of a cooperative loan, each Single Family
Loan, Home Equity Loan or Multifamily Loan has a title
insurance policy, required hazard insurance policy and any
required primary mortgage insurance policy, each of which was
in effect at the origination of the loan and remained in
effect on the date that the loan was purchased from the seller
by or on behalf of the depositor. If the related mortgaged
property is located in an area where title insurance policies
are generally not available, an attorney's certificate of
title may be substituted.
o The terms of the mortgage note and the mortgage have not been
impaired, waived, altered or modified in any respect except as
provided in the mortgage loan file.
o Each mortgage is a valid and enforceable first lien on the
property securing the related mortgage note and each mortgaged
property is owned by the mortgagor in fee simple or by
leasehold for a term longer than the term of the related
Mortgage, subject only to (i) the lien of current real
property taxes and assessments, (ii) covenants, conditions and
restrictions, rights of way, easements and other matters of
public record as of the date of recording of such mortgage,
such exceptions being acceptable to mortgage lending
institutions generally or specifically reflected in the
appraisal obtained in connection with the origination of the
related mortgage loan or referred to in the lender's title
insurance policy delivered to the originator of the related
mortgage loan and (iii) other matters to which like properties
are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such
mortgage.
o The seller had good title to each loan and no loan was subject
to offsets, defenses, counterclaims or rights of rescission
except to the extent that any specified buydown agreement may
forgive certain indebtedness of a borrower.
o Each loan constituted a valid lien on, or a perfected security
interest with respect to, the related mortgaged property,
subject only to permissible title insurance exceptions, if
applicable, and certain other exceptions described in the
related servicing agreement.
o The mortgaged property was free from damage and was in
acceptable condition.
o There were no delinquent tax or assessment liens against the
mortgaged property.
o Each loan was made in compliance with, and is enforceable
under, all applicable local, state and federal laws and
regulations, in all material respects.
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 No mortgage loan is more than 90 days delinquent as to any
scheduled payment of principal and/or interest.
o The information set forth in the mortgage loan schedule
provided by the seller is true and correct in all material
respects and the information provided to the Rating Agencies,
including the mortgage loan level detail, is true and correct
according to the Rating Agency requirements.
o 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 specified in the related prospectus supplement, the representations
and warranties of a seller in respect of a loan will be made not as of the
related cut-off date but as of the date on which the seller sold the loan to the
depositor or one of its affiliates. Under these circumstances, a substantial
period of time may have elapsed between that date and the date of initial
issuance of the series of securities evidencing an interest in, or secured by,
the loan. Since the representations and warranties of a seller do not address
events that may occur following the sale of the loan by that seller, the
repurchase obligation described in the following paragraph will not arise if the
relevant event that would otherwise have given rise to the obligation occurs
after the date when the seller sold the loan to the depositor or one of its
affiliates. However, the depositor will not include any loan in a trust fund if
anything has come to the depositor's attention that would cause it to believe
that the representations and warranties of the related seller regarding that
loan will not be accurate and complete in all material respects as of the date
when the related series of securities is issued. If the master servicer is also
a seller of loans for a particular series, these representations will be in
addition to the representations and warranties made by the master servicer in
its capacity as master servicer.
The seller will make certain representations and warranties in
connection with Manufactured Housing Contracts included in the trust with
respect to the enforceability of coverage under any related insurance policy or
hazard insurance policy. The seller, if required by the rating agencies rating
the related issue of securities, will obtain a surety bond, guaranty, letter of
credit or other acceptable instrument to support its repurchase or substitution
obligation specified in the immediately following paragraph.
The master servicer, or the trustee if the master servicer is the
seller, will promptly notify the relevant seller of any breach of any
representation or warranty made by that seller in respect of a loan which
materially and adversely affects the interests of the securityholders in the
loan. Unless otherwise specified in the related prospectus supplement, if the
seller cannot cure the breach within 90 days after notice from the master
servicer or the trustee, as the case may be, then the seller will be obligated
EITHER
o to repurchase that loan from the trust fund at a purchase
price equal to 100% of the loan's unpaid principal balance as
of the date of the repurchase plus accrued interest thereon to
the first day of the month following the month of repurchase
at the related loan rate, less any advances made by the seller
or amount payable as related servicing compensation if the
seller is the master servicer, OR
o substitute for that loan a replacement loan that satisfies the
requirements set forth in the related prospectus supplement.
This repurchase or substitution obligation will constitute the sole
remedy available to the securityholders or the trustee for a breach of
representation or warranty by the seller.
Except in those cases in which the master servicer is the seller, the
master servicer will be required under the applicable servicing agreement to
enforce this obligation for the benefit of the trustee and the related
securityholders, following the practices it would employ in its good faith
business judgment were it the owner of the loan.
If a REMIC election is to be made with respect to a trust fund, unless
otherwise provided in the related prospectus supplement, the master servicer or
a holder of the related residual certificate will be obligated to pay any
prohibited transaction tax which may arise in connection with a repurchase or
substitution. Unless otherwise specified in the related prospectus supplement,
the master servicer will be entitled to reimbursement for any such payment from
the assets of the related trust fund or from any holder of the related residual
certificate. SEE "Description of the Securities--General" in this prospectus.
Neither the depositor nor the master servicer (unless the master
servicer is the seller) will be obligated to purchase a loan if the seller
defaults on its obligation to do so. No assurance can be given that sellers will
carry out their respective repurchase or substitution obligations with respect
to the loans. However, to the extent that a breach of a representation and
warranty of a seller may also constitute a breach of a representation made by
the master servicer, the master servicer may have a repurchase or substitution
obligation as described under the heading "Operative Agreements--Assignment of
Trust Fund Assets" in this prospectus.
DESCRIPTION OF THE SECURITIES
Either Greenwich Capital Acceptance, Inc. or Financial Asset Securities
Corp., as depositor, will establish a trust fund for each series of securities.
A particular series of securities will consist of mortgage-backed or
asset-backed certificates or notes or both certificates and notes.
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, which will be of a type that is
customarily used in the debt and fixed
income markets to measure the cost of
borrowed funds, 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,
which will be of a type that is customarily
used in the debt and fixed income markets to
measure the cost of borrowed funds.
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 A class of securities with a principal
Class or PAC 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 A class of securities with a principal
TAC 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).
Each series of certificates will be issued pursuant to a pooling and
servicing agreement or a trust agreement, dated as of the related cut-off date,
among the depositor, the trustee and, if the trust includes loans, the related
master servicer. The provisions of each pooling and servicing agreement or trust
agreement will vary depending upon the nature of the related certificates and
the related trust fund. Forms of pooling and servicing and trust agreements are
exhibits to the Registration Statement of which this prospectus forms a part.
Each series of notes will be issued under an indenture between the
related trust fund and the trustee named in the prospectus supplement for that
series. If the trust fund includes loans, the trust fund and the servicer of the
loans will also enter into a servicing agreement. Forms of indenture and
servicing agreement have been filed as an exhibit to the registration statement
of which this prospectus forms a part.
The following summaries describe the material provisions which may
appear in each pooling and servicing agreement or trust agreement, in the case
of a series of certificates, and in each indenture and servicing agreement, in
the case of a series of notes. The prospectus supplement for each series of
securities will describe any provision of the operative agreements relating to
that series which materially differs from the description contained in this
prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
related agreements and prospectus supplement. The applicable depositor will
provide a copy of the operative agreements (without exhibits) relating to any
series without charge, upon written request of a holder of record of a
certificate or note of the series, addressed to Greenwich Capital Acceptance,
Inc. or Financial Asset Securities Corp., as applicable, 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: Asset Backed Finance Group.
GENERAL
The securities of each series will
o be issued in fully registered form only, in the authorized
denominations specified in the prospectus supplement,
o evidence specified beneficial ownership interests in the trust
fund assets, in the case of a series of certificates, or be
secured by the pledge of the trust fund assets, in the case of
a series of notes, and
o not be entitled to payments in respect of the assets included
in any other trust fund established by the depositor.
The securities will not represent obligations of the depositor or any
of its affiliates. The loans will not be insured or guaranteed by any
governmental entity or other person, unless otherwise specified in the related
prospectus supplement.
To the extent provided in the related operative agreements, each trust
fund will consist of the following:
o the assets as from time to time are subject to the related
agreement, exclusive of any amounts specified in the related
prospectus supplement as "retained interest";
o those assets as from time to time are required to be deposited
in the related security account as defined under the heading
"Operative Agreements--Payments on Loans; Deposits to Security
Account" in this prospectus;
o property which secured a loan and which is acquired on behalf
of the securityholders by foreclosure or deed in lieu of
foreclosure; and
o primary mortgage insurance policies, FHA insurance and VA
guarantees, if any, and any other insurance policies or other
forms of credit enhancement required to be maintained pursuant
to the related agreement.
If specified in the related prospectus supplement, a trust fund may
also include one or more of the following:
o reinvestment income on payments received on the trust fund
assets,
o a reserve fund,
o a pool insurance policy,
o a special hazard insurance policy,
o an interest rate swap or yield supplement agreement,
o a currency swap,
o a market value swap,
o a bankruptcy bond,
o one or more letters of credit,
o a surety bond,
o guaranties, or
o similar instruments or other agreements.
Each series of securities will be issued in one or more classes. Each
class of securities of a series will evidence beneficial ownership of a
specified portion or percentage - which may be 0% - of future interest payments
and a specified portion or percentage - which may be 0% - of future principal
payments on the assets in the related trust fund. A series of securities may
include one or more classes that are senior in right to payment to one or more
other classes of securities of the series. A series or classes of securities may
be covered by insurance policies, surety bonds or other forms of credit
enhancement, in each case as described in this prospectus and in the related
prospectus supplement. Distributions on one or more classes of a series of
securities may be made prior to being made on one or more other classes, after
the occurrence of specified events, in accordance with a schedule or formula, on
the basis of collections from designated portions of the trust fund assets or on
a different basis, in each case as specified in the related prospectus
supplement. The timing and amounts of distributions may vary among classes or
over time as specified in the related prospectus supplement.
Distributions of principal and interest, or, where applicable, of
principal only or interest only, on the related securities will be made by the
trustee on each distribution date. Distributions will be made monthly,
quarterly, semi-annually, or at such other intervals and on the dates as are
specified in the related prospectus supplement, in proportion to the percentages
specified in the prospectus supplement. Distributions will be made to the
persons in whose names the securities are registered at the close of business on
the applicable record date specified in the related prospectus supplement.
Distributions will be made in the manner specified in the related prospectus
supplement to the persons entitled to them at the address appearing in the
register maintained for the securityholders. In the case of the final
distribution in retirement of the securities, payment will be made only upon
presentation and surrender of the securities at the office or agency of the
trustee or other person specified in the notice to securityholders of the final
distribution.
The securities will be freely transferable and exchangeable at the
corporate trust office of the trustee named in the related prospectus
supplement. No service charge will be made for any registration of exchange or
transfer of securities of any series but the trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law, the purchase and holding of certain classes of
securities by or on behalf of, or with the assets of, an employee benefit plan
or other retirement plan or arrangement subject to the provisions of ERISA or
Section 4975 of the Internal Revenue Code may result in "prohibited
transactions" within the meaning of Section 406 of ERISA or Section 4975 of the
Code. SEE "ERISA Considerations" in this prospectus.
As to each series of securities, an election may be made to treat the
related trust fund, or designated portion of the trust fund, as a "real estate
mortgage investment conduit" (REMIC) as defined in the Internal Revenue Code.
The related prospectus supplement will specify whether a REMIC election is to be
made. Alternatively, the operative agreement for a series may provide that a
REMIC election may be made at the discretion of the depositor or the master
servicer and may only be made if certain conditions are satisfied. As to any
series of securities for which a REMIC election will be made, the terms and
provisions applicable to the making of the REMIC election, as well as any
material federal income tax consequences to securityholders not otherwise
described in this prospectus, will be set forth in the related prospectus
supplement. If a REMIC election is made with respect to a series, one of the
classes will be designated as evidencing the sole class of "residual interests"
in the related REMIC, as defined in the Code. All other classes of securities in
that series will constitute "regular interests" in the related REMIC, as defined
in the Code. As to each series with respect to which a REMIC election is to be
made, the master servicer or a holder of the related residual certificate will
be obligated to take all actions required in order to comply with applicable
laws and regulations and will be obligated to pay any prohibited transaction
taxes. The master servicer will be entitled to reimbursement for any such
payment from the assets of the trust fund or from any holder of the related
residual certificate.
DISTRIBUTIONS ON SECURITIES
GENERAL. In general, the method of determining the amount of
distributions on a particular series of securities will depend on the type of
credit support, if any, that is used with respect to that series. SEE "Credit
Enhancement and Other Support" in this prospectus. Set forth below are
descriptions of various methods that may be used to determine the amount of
distributions on the securities of a particular series. The prospectus
supplement for each series of securities will describe the method to be used in
determining the amount of distributions on the securities of that series.
The trustee will make distributions allocable to principal and interest
on the securities out of, and only to the extent of, funds in the related
security account, including any funds transferred from any reserve account. As
between securities of different classes and as between distributions of
principal (and, if applicable, between distributions of principal prepayments
and scheduled payments of principal) and interest, distributions made on any
distribution date will be applied as specified in the related prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
distributions to any class of securities will be made pro rata to all
securityholders of that class.
AVAILABLE FUNDS. All distributions on the securities of each series on
each distribution date will be made from Available Funds in accordance with the
terms described in the related prospectus supplement and specified in the
related operative agreement. Unless otherwise provided in the related prospectus
supplement, the term "Available Funds" for each distribution date will equal the
sum of the following amounts:
(i) the aggregate of all previously undistributed payments on
account of principal, including principal prepayments, if any,
and prepayment penalties, if so provided in the related
prospectus supplement, and interest on the mortgage loans in
the related trust fund (including Liquidation Proceeds and
Insurance Proceeds and amounts drawn under letters of credit
or other credit enhancement instruments as permitted
thereunder and as specified in the related operative
agreement) received by the master servicer after the cut-off
date and on or prior to the related determination date
specified in the prospectus supplement except:
o all payments which were due on or before the cut-off
date;
o all Liquidation Proceeds and all Insurance Proceeds,
all principal prepayments and all other proceeds of
any loan purchased by the depositor, the master
servicer, any sub-servicer or any seller pursuant to
the related operative agreement that were received
after the prepayment period specified in the
prospectus supplement and all related payments of
interest representing interest for any period after
the related collection period;
o all scheduled payments of principal and interest due
on a date or dates subsequent to the first day of the
month of distribution;
o amounts received on particular loans as late payments
of principal or interest or other amounts required to
be paid by borrowers, but only to the extent of any
unreimbursed advance in respect of those loans made
by the master servicer, the related sub-servicers,
support servicers or the trustee;
o amounts representing reimbursement, to the extent
permitted by the related operative agreement and as
described under the heading "--Advances" immediately
below, for advances made by the master servicer,
sub-servicers, support servicers or the trustee that
were deposited into the security account, and amounts
representing reimbursement for certain other losses
and expenses incurred by the master servicer or the
depositor and described below; and
o that portion of each collection of interest on a
particular loan in the trust fund which represents
servicing compensation payable to the master servicer
or retained interest which is to be retained from
such collection or is permitted to be retained from
related Insurance Proceeds, Liquidation Proceeds or
proceeds of loans purchased pursuant to the related
operative agreement;
(ii) the amount of any advance made by the master servicer,
sub-servicer, support servicer or the trustee as described
under "--Advances" immediately below and deposited by it in
the security account;
(iii) if applicable, amounts withdrawn from a reserve account;
(iv) any applicable, amounts provided under a letter of credit,
insurance policy, surety bond or other third-party credit
enhancement; and
(v) if applicable, the amount of any prepayment interest
shortfall.
DISTRIBUTIONS OF INTEREST. Unless otherwise specified in the related
prospectus supplement, interest will accrue on the aggregate principal balance
of each class of securities or the aggregate notional principal balance of each
class of securities entitled to distributions of interest only at the
pass-through rate (or interest rate) and for the periods specified in the
prospectus supplement. Except in the case of a class of accrual securities that
provides for interest that accrues but is not currently payable, the
pass-through rate may be a fixed rate or an adjustable rate that adjusts as
specified in the prospectus supplement. Interest accrued during each specified
period on each class of securities entitled to interest will be distributable on
the distribution dates specified in the related prospectus supplement, to the
extent that funds are available, until the aggregate principal balance of the
securities of that class has been distributed in full or, in the case of a class
of securities entitled only to distributions allocable to interest, until the
aggregate notional principal balance of that class is reduced to zero or for the
period of time designated in the related prospectus supplement. The original
principal balance of each security will equal the aggregate distributions
allocable to principal to which that security is entitled. Unless otherwise
specified in the related prospectus supplement, distributions allocable to
interest on each security that is not entitled to distributions allocable to
principal will be calculated based on the notional principal balance of that
security. The notional principal balance of a security will not evidence an
interest in or entitlement to distributions allocable to principal but will be
used solely for convenience in expressing the calculation of interest and for
certain other purposes.
With respect to any class of accrual securities, if specified in the
related prospectus supplement, any interest that has accrued but is not paid on
any distribution date will be added to the aggregate principal balance of that
class on that distribution date. Unless otherwise specified in the related
prospectus supplement, distributions of interest on each class of accrual
securities will commence only after the occurrence of the events specified in
the prospectus supplement. Unless otherwise specified in the related prospectus
supplement, the beneficial ownership interest of a class of accrual securities
in the trust fund will increase on each distribution date, as reflected in the
aggregate principal balance of that class, by the amount of interest that
accrued on that class during the preceding interest accrual period but was not
required to be distributed to the class on the distribution date. Each class of
accrual securities will thereafter accrue interest on the outstanding aggregate
principal balance of that class as so increased.
DISTRIBUTIONS OF PRINCIPAL. Unless otherwise specified in the related
prospectus supplement, the aggregate principal balance of any class of
securities entitled to distributions of principal will equal
o the original aggregate principal balance of that class as
specified in the related prospectus supplement
REDUCED BY
o all distributions reported to securityholders of that class as
allocable to principal
INCREASED BY
o in the case of a class of accrual securities, all interest
accrued but not then distributable on that class and
SUBJECT TO
o in the case of adjustable rate certificates, the effect of any
negative amortization.
The related prospectus supplement will specify the method by which the
amount of principal to be distributed on the securities on each distribution
date will be calculated and the manner in which the amount will be allocated
among the classes of securities entitled to distributions of principal.
If so provided in the related prospectus supplement, one or more
classes of senior securities will be entitled to receive all or a
disproportionate percentage of the payments of principal which are received from
borrowers in advance of their scheduled due dates and are not accompanied by
amounts representing scheduled interest due after the month of such payments in
the percentages and under the circumstances or for the periods specified in the
prospectus supplement. Any allocation of principal prepayments to a class or
classes of senior securities will have the effect of accelerating the
amortization of the senior securities while increasing the interests evidenced
by the subordinated securities in the related trust fund. Increasing the
interests of the subordinated securities relative to that of the senior
securities is intended to preserve the availability of the subordination
provided by the subordinated securities. See "Credit Enhancement and Other
Support--Subordination" in this prospectus.
UNSCHEDULED DISTRIBUTIONS. If specified in the related prospectus
supplement, the securities will be subject to receipt of distributions before
the next scheduled distribution date under the circumstances and in the manner
described in this paragraph and the following paragraph and in the prospectus
supplement. The trustee will be required to make such unscheduled distributions
on the day and in the amount specified in the related prospectus supplement if,
due to substantial payments of principal - including principal prepayments - on
the trust fund assets, the trustee or the master servicer determines that the
funds available or anticipated to be available from the security account and, if
applicable, from any reserve account may be insufficient to make required
distributions on the securities on that distribution date. Unless otherwise
specified in the related prospectus supplement, the amount of any unscheduled
distribution that is allocable to principal will not exceed the amount that
would otherwise have been required to be distributed as principal on the
securities on the next distribution date. Unless otherwise specified in the
related prospectus supplement, all unscheduled distributions will include
interest at the applicable pass-through rate, if any, on the amount of the
unscheduled distribution allocable to principal for the period and to the date
specified in the prospectus supplement.
Unless otherwise specified in the related prospectus supplement, all
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
securities would have been made on the next distribution date, and with respect
to securities of the same class, unscheduled distributions of principal will be
made on a pro rata basis. Notice of any unscheduled distribution will be given
by the trustee prior to the date of distribution.
ADVANCES
Unless otherwise provided in the related prospectus supplement, the
master servicer will be required to make advances, from its own funds, from
funds advanced by sub-servicers or support servicers or from funds held in the
security account for future distributions to the securityholders. On each
distribution date, the amount of any advances will be equal to the aggregate of
payments of principal and interest that were delinquent on the related
determination date and were not advanced by any sub-servicer, subject to the
master servicer's determination that these advances will be recoverable from
late payments by borrowers, Liquidation Proceeds, Insurance Proceeds or
otherwise. In the case of cooperative loans, the master servicer also will be
required to advance any unpaid maintenance fees and other charges under the
related proprietary leases as specified in the related prospectus supplement.
In making advances, the master servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the securityholders
rather than to guarantee or insure against losses. If advances are made by the
master servicer from cash being held for future distribution to securityholders,
the master servicer will replace those funds on or before any future
distribution date to the extent that funds in the applicable security account on
a distribution date would be less than the amount required to be available for
distributions to securityholders on that date. Any funds advanced by the master
servicer will be reimbursable to the master servicer out of recoveries on the
specific loans with respect to which the advances were made (E.G., late payments
made by the related borrower, any related Insurance Proceeds, Liquidation
Proceeds or proceeds of any loan purchased by a sub-servicer or a seller under
the circumstances described in this prospectus). Advances by the master servicer
and any advances by a sub-servicer or a support servicer also will be
reimbursable to the master servicer or sub-servicer or support servicer, as
applicable, from cash otherwise distributable to securityholders, including the
holders of senior securities, to the extent that the master servicer determines
that any advances previously made are not ultimately recoverable as described in
this paragraph. The master servicer also will be obligated to make advances, to
the extent recoverable out of Insurance Proceeds, Liquidation Proceeds or
otherwise, in respect of certain taxes and insurance premiums not paid by
borrowers on a timely basis. Funds so advanced are reimbursable to the master
servicer to the extent permitted by the related operative agreement. If
specified in the related prospectus supplement, the obligations of the master
servicer to make advances may be supported by a cash advance reserve fund, a
surety bond or other arrangement, in each case as described in the related
prospectus supplement.
The master servicer or sub-servicer may enter into a support agreement
with a support servicer pursuant to which the support servicer agrees to provide
funds on behalf of the master servicer or sub-servicer in connection with the
obligation of the master servicer or sub-servicer, as the case may be, to make
advances. The support agreement will be delivered to the trustee and the trustee
will be authorized to accept a substitute support agreement in exchange for an
original support agreement, provided that the substitution of the support
agreement will not adversely affect the rating or ratings assigned to the
securities by each rating agency named in the related prospectus supplement.
Unless otherwise provided in the prospectus supplement, in the event
the master servicer, a sub-servicer or a support servicer fails to make an
advance, the trustee will be obligated to make the advance in its capacity as
successor servicer. If the trustee makes an advance, it will be entitled to be
reimbursed for that advance to the same extent and degree as the master
servicer, a sub-servicer or a support servicer is entitled to be reimbursed for
advances. SEE "--Distributions on Securities" above.
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.
A purchase commitment is a contractual obligation of an obligor to
purchase either specified trust assets or classes of securities of any series,
on one or more specified dates, or upon the occurrence of one or more specified
events. A liquidity facility is an obligation of a lender to advance funds,
which may be used to purchase specified trust assets from the issuing entity on
one or more specified dates, or upon the occurrence of one or more specified
events . A remarketing agreement is an obligation of a remarketing agent to sell
specified trust assets on behalf of the issuing entity on one or more specified
dates, or upon the occurrence of one or more specified events, and may include
an obligation of the remarketing agent to cover any shortfall between the sale
proceeds and a specified level. A maturity guaranty is a contractual obligation
of an obligor to purchase either specified trust assets or classes of securities
of any series on one or more specified maturity dates. A put option is a
contractual obligation of an obligor to purchase either specified trust assets
or classes of securities of any series, on one or more specified dates, or upon
the occurrence of one or more specified events. A demand feature is a
contractual obligation of an obligor to purchase either specified trust assets
or classes of securities of any series upon demand made by a specified party on
one or more specified dates, or upon the occurrence of one or more specified
events.
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.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a distribution date
and except as otherwise set forth in the related prospectus supplement, the
master servicer or the trustee will furnish to each securityholder of record of
the related series a statement setting forth, to the extent applicable to that
series of securities, among other things:
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), separately identifying the aggregate amount of any
principal prepayments and, if specified in the prospectus
supplement, any prepayment penalties included in the
distribution;
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 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;
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.
o the aggregate amount (a) otherwise allocable to the
subordinated securityholders on that distribution date and (b)
withdrawn from the reserve fund, if any, that is included in
the amounts distributed to the senior securityholders;
o the percentage of principal payments on the loans (excluding
prepayments), if any, which each class will be entitled to
receive on the following distribution date;
o the percentage of principal prepayments on the mortgage loans,
if any, which each class will be entitled to receive on the
following distribution date;
o the amount of the servicing compensation retained or withdrawn
from the security account by the master servicer and the
amount of additional servicing compensation received by the
master servicer attributable to penalties, fees, excess
Liquidation Proceeds and other similar charges and items;
o the number and aggregate principal balance of mortgage loans
delinquent, but not in foreclosure, (i) from 30 to 59 days,
(ii) from 60 to 89 days and (iii) 90 days or more, as of the
close of business on the last day of the calendar month
preceding that distribution date;
o the number and aggregate principal balance of mortgage loans
delinquent and in foreclosure (i) from 30 to 59 days, (ii)
from 60 to 89 days and (iii) 90 days or more, as of the close
of business on the last day of the calendar month preceding
that distribution date, and loss information for the period;
o the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure and, if the real
estate secured a Multifamily Loan, any additional information
specified in the prospectus supplement;
o if a class is entitled only to a specified portion of interest
payments on the loans in the related pool, the pass-through
rate, if adjusted from the date of the last statement, of the
loans expected to be applicable to the next distribution to
that class; and
o the pass-through rate as of the day prior to the immediately
preceding distribution date.
Where applicable, any amount set forth in the above list may be
expressed as a dollar amount per single security of the relevant class having
the percentage interest specified in the prospectus supplement. The report to
securityholders for any series of securities may include additional or other
information of a similar nature to that specified in the above list.
In addition, within a reasonable period of time after the end of each
calendar year, the master servicer or the trustee will mail, to each
securityholder of record at any time during such calendar year, a report setting
forth:
o other customary information as may be deemed necessary or
desirable for securityholders to have in order to prepare
their tax returns.
Reports, whether monthly or annual, will be posted on a website as
described below under "Available Information" and "Reports to Securityholders."
CREDIT ENHANCEMENT AND OTHER SUPPORT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a series of securities or with respect to the assets in the related trust
fund. In addition, derivative instruments whose primary purpose is not to
provide credit enhancement may be utilized to reduce or alter risks associated
with changes in interest rates or currency fluctuations, or to ensure that
securityholders receive payment of the full face amount of their securities if
those securities are subject to mandatory action. Credit enhancement may take
the form of one or more of the following:
o a limited financial guaranty policy issued by an entity named
in the related prospectus supplement,
o the subordination of one or more classes of the securities of
that series and any provision for excess interest or
overcollateralization,
o the establishment of one or more reserve accounts,
o an interest rate swap (or cap, floor or collar) or a yield
supplement agreement,
o a currency swap,
o a market value swap,
o the use of a cross-support feature, or
o a pool insurance policy, bankruptcy bond, special hazard
insurance policy, surety bond, letter of credit, guaranteed
investment contract.
Unless otherwise specified in the related prospectus supplement, any
credit enhancement will not provide protection against all risks of loss and
will not guarantee repayment of the entire principal balance of the securities
and interest. If losses occur which exceed the amount covered by the credit
enhancement or which are not covered by the credit enhancement, securityholders
will bear their allocable share of deficiencies.
SUBORDINATION
If specified in the related prospectus supplement, protection afforded
to holders of one or more classes of the senior securities of a series by means
of the subordination feature will be accomplished by the holders of one or more
other classes of that series having a preferential right to distributions in
respect of scheduled principal, principal prepayments, interest or any
combination thereof that otherwise would have been payable to the holders of one
or more other subordinated classes of securities of that series under the
circumstances and to the extent specified in the prospectus supplement. If
specified in the related prospectus supplement, protection may also be afforded
to the holders of the senior securities of a series by:
o reducing the ownership interest of the holders of the related
subordinated securities,
o a combination of the subordination feature and reducing the
ownership interest of the subordinated securityholders, or
o as otherwise described in the related prospectus supplement.
If specified in the related prospectus supplement, delays in receipt of
scheduled payments on the loans and losses on defaulted loans will be borne
first by the various classes of subordinated securities and thereafter by the
various classes of senior securities, in each case under the circumstances and
subject to the limitations specified in that prospectus supplement.
The related prospectus supplement may also limit the following:
o the aggregate distributions in respect of delinquent payments
on the loans over the lives of the securities or at any time,
o the aggregate losses in respect of defaulted loans which must
be borne by the subordinated securities by virtue of their
subordination, and
o the amount of the distributions otherwise distributable to the
subordinated securityholders that will be distributable to
senior securityholders on any distribution date.
If aggregate distributions in respect of delinquent payments on the
loans or aggregate losses in respect of the loans were to exceed the amount
specified in the related prospectus supplement, holders of the senior securities
would experience losses on their securities.
In addition to or in lieu of the foregoing, if specified in the related
prospectus supplement, all or any portion of distributions otherwise payable to
holders of the subordinated securities on any distribution date may instead be
deposited into one or more reserve accounts established with the trustee. The
related prospectus supplement may specify that deposits in any reserve account
may be made
o on each distribution date,
o for specified periods, or
o until the balance in the reserve account has reached a
specified amount and, following payments from the reserve
account to holders of the senior securities or otherwise,
thereafter to the extent necessary to restore the balance in
the reserve account to the specified level.
If specified in the related prospectus supplement, amounts on deposit
in the reserve account may be released to the holders of the class or classes of
securities specified in the prospectus supplement at the times and under the
circumstances specified in the prospectus supplement.
If specified in the related prospectus supplement, various classes of
senior securities and subordinated securities may themselves be subordinate in
their right to receive certain distributions to other classes of senior and
subordinated securities, respectively, through a cross-support mechanism or
otherwise.
As among classes of senior securities and as among classes of
subordinated securities, distributions may be allocated among these classes as
follows:
o in the order of their scheduled final distribution dates,
o in accordance with a schedule or formula,
o in relation to the occurrence of events or otherwise,
in each case as specified in the related prospectus supplement. As
among classes of subordinated securities, the related prospectus supplement will
specify the allocation of payments to holders of the related senior securities
on account of delinquencies or losses and the allocation payments to any reserve
account.
POOL INSURANCE POLICIES
The related prospectus supplement may specify that a separate pool
insurance policy will be obtained for the pool. This policy will be issued by
the pool insurer named in the prospectus supplement. Subject to the limits
described in this section, each pool insurance policy will cover loss by reason
of default in payment on loans in the related pool in an amount equal to a
percentage, which is specified in the related prospectus supplement, of the
aggregate principal balances of the loans on the cut-off date which are not
covered as to their entire outstanding principal balances by primary mortgage
insurance policies. As more fully described in the following paragraph, the
master servicer will present claims to the pool insurer on behalf of itself, the
trustee and the securityholders. However, the pool insurance policies are not
blanket policies against loss, since claims under the policies may only be made
respecting particular defaulted loans and only upon satisfaction of the
conditions precedent described in the following paragraph. Unless otherwise
specified in the related prospectus supplement, no pool insurance policy will
cover losses due to a failure to pay or denial of a claim under a primary
mortgage insurance policy.
Unless otherwise specified in the related prospectus supplement, the
pool insurance policy will provide that no claims may be validly presented
unless the following conditions are satisfied:
o any required primary mortgage insurance policy is in effect
for the defaulted loan and a claim under that policy has been
submitted and settled;
o hazard insurance on the related mortgaged property has been
kept in force and real estate taxes and other protection and
preservation expenses have been paid;
o if there has been physical loss or damage to the mortgaged
property, the property has been restored to its physical
condition, reasonable wear and tear excepted, at the time of
issuance of the policy; and
o the insured has acquired good and merchantable title to the
mortgaged property free and clear of liens except certain
permitted encumbrances.
Upon satisfaction of these conditions, the pool insurer will have the
option EITHER
o to purchase the property securing the defaulted loan at a
price equal to the loan's principal balance plus accrued and
unpaid interest at the loan rate to the date of purchase plus
certain expenses incurred by the master servicer on behalf of
the trustee and securityholders, OR
o to pay the amount by which the sum of the principal balance of
the defaulted loan plus accrued and unpaid interest at the
loan rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an
approved sale of the mortgaged property,
in either case net of amounts paid or assumed to have been paid under
the related primary mortgage insurance policy.
If any property securing a defaulted 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 the pool insurance policy, the master
servicer will not be required to expend its own funds to restore the damaged
property unless it determines that
o the restoration will increase the proceeds to securityholders
on liquidation of the related loan after reimbursement to the
master servicer of its expenses, and
o the master servicer will be able to recover its expenses from
proceeds of the sale of the property or proceeds of the
related pool insurance policy or any related primary mortgage
insurance policy.
Unless otherwise specified in the related prospectus supplement, no
pool insurance policy will insure against losses sustained by reason of a
default arising, among other things, from
o fraud or negligence in the origination or servicing of a loan,
including misrepresentation by the borrower, the originator or
persons involved in the origination of the loan, or
o failure to construct a mortgaged property in accordance with
plans and specifications.
Many primary mortgage insurance policies also do not insure against
these types of losses. Nevertheless, a failure of coverage attributable to one
of the foregoing events might result in a breach of the related seller's
representations and, in that event, might give rise to an obligation on the part
of the seller to purchase the defaulted loan if the breach cannot be cured. No
pool insurance policy will cover a claim in respect of a defaulted loan that
occurs when the loan's servicer, at the time of default or thereafter, was not
approved by the insurer. Many primary mortgage insurance policies also do not
cover claims in this case.
Unless otherwise specified in the related prospectus supplement, the
original amount of coverage under the pool insurance policy will be reduced over
the life of the related securities by the aggregate dollar amount of claims
paid, less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the master servicer as well as accrued interest on
delinquent loans to the date of payment of the claim, unless otherwise specified
in the related prospectus supplement. Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by the securityholders.
The terms of any pool insurance policy relating to a pool of
Manufactured Housing Contracts or Home Improvement Contracts will be described
in the related prospectus supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
The related prospectus supplement may specify a mortgage loan (the "PMI
Mortgage Loan") is backed by a primary mortgage insurance policy (the "PMI
Policy"). This PMI policy will be issued by the primary mortgage insurance
policy insurer named in the prospectus supplement (the "PMI Insurer"). The PMI
Policy covers loss by reason of default in payment on the insured's mortgage
loan. A PMI Policy generally requires that delinquencies on any PMI Mortgage
Loan must be reported to the PMI Insurer within four months of default, and
appropriate proceedings to obtain title to the property securing the PMI
Mortgage Loan must be commenced within six months of default. The PMI Policy
usually contains provisions substantially as follows: (i) for the insured to
present a claim, the insured must have acquired, and tendered to the PMI
Insurer, good and merchantable title to the property securing the PMI Mortgage
Loan, free and clear of all liens and encumbrances, including, but not limited
to, any right of redemption by the mortgagor unless such acquisition of good and
merchantable title is excused under the terms of the PMI Policy; (ii) a claim
generally includes unpaid principal, accrued interest to the date of such tender
to the PMI Insurer by the insured, and certain expenses; (iii) when a claim is
presented, the PMI Insurer will have the option of either (A) paying the claim
in full, taking title to the property securing the PMI Mortgage Loan, and
arranging for its sale or (B) paying the insured percentage of the claim, with
the insured retaining title to the property securing the PMI Mortgage Loan; (iv)
claims generally must be filed within 60 days after the insured has acquired
good and merchantable title to the property securing the PMI Mortgage Loan and
(v) a claim generally must be paid within 60 days after the claim is filed by
the insured.
No payment for a loss will be made under the PMI Policy unless the
property securing the PMI Mortgage Loan is in the same physical condition as
when the PMI Mortgage Loan was originally insured, except for reasonable wear
and tear and unless premiums on the standard homeowner's insurance policy, real
estate taxes and foreclosure protection and preservation expenses have been
advanced by or on behalf of the insured.
Unless approved in writing by the PMI Insurer, the insured under the
PMI Policy may not make any change in the terms of a PMI Mortgage Loan,
including the borrowed amount, interest rate, term or amortization schedule of
the PMI Mortgage Loan, except as specifically permitted by terms of the PMI
Mortgage Loan; nor make any change in the property or other collateral securing
the PMI Mortgage Loan; nor release any mortgagor under the PMI Mortgage Loan
from liability. If a PMI Mortgage Loan is assumed with the insured's approval,
the PMI Insurer's liability for coverage of the PMI Mortgage Loan under the PMI
Policy generally will terminate as of the date of such assumption, unless the
PMI Insurer approves the assumption in writing.
Unless otherwise specified in the related prospectus supplement, the
PMI Policy specifically excludes coverage of (i) any claim resulting from a
default existing at the inception of coverage or occurring after lapse or
cancellation of coverage; (ii) certain claims where there is an environmental
condition which existed on the property securing the PMI Mortgage Loan, whether
or not known by the person or persons submitting an application for coverage of
the PMI Mortgage Loan, as of the effective date of coverage; (iii) any claim
involving a PMI Mortgage Loan which is for the purchase of the Mortgaged
Property, and for which the mortgagor did not make a down payment as described
in the application for coverage; (iv) any claim, if the mortgage, deed of trust
or other similar instrument did not provide the insured at origination with a
first lien on the property securing the PMI Mortgage Loan; (v) certain claims
involving or arising out of any breach by the insured of its obligations under,
or its failure to comply with the terms of, the PMI Policy or of its obligations
as imposed by operation of law; and (vi) any claim arising from the failure of
the borrower under a PMI Mortgage Loan to make any balloon payment, if
applicable, under the PMI Mortgage Loan.
The PMI Policy generally will not insure against a loss sustained by
reason of a default arising from or involving certain matters, including (i)
fraud or negligence in origination or servicing of the PMI Mortgage Loans,
including, but not limited to, misrepresentation by the borrower, lender or
other persons involved in the origination of the PMI Mortgage Loan or the
application for insurance; (ii) failure to construct a property securing a PMI
Mortgage Loan in accordance with specified plans or (iii) physical damage to a
property securing a PMI Mortgage Loan.
FHA INSURANCE; VA GUARANTEES
Single Family Loans designated in the related prospectus supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. These mortgage loans will be insured
under various FHA programs including the standard FHA 203(b) program to finance
the acquisition of one- to four-family housing units and the FHA 245 graduated
payment mortgage program. These programs generally limit the principal amount
and interest rates of the mortgage loans insured. Single Family Loans insured by
the FHA generally require a minimum down payment of approximately 5% of the
original principal amount of the loan. No FHA-insured Single Family Loan
relating to a series may have an interest rate or original principal amount
exceeding the applicable FHA limits at the time the loan was originated.
The insurance premiums for Single Family Loans insured by the FHA are
collected by lenders approved by the Department of Housing and Urban Development
(HUD), or by the master servicer or any sub-servicer, and are paid to the FHA.
The regulations governing FHA single-family mortgage insurance programs provide
that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged property to HUD or
upon assignment of the defaulted mortgage loan to HUD. With respect to a
defaulted FHA-insured Single Family Loan, the master servicer or any
sub-servicer is limited in its ability to initiate foreclosure proceedings. When
it is determined by the master servicer or sub-servicer or HUD that the default
was caused by circumstances beyond the mortgagor's control, the master servicer
or such sub-servicer is expected to make an effort to avoid foreclosure by
entering, if feasible, into one of a number of available forms of forbearance
plans with the mortgagor. These plans may involve the reduction or suspension of
regular mortgage payments for a specified period, with such payments to be made
up on or before the maturity date of the mortgage, or the recasting of payments
due under the mortgage up to or beyond the maturity date. In addition, when this
type of default is accompanied by certain other criteria, HUD may provide relief
by making payments to the master servicer or sub-servicer in partial or full
satisfaction of amounts due under the mortgage loan or by accepting assignment
of the loan from the master servicer or sub-servicer. Any payments made by HUD
are to be repaid by the mortgagor to HUD. With certain exceptions, at least
three full monthly installments must be due and unpaid under the mortgage loan,
and HUD must have rejected any request for relief from the mortgagor, before the
master servicer or sub-servicer may initiate foreclosure proceedings.
In most cases, HUD has the option to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash. Claims have
not been paid in debentures since 1965. HUD debentures issued in satisfaction of
FHA insurance claims bear interest at the applicable HUD debentures' interest
rate. The master servicer or sub-servicer of each FHA-insured Single Family Loan
will be obligated to purchase any HUD debenture issued in satisfaction of a
mortgage loan upon default for an amount equal to the debenture's principal
amount.
The amount of insurance benefits paid by the FHA generally is equal to
the entire unpaid principal amount of the defaulted mortgage loan adjusted to
reimburse the master servicer or sub-servicer for certain costs and expenses and
to deduct certain amounts received or retained by the master servicer or
sub-servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance of the mortgaged
property to HUD, the master servicer or sub-servicer is compensated for no more
than two-thirds of its foreclosure costs, and is compensated for interest
accrued and unpaid prior to the conveyance date generally only to the extent
allowed pursuant to the related forbearance plan approved by HUD. When
entitlement to insurance benefits results from assignment of the mortgage loan
to HUD, the insurance payment includes full compensation for interest accrued
and unpaid to the assignment date. The insurance payment itself, upon
foreclosure of an FHA-insured Single Family Loan, bears interest from the date
which is 30 days after the mortgagor's first uncorrected failure to perform any
obligation to make any payment due under the mortgage loan and, upon assignment,
from the date of assignment to the date of payment of the claim, in each case at
the same interest rate as the applicable HUD debenture interest rate.
Single Family Loans designated in the related prospectus supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended, which permits a veteran, the
spouse of a veteran in certain cases, to obtain a mortgage loan guaranteed by
the VA covering financing of the purchase of a one- to four-family dwelling unit
at interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchaser and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no Single Family Loan
guaranteed by the VA will have an original principal amount greater than five
times the partial VA guarantee for that mortgage loan.
The maximum guarantee that may be issued by the VA under a
VA-guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 U.S.C. Section 1803(a), as amended. As
of November 1, 1998 the maximum guarantee that may be issued by the VA under a
VA-guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $50,570. The liability on the
guarantee is reduced or increased, pro rata, with any reduction or increase in
the amount of indebtedness, but in no event will the amount payable under the
guaranty exceed the amount of the original guaranty. The VA may, at its option
and without regard to the guaranty, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage loan upon the loan's assignment to the
VA.
With respect to a defaulted VA-guaranteed Single Family Loan, the
master servicer or sub-servicer is, absent exceptional circumstances, authorized
to announce its intention to foreclose only when the default has continued for
three months. Generally, a claim under the guaranty is submitted after
liquidation of the mortgaged property.
The amount payable under the guaranty will be the percentage of the
VA-guaranteed Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in VA
regulations. Payments under the guaranty will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that these amounts have not been recovered through
liquidation of the mortgaged property. The amount payable under the guaranty may
in no event exceed the amount of the original guaranty.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related prospectus supplement, a separate special
hazard insurance policy will be obtained for the pool and will be issued by the
special hazard insurer named in the prospectus supplement. Subject to the
limitations described in the immediately following sentence, each special hazard
insurance policy will protect holders of the related securities from
o loss by reason of damage to mortgaged properties caused by
certain hazards - including earthquakes and, to a limited
extent, tidal waves and related water damage or as otherwise
specified in the prospectus supplement - not insured against
under the standard form of hazard insurance policy for the
respective states in which the mortgaged properties are
located or under a flood insurance policy if the mortgaged
property is located in a federally designated flood area, and
o loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies.
SEE "Operative Agreements--Hazard Insurance" in this prospectus. No
special hazard insurance policy will cover losses occasioned by fraud or
conversion by the trustee or master servicer, war, insurrection, civil war,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear or chemical reaction, flood (if
the mortgaged property is located in a federally designated flood area), nuclear
or chemical contamination and certain other risks. The amount of coverage under
any special hazard insurance policy will be specified in the related prospectus
supplement. Each special hazard insurance policy will provide that no claim may
be paid unless hazard insurance and, if applicable, flood insurance on the
related mortgaged property have been kept in force and other protection and
preservation expenses have been paid.
Subject to the limitations set forth in the immediately preceding
paragraph, and unless otherwise specified in the related prospectus supplement,
each special hazard insurance policy will provide coverage where there has been
damage to property securing a foreclosed mortgage loan, and title to the
mortgaged property has been acquired by the insured, to the extent that the
damage is not covered by the hazard insurance policy or flood insurance policy,
if any, maintained by the borrower or the master servicer. In this circumstance,
the special hazard insurer will pay the LESSER of
o the cost to repair or replace the mortgaged property, and
o upon transfer of the property to the special hazard insurer,
the unpaid principal balance of the loan at the time the
property is acquired by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim
settlement, together with certain expenses incurred by the
master servicer with respect to the property.
If the unpaid principal balance of a loan plus accrued interest and
certain servicing expenses are paid by the special hazard 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 to repair the damaged property will also reduce coverage
by such amount. So long as a pool insurance policy remains in effect, the
payment by the special hazard insurer to cover the unpaid principal balance of a
loan plus accrued interest and certain servicing expenses or to cover the cost
to repair a mortgaged property will not affect the total insurance proceeds paid
to securityholders, but will affect the relative amounts of coverage remaining
under the special hazard insurance policy and the pool insurance policy.
Since each special hazard insurance policy will be designed to permit
full recovery under the mortgage pool insurance policy in circumstances in which
recoveries would otherwise be unavailable because mortgaged properties have been
damaged by a cause not insured against by a standard hazard policy and thus
would not be restored, each operative agreement will provide that, unless
otherwise specified in the related prospectus supplement, the master servicer
will be under no obligation to maintain the special hazard insurance policy once
the related pool insurance policy has been terminated or been exhausted due to
payment of claims.
To the extent specified in the related prospectus supplement, the
master servicer may deposit in a special trust account, cash, an irrevocable
letter of credit or any other instrument acceptable to each rating agency named
in the prospectus supplement, in order to provide protection in lieu of or in
addition to that provided by a special hazard insurance policy. The amount of
any special hazard insurance policy or of the deposit to the special trust
account relating to securities may be reduced so long as the reduction will not
result in a downgrading of the rating of the securities by any rating agency
named in the prospectus supplement.
The terms of any special hazard insurance policy relating to a pool of
Manufactured Housing Contracts or Home Improvement Contracts will be described
in the related prospectus supplement.
BANKRUPTCY BONDS
If specified in the related prospectus supplement, a bankruptcy bond
for proceedings under the federal Bankruptcy Code will be issued by an insurer
named in the prospectus supplement. Each bankruptcy bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a loan or a reduction by the court of the principal
amount of a loan. The bankruptcy bond will also cover unpaid interest on the
amount of such a principal reduction from the date of the filing of a bankruptcy
petition. The required amount of coverage under any bankruptcy bond will be set
forth in the related prospectus supplement. Coverage under a bankruptcy bond may
be cancelled or reduced by the master servicer if the cancellation or reduction
would not adversely affect the then current rating of the securities by any
rating agency named in the prospectus supplement. SEE "Material Legal Aspects of
the Mortgage Loans--Anti-Deficiency Legislation and Other Limitations on
Lenders" in this prospectus.
To the extent specified in the related prospectus supplement, the
master servicer may deposit in a special trust account, cash, an irrevocable
letter of credit or any other instrument acceptable to each rating agency named
in the prospectus supplement, to provide protection in lieu of or in addition to
that provided by a bankruptcy bond. The amount of any bankruptcy bond or of the
deposit to the special trust account relating to the securities may be reduced
so long as the reduction would not result in a downgrading of the rating of the
securities by any rating agency named in the prospectus supplement.
The terms of any bankruptcy bond relating to a pool of Manufactured
Housing Contracts or Home Improvement Contracts will be described in the related
prospectus supplement.
FHA INSURANCE ON MULTIFAMILY LOANS
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the National Housing Act
allow HUD to insure mortgage loans that are secured by newly constructed and
substantially rehabilitated multifamily rental projects. Section 244 of the
Housing Act provides for co-insurance of mortgage loans made under Sections
221(d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the
term of a mortgage loan may be up to 40 years and the ratio of loan amount to
property replacement cost can be up to 90%.
Section 223(f) of the National Housing Act allows HUD to insure
mortgage loans made for the purchase or refinancing of existing apartment
projects which are at least three years old. Section 244 also provides for
co-insurance of mortgage loans made under Section 223(f). Under Section 223(f),
the loan proceeds cannot be used for substantial rehabilitation work but repairs
may be made for, generally up to the greater of 15% of the value of the project
or a dollar amount per apartment unit established from time to time by HUD. In
general the loan term may not exceed 35 years and a loan-to-value ratio of no
more than 85% is required for the purchase of a project and a loan-to-value
ratio of no more than 70% for the refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. The insurance does not cover 100% of the mortgage loan
but is subject to certain deductions and certain losses of interest from the
date of the default.
RESERVE ACCOUNTS
If specified in the related prospectus supplement, credit support with
respect to a series of securities may be provided by the establishment and
maintenance of one or more reserve accounts for that series, in trust, with the
related trustee. The prospectus supplement will specify whether or not a reserve
accounts will be included in the related trust fund.
The reserve account for a series of securities will be funded in one of
the following ways:
o by a deposit of cash, U.S. Treasury securities, instruments
evidencing ownership of principal or interest payments on U.S.
Treasury securities, letters of credit, demand notes,
securities of deposit or a combination of these, in the
aggregate amount specified in the related prospectus
supplement;
o by deposit from time to time of amounts specified in the
related prospectus supplement to which the subordinated
securityholders, if any, would otherwise be entitled; or
o in such other manner as the prospectus supplement may specify.
Any amounts on deposit in the reserve account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
permitted investments. Unless otherwise specified in the related prospectus
supplement, "permitted investments" will include obligations of the United
States and certain of its agencies, certificates of deposit, certain commercial
paper, time deposits and bankers acceptances sold by eligible commercial banks
and certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the trustee,
the letter of credit will be irrevocable. Unless otherwise specified in the
related prospectus supplement, any instrument deposited in a reserve account
will name the trustee, in its capacity as trustee for the securityholders, as
beneficiary and will be issued by an entity acceptable to each rating agency
named in the prospectus supplement. Additional information with respect to
instruments deposited in the reserve account will be set forth in the related
prospectus supplement.
Any amounts deposited, and payments on instruments deposited, in a
reserve account will be available for withdrawal from the reserve account for
distribution to securityholders, for the purposes, in the manner and at the
times specified in the related prospectus supplement.
CROSS SUPPORT
If specified in the related prospectus supplement, the beneficial
ownership of separate groups of assets included in a trust fund may be evidenced
by separate classes of securities. In this case, credit support may be provided
by a cross support feature which requires that distributions be made with
respect to securities evidencing a beneficial ownership interest in, or secured
by, other asset groups within the same trust fund. The related prospectus
supplement for a series which includes a cross support feature will describe the
manner and conditions for applying the cross support feature.
If specified in the related prospectus supplement, the coverage
provided by one or more forms of external credit support (for example, financial
guaranty insurance or other insurance policies) may apply concurrently to one or
more related loan groups. If applicable, the related prospectus supplement will
identify the loan groups to which the external credit support relates and the
manner of determining the amount of the coverage provided and the application of
the coverage to the identified loan groups.
OTHER INSURANCE, SURETY BONDS, GUARANTIES, LETTERS OF CREDIT AND SIMILAR
INSTRUMENTS OR AGREEMENTS
If specified in the related prospectus supplement, a trust fund may
also include insurance, guaranties, surety bonds, letters of credit or similar
arrangements for the following purposes:
o to maintain timely payments or provide additional protection
against losses on the assets included in the trust fund,
o to pay administrative expenses, or
o to establish a minimum reinvestment rate on the payments made
in respect of the assets included in the trust fund or
principal payment rate on the assets.
These arrangements may include agreements under which securityholders
are entitled to receive amounts deposited in various accounts held by the
trustee upon the terms specified in the prospectus supplement.
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, and 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
that are used solely in conjunction with auctions.
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.
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. The terms of any derivative product
agreement and any counterparties will be described in the accompanying
prospectus supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the certificates
will be affected primarily by the amount and timing of principal payments
received on or in respect of the assets included in the related trust fund. The
original terms to maturity of the loans in a given pool will vary depending upon
the types of loans included. Each prospectus supplement will contain information
with respect to the types and maturities of the loans in the related pool.
Unless otherwise specified in the related prospectus supplement, loans may be
prepaid, without penalty, in full or in part at any time. Multifamily Loans may
prohibit prepayment for a specified period after origination, may prohibit
partial prepayments entirely, and may require the payment of a prepayment
penalty upon prepayment in full or in part. The prepayment experience of the
loans in a pool will affect the life of the related series of securities.
The rate of prepayments on the loans cannot be predicted. A number of
factors, including homeowner mobility, economic conditions, the presence and
enforceability of due-on-sale clauses, mortgage market interest rates and the
availability of mortgage funds may affect the prepayment experience of loans.
Some of these factors, as well as other factors including limitations on
prepayment and the relative tax benefits associated with the ownership of
income-producing real property, may affect the prepayment experience of
Multifamily Loans.
Home Equity Loans and Home Improvement Contracts have been originated
in significant volume only during the past few years and neither depositor is
aware of any publicly available studies or statistics on the rate of prepayment
of these types of loans. Generally, Home Equity Loans and Home Improvement
Contracts are not viewed by borrowers as permanent financing. Accordingly, these
loans may experience a higher rate of prepayment than traditional first mortgage
loans. On the other hand, because Home Equity Loans that are revolving credit
line loans generally are not fully amortizing, the absence of voluntary borrower
prepayments could cause rates of principal payments to be lower than, or similar
to, those of traditional fully-amortizing first mortgages. The prepayment
experience of the related trust fund may also be affected by the frequency and
amount of any future draws on any revolving credit line loans. Other factors
that might be expected to affect the prepayment rate of a pool of Home Equity
Loans or Home Improvement Contracts include the amounts of, and interest rates
on, the underlying senior mortgage loans, and the use of first mortgage loans as
long-term financing for home purchase and junior mortgage loans as shorter-term
financing for a variety of purposes, including home improvement, education
expenses and purchases of consumer durables such as automobiles. Accordingly,
these types of loans may experience a higher rate of prepayment than traditional
fixed-rate mortgage loans. In addition, any future limitations on the right of
borrowers to deduct interest payments on Home Equity Loans for federal income
tax purposes may further increase the rate of prepayments of these loans.
Collections on Home Equity Loans that are revolving credit line loans
may vary because, among other things, borrowers may
o make payments during any month as low as the minimum monthly
payment for that month or, during the interest-only period for
revolving credit line loans and, in more limited
circumstances, closed-end loans, as to which an interest-only
payment option has been selected, the interest and the fees
and charges for that month; or
o make payments as high as the entire outstanding principal
balance plus accrued interest and related fees and charges.
It is possible that borrowers may fail to make the required periodic
payments. In addition, collection on these loans may vary due to seasonal
purchasing and the payment habits of borrowers.
Unless otherwise provided in the related prospectus supplement, all
conventional loans other than Multifamily Loans will contain due-on-sale
provisions permitting the mortgagee or holder of the contract to accelerate the
maturity of the related loan upon the sale or certain other transfers of the
related mortgaged property by the borrower. As described in the related
prospectus supplement, conventional Multifamily Loans may contain due-on-sale
provisions, due-on-encumbrance provisions or both. Loans insured by the FHA, and
loans partially guaranteed by the VA, are assumable with the consent of the FHA
and the VA, respectively. Thus, the rate of prepayments of these loans may be
lower than that of conventional mortgage loans bearing comparable interest
rates. Unless otherwise provided in the related prospectus supplement, the
master servicer generally will enforce any due-on-sale or due-on-encumbrance
clause, to the extent it has knowledge of the conveyance or further encumbrance
or the proposed conveyance or proposed further encumbrance of the mortgaged
property and reasonably believes that it is entitled to do so under applicable
law. However, the master servicer will not take any enforcement action that
would impair or threaten to impair any recovery under any related insurance
policy. SEE "Operative Agreements--Collection Procedures" and "Material Legal
Aspects of the Mortgage Loans" in this prospectus for a description of certain
provisions of each operative agreement and certain legal matters that may affect
the prepayment experience of the loans.
The rate of prepayments of conventional mortgage loans has fluctuated
significantly in recent years. In general, prepayment rates may be influenced by
a variety of economic, geographic, social and other factors, including changes
in housing needs, job transfers, unemployment and servicing decisions. In
general, however, if prevailing rates fall significantly below the loan rate
borne by a loan, that loan is likely to be subject to a higher prepayment rate
than would be the case if prevailing interest rates remain at or above its rate.
Conversely, if prevailing interest rates rise appreciably above the loan rate
borne by a loan, that loan is likely to experience a lower prepayment rate than
would be the case if prevailing rates remain at or below its loan rate. However,
there can be no assurance that these generalities will hold true in particular
cases. The rate of prepayment of Multifamily Loans may also be affected by other
factors including loan terms including the existence of lockout periods,
due-on-sale and due-on-encumbrance clauses and prepayment changes, relative
economic conditions in the area where the mortgaged properties are located, the
quality of management of the mortgaged properties and possible changes in tax
laws.
When a loan is prepaid in full, the borrower is charged interest on the
principal amount of the loan only for the number of days in the month actually
elapsed up to the date of the prepayment rather than for a full month. Unless
otherwise specified in the related prospectus supplement, the effect of a
prepayment in full will be to reduce the amount of interest passed through in
the following month to securityholders, because interest on the principal
balance of the prepaid loan will be paid only to the date of prepayment. Partial
prepayments in a given month may be applied to the outstanding principal
balances of the prepaid loans either on the first day of the month of receipt or
of the month following receipt. In the latter case, partial prepayments will not
reduce the amount of interest passed through in that month. Unless otherwise
specified in the related prospectus supplement, neither prepayments in full nor
partial prepayments will be passed through until the month following receipt.
Prepayment charges collected with respect to Multifamily Loans will be
distributed to securityholders, or to other persons entitled to them, as
described in the related prospectus supplement.
If so specified in the related prospectus supplement, the master
servicer will be required to remit to the trustee, with respect to each loan in
the related trust as to which a principal prepayment in full or a principal
payment which is in excess of the scheduled monthly payment and is not intended
to cure a delinquency was received during any due period, an amount, from and to
the extent of amounts otherwise payable to the master servicer as servicing
compensation, equal to the EXCESS, if any, of
o 30 days' interest on the principal balance of the related loan
at the loan rate net of the annual rate at which the master
servicer's servicing fee accrues, OVER
o the amount of interest actually received on that loan during
the due period, net of the master servicer's servicing fee.
If the rate at which interest is passed through to the holders of
securities of a series is calculated on a loan by loan basis, disproportionate
principal prepayments with respect to loans bearing different loan rates will
affect the yield on the securities. In general, the effective yield to
securityholders will be slightly lower than the yield otherwise produced by the
applicable security pass-through rate and purchase price because, while interest
generally will accrue on each loan from the first day of the month, the
distribution of interest generally will not be made earlier than the month
following the month of accrual.
Under certain circumstances, the master servicer, the holders of the
residual interests in a REMIC or any other person named in the related
prospectus supplement may have the option to purchase the assets of a trust fund
to effect early retirement of the related series of securities. SEE "Operative
Agreements--Termination; Optional Termination; Optional Calls" in this
prospectus.
Factors other than those identified in this prospectus and in the
related prospectus supplement could significantly affect principal prepayments
at any time and over the lives of the securities. The relative contribution of
the various factors affecting prepayment may also vary from time to time. There
can be no assurance as to the rate of payment of principal of trust fund assets
at any time or over the lives of the securities.
The prospectus supplement relating to a series of securities will
discuss in greater detail the effect of the rate and timing of principal
payments including prepayments, delinquencies and losses on the yield, weighted
average lives and maturities of the securities.
In the event that a receiver, bankruptcy trustee, debtor in possession
or similar entity (each, an "insolvency trustee") is appointed with respect to a
seller due to its insolvency or a seller becomes a debtor under the federal
Bankruptcy Code or any similar insolvency law, the insolvency trustee may
attempt to characterize the transfer of the related mortgage loans from the
seller to the depositor as a pledge to secure a financing rather than as a sale.
In the event that this attempt were successful, the insolvency trustee might
elect, among other remedies, to accelerate payment of the related securities and
liquidate the related loans, with each securityholder being entitled to receive
its allocable share of the principal balance of the loans, together with its
allocable share of interest on the loans at the applicable pass-through rate, or
weighted average "strip rate" as defined in the related prospectus supplement,
as the case may be, to the date of payment. In this event, the related
securityholders might incur reinvestment losses with respect to principal
received and investment losses attendant to the liquidation of the loans and the
resulting early retirement of the related security. In addition, certain delays
in distributions might be experienced by the securityholders in connection with
any such insolvency proceedings.
OPERATIVE AGREEMENTS
Set forth below is a summary of the material provisions of each
operative agreement that are not described elsewhere in this prospectus. This
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of each operative agreement applicable
to a particular series of certificates. As to each series of securities, the
related material agreements, including each agreement required to be filed under
Regulation AB, will be filed with the Commission in a current report on Form 8-K
following the issuance of the securities. Where particular provisions or terms
used in the operative agreements are referred to, those provisions or terms are
as specified in the agreements. Except as otherwise specified, the operative
agreements described in this prospectus contemplate a trust fund that is
comprised of loans. Although an agreement governing a trust fund that consists
of Agency Securities or Private Label Securities may contain provisions that are
similar to those described below, they will be described more fully in the
related prospectus supplement.
ASSIGNMENT OF TRUST FUND ASSETS
ASSIGNMENT OF THE TRUST FUND LOANS. When the securities of a series are
issued, the depositor named in the prospective supplement will cause the loans
comprising the related trust fund to be assigned to the trustee, together with
all principal and interest received by or on behalf of the depositor with
respect to those loans after the cut-off date, other than principal and interest
due on or before the cut-off date and other than any retained interest specified
in the related prospectus supplement. Concurrently with this assignment, the
trustee will deliver the securities to the depositor in exchange for the loans.
Each loan will be identified in a schedule appearing as an exhibit to the
related agreement. The schedule will include information as to the outstanding
principal balance of each loan after application of payments due on the cut-off
date, as well as information regarding the loan rate or APR, the current
scheduled monthly payment of principal and interest, the maturity of the loan,
its loan-to-value ratio or combined loan-to-value ratio at origination and
certain other information.
If so specified in the related prospectus supplement, and in accordance
with the rules of membership of Merscorp, Inc. and/or Mortgage Electronic
Registration Systems, Inc. (MERS), assignments of the mortgages for some or all
of the mortgage loans in the related trust will be registered electronically
through the MERS(R) System. With respect to mortgage loans registered through
the MERS(R) System, MERS shall serve as mortgagee of record solely as a nominee
in an administrative capacity on behalf of the trustee and shall not have any
interest in any of those mortgage loans.
In addition, the depositor will deliver to the trustee or a custodian
the following items in connection with each loan in the related trust fund:
o the original mortgage note or contract, endorsed without
recourse in blank or to the order of the trustee;
o in the case of Single Family Loans, Home Equity Loans or
Multifamily Loans, the mortgage, deed of trust or similar
instrument (each, a "mortgage") with evidence of recording
indicated on the mortgage; however, in the case of any
mortgage not returned from the public recording office, the
depositor will deliver or cause to be delivered a copy of the
mortgage together with a certificate stating that the original
mortgage was delivered to the recording office;
o in the case of a contract, other than an unsecured contract,
the security interest in the mortgaged property securing the
contract;
o an assignment of the mortgage or contract to the trustee,
which assignment will be in recordable form in the case of a
mortgage assignment or evidence that the mortgage is held for
the trustee through the MERS(R) System; and
o any other security documents as may be specified in the
related prospectus supplement, including those relating to any
senior lienholder interests in the related mortgaged property.
Unless otherwise specified in the related prospectus supplement, the
depositor will promptly cause the assignments of any Single Family Loan, Home
Equity Loan and Multifamily Loan (except for mortgages held under the MERS(R)
System) to be recorded in the appropriate public office for real property
records, except in states in which, in the opinion of counsel acceptable to the
trustee, recording is not required to protect the trustee's interest in the
loans against the claim of any subsequent transferee or any successor to, or
creditor of, the depositor or the originator of the loans. Unless otherwise
specified in the related prospectus supplement, the depositor will promptly make
or cause to be made an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the trustee's ownership of the contracts.
With respect to any loans which are cooperative loans, the depositor
will deliver the following items to the trustee:
o the related original cooperative note endorsed, without
recourse, in blank or to the order of the trustee,
o the original security agreement,
o the proprietary lease or occupancy agreement,
o the recognition agreement,
o an executed financing agreement and the relevant stock
certificate,
o related blank stock powers, and
o any other document specified in the related prospectus
supplement.
The depositor will cause to be filed in the appropriate office an
assignment and a financing statement evidencing the trustee's security interest
in each cooperative loan.
The trustee or custodian will review the mortgage loan documents, upon
receipt, within the time period specified in the related prospectus supplement.
The trustee will hold the documents in trust for the benefit of the
securityholders. Unless otherwise specified in the related prospectus
supplement, if any of these documents are found to be missing or defective in
any material respect, the trustee or custodian will notify the master servicer
and the depositor, and the master servicer will notify the related seller. If
the seller cannot cure the omission or defect within a specified member of days
after receipt of notice, the seller will be obligated either to purchase the
loan from the trustee or to substitute a qualified substitute loan for the
defective loan. There can be no assurance that a seller will fulfill this
obligation. Although the master servicer may be obligated to enforce the
seller's obligation to the extent described in this prospectus under "Mortgage
Loan Program--Representations by Sellers; Repurchases," neither the master
servicer nor the depositor will be obligated to purchase the mortgage loan if
the seller defaults on its obligation, unless the breach also constitutes a
breach of the representations or warranties of the master servicer or the
depositor, as the case may be. Unless otherwise specified in the related
prospectus supplement, the seller's obligation to cure, purchase or substitute
constitutes the sole remedy available to the securityholders or the trustee for
the omission of, or a material defect in, a constituent loan document.
The trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the loans as agent of the trustee.
The master servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the agreement. Upon a breach of any representation of the
master servicer which materially and adversely affects the interests of the
securityholders in a loan, the master servicer will be obligated either to cure
the breach in all material respects or to purchase the loan. Unless otherwise
specified in the related prospectus supplement, this obligation to cure,
purchase or substitute constitutes the sole remedy available to the
securityholders or the trustee for a breach of representation by the master
servicer.
Notwithstanding the provisions of the foregoing two paragraphs, with
respect to a trust fund for which a REMIC election is to be made, unless the
related prospectus supplement otherwise provides, no purchase or substitution of
a loan will be made if the purchase or substitution would result in a prohibited
transaction tax under the Internal Revenue Code.
ASSIGNMENT OF AGENCY SECURITIES. The applicable depositor will cause
any Agency Securities included in a trust fund to be registered in the name of
the trustee or its nominee, and the trustee concurrently will execute,
countersign and deliver the securities. Each Agency Security will be identified
in a schedule appearing as an exhibit to the related pooling and servicing
agreement, which will specify as to each Agency Security its original principal
amount, outstanding principal balance as of the cut-off date, annual
pass-through rate, if any, and the maturity date.
ASSIGNMENT OF PRIVATE LABEL SECURITIES. The applicable depositor will
cause any Private Label Securities included in a trust fund to be registered in
the name of the trustee. The trustee or custodian will have possession of any
Private Label Securities that are in certificated form. Unless otherwise
specified in the related prospectus supplement, the trustee will not be in
possession, or be assignee of record, of any assets underlying the Private Label
Securities. See "The Trust Fund--Private Label Securities." The Private Label
Securities will be identified in a schedule appearing as an exhibit to the
related agreement, which will specify the original principal amount, the
outstanding principal balance as of the cut-off date, the annual pass-through
rate or interest rate, the maturity date and other pertinent information for the
Private Label Securities conveyed to the trustee.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The master servicer and each sub-servicer servicing a loan pursuant to
a sub-servicing agreement will establish and maintain with respect to the
related trust fund a security account which is a separate account or accounts
for the collection of payments on the assets in the trust fund. Unless otherwise
specified in the related prospectus supplement, each security account shall meet
one of the requirements listed below.
o It must be maintained with a depository institution the debt
obligations of which (or in the case of a depository
institution that is the principal subsidiary of a holding
company, the obligations of which) are rated in one of the two
highest rating categories by each rating agency rating(s)
named in the prospectus supplement.
o It must be an account the deposits in which are fully insured
by the FDIC.
o It must be an account or accounts the deposits in which are
insured by the FDIC to its established limits and the
uninsured deposits in which are otherwise secured such that,
as evidenced by an opinion of counsel, the securityholders
have a claim with respect to the funds in the security account
or a perfected first priority security interest against any
collateral securing those funds that is superior to the claims
of any other depositors or general creditors of the depository
institution with which the security account is maintained.
o It must be an account otherwise acceptable to each rating
agency named in the prospectus supplement.
A security account established by a sub-servicer must meet the
requirements listed above and must be otherwise acceptable to the master
servicer. A sub-servicing account must be established with a Federal Home Loan
Bank or with a depository institution (including the sub-servicer if it is a
depository institution), the accounts in which are insured by the Federal
Deposit Insurance Corporation (FDIC). If a sub-servicing account is maintained
at an institution that is a Federal Home Loan Bank or an FDIC-insured
institution and, in either case, the amount on deposit in the sub-servicing
account exceeds the FDIC insurance coverage amount, then such excess amount must
be remitted to the master servicer within one business day after receipt. In
addition, the sub-servicer must maintain a separate account for escrow and
impound funds relating to the loans. Each sub-servicer is required to deposit
into its sub-servicing account on a daily basis all amounts that it receives in
respect of the loans described immediately below under "--Sub-Servicing by
Sellers," less its servicing or other compensation. On or before the date
specified in the sub-servicing agreement, the sub-servicer will remit to the
master servicer or the trustee all funds held in the sub-servicing account with
respect to the loans that are required to be remitted. The sub-servicer is also
required to advance, on the scheduled remittance date, an amount corresponding
to any monthly installment of principal and interest, less its servicing or
other compensation, on any loan the payment of which was not received from the
borrower. Unless otherwise specified in the related prospectus supplement, this
obligation of each sub-servicer to advance continues up to and including the
first of the month following the date on which the related mortgaged property is
sold at a foreclosure sale or is acquired on behalf of the securityholders by
deed in lieu of foreclosure, or until the related loan is liquidated.
The collateral eligible to secure amounts in the security account is
limited to United States government securities and other high-quality permitted
investments. A security account may be maintained as an interest-bearing account
or the funds held in the account may be invested pending each succeeding
distribution date in permitted investments. Unless otherwise provided in the
prospectus supplement, the master servicer will have sole discretion to
determine the particular investments made so long as they comply with the
investment terms of the related pooling and servicing agreement or the related
servicing agreement and indenture. Unless otherwise specified in the related
prospectus supplement, the master servicer or its designee will be entitled to
receive any interest or other income earned on funds in the security account as
additional compensation and will be obligated to deposit in the security account
the amount of any loss immediately as realized. The security account may be
maintained with the master servicer or with a depository institution that is an
affiliate of the master servicer, provided that the master servicer or its
affiliate, as applicable, meets the standards set forth above.
On a daily basis, the master servicer or servicer, as applicable, will
deposit in the certificate account for each trust fund, to the extent applicable
and unless otherwise specified in the related prospectus supplement and provided
in the pooling and servicing agreement, the following payments and collections
received, or advances made, by the master servicer or servicer or on behalf of
either entity subsequent to the cut-off date, other than payments due on or
before the cut-off date and exclusive of any amounts representing a retained
interest:
o all payments on account of principal, including principal
prepayments and, if specified in the related prospectus
supplement, prepayment penalties, on the loans;
o all payments on account of interest on the loans, net of
applicable servicing compensation;
o Insurance Proceeds;
o Liquidation Proceeds;
o any net proceeds received on a monthly basis with respect to
any properties acquired on behalf of the securityholders by
foreclosure or deed in lieu of foreclosure;
o all proceeds of any loan or mortgaged property purchased by
the master servicer, the depositor, any sub-servicer or any
seller as described in this prospectus under "Loan
Program--Representations by Sellers; Repurchases or
Substitutions" or "-- Assignment of Trust Fund Assets" above
and all proceeds of any loan repurchased as described in this
prospectus under "--Termination; Optional Termination" below;
o all payments required to be deposited in the security account
with respect to any deductible clause in any blanket insurance
policy described in this prospectus under "--Hazard Insurance"
below;
o any amount required to be deposited by the master servicer in
connection with losses realized on investments of funds held
in the security account made for the benefit of the master
servicer; and
o all other amounts required to be deposited in the security
account pursuant to the related agreement.
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. 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.
SUB-SERVICING OF LOANS
Each seller of a loan or any other servicing entity may act as the
sub-servicer for that loan pursuant to a sub-servicing agreement which will not
contain any terms inconsistent with the related operative agreement. While each
sub-servicing agreement will be a contract solely between the master servicer
and the related sub-servicer, the operative agreement pursuant to which a series
of securities is issued will provide that, the trustee or any successor master
servicer must recognize the sub-servicer's rights and obligations under the
sub-servicing agreement, if for any reason the master servicer for that series
is no longer the master servicer of the related loans.
With the approval of the master servicer, a sub-servicer may delegate
its servicing obligations to third-party servicers, but the sub-servicer will
remain obligated under its sub-servicing agreement. Each sub-servicer will be
required to perform the customary functions of a servicer of mortgage loans.
These functions generally include
o collecting payments from borrowers and remitting collections
to the master servicer;
o maintaining hazard insurance policies as described in this
prospectus and in any related prospectus supplement, and
filing and settling claims under those policies, subject in
certain cases to the master servicer's right to approve
settlements in advance;
o maintaining borrower escrow or impoundment accounts for
payment of taxes, insurance and other items required to be
paid by the borrower under the related loan;
o processing assumptions or substitutions, although the master
servicer is generally required to enforce due-on-sale clauses
to the extent their enforcement is permitted by law and would
not adversely affect insurance coverage;
o attempting to cure delinquencies;
o supervising foreclosures;
o inspecting and managing mortgaged properties under certain
circumstances;
o maintaining accounting records relating to the loans; and
o to the extent specified in the related prospectus supplement,
maintaining additional insurance policies or credit support
instruments and filing and settling claims under them.
A sub-servicer will also be obligated to make advances in respect of
delinquent installments of principal and interest on loans, as described more
fully in this prospectus under "--Payments on Loans; Deposits to Security
Account" above, and in respect of certain taxes and insurance premiums not paid
on a timely basis by borrowers.
As compensation for its servicing duties, each sub-servicer will be
entitled to a monthly servicing fee, to the extent the scheduled payment on the
related loan has been collected, in the amount set forth in the related
prospectus supplement. Each sub-servicer is also entitled to collect and retain,
as part of its servicing compensation, any prepayment or late charges provided
in the note or related instruments. Each sub-servicer will be reimbursed by the
master servicer for certain expenditures which it makes, generally to the same
extent the master servicer would be reimbursed under the agreement. The master
servicer may purchase the servicing of loans if the sub-servicer elects to
release the servicing of the loans to the master servicer. SEE "-- Servicing and
Other Compensation and Payment of Expenses" below.
Each sub-servicer may be required to agree to indemnify the master
servicer for any liability or obligation sustained by the master servicer in
connection with any act or failure to act by the sub-servicer in its servicing
capacity. Each sub-servicer will be required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the master servicer.
Each sub-servicer will be required to service each loan pursuant to the
terms of its sub-servicing agreement for the entire term of the loan, unless the
sub-servicing agreement is earlier terminated by the master servicer or unless
servicing is released to the master servicer. The master servicer, if specified
in the applicable agreement, may terminate a sub-servicing agreement without
cause, upon written notice to the sub-servicer in the manner specified in that
sub-servicing agreement.
The master servicer may agree with a sub-servicer to amend a
sub-servicing agreement or, upon termination of the sub-servicing agreement, the
master servicer may act as servicer of the related loans or enter into new
sub-servicing agreements with other sub-servicers. If the master servicer acts
as servicer, it will not assume liability for the representations and warranties
of the sub-servicer which it replaces. Each sub-servicer must be a seller or
meet the standards for becoming a seller or have such servicing experience as to
be otherwise satisfactory to the master servicer and the depositor. The master
servicer will make reasonable efforts to have the new sub-servicer assume
liability for the representations and warranties of the terminated sub-servicer,
but no assurance can be given that an assumption of liability will occur. In the
event of an assumption of liability, the master servicer may in the exercise of
its business judgment, release the terminated sub-servicer from liability in
respect of such representations and warranties. Any amendments to a
sub-servicing agreement or new sub-servicing agreements may contain provisions
different from those which are in effect in the original sub-servicing
agreement. However, each sub-servicing agreement will provide that any amendment
or new agreement may not be inconsistent with or violate the original
sub-servicing agreement.
COLLECTION PROCEDURES
The trustee, securities administrator or master servicer, directly or
through one or more sub-servicers, will make reasonable efforts to collect all
payments called for under the loans and will, consistent with each agreement and
any mortgage pool insurance policy, primary mortgage insurance policy, FHA
insurance, VA guaranty and bankruptcy bond or alternative arrangements, follow
such collection procedures as are customary with respect to loans that are
comparable to the loans included in the related trust fund. Consistent with the
preceding sentence, the master servicer may, in its discretion,
o waive any assumption fee, late payment or other charge in
connection with a loan; and
o to the extent not inconsistent with the coverage of the loan
by a pool insurance policy, primary mortgage insurance policy,
FHA insurance, VA guaranty or bankruptcy bond or alternative
arrangements, arrange with the borrower a schedule for the
liquidation of delinquencies running for no more than 125 days
after the applicable due date for each payment.
Both the sub-servicer and the master servicer remain obligated to make
advances during any period when an arrangement of this type is in effect.
In certain instances in which a mortgage loan is in default (or if
default is reasonably foreseeable), the master servicer may, acting in
accordance with procedures specified in the applicable pooling and servicing
agreement, permit certain modifications of the mortgage loan rather than
proceeding with foreclosure. Modifications of this type may have the effect of
reducing the mortgage rate, forgiving the payment of principal or interest or
extending the final maturity date of the mortgage loan. Any such modified
mortgage loan may remain in the related trust fund, and the reduction in
collections resulting from the modification may result in reduced distributions
of interest (or other amounts) on, or may extend the final maturity of, one or
more classes of the related securities. If no satisfactory arrangement can be
made for the collection of such delinquent payments, the master servicer will
continue to follow procedures specified in the applicable pooling and servicing
agreement. These procedures could result, among other possible outcomes, in the
sale of the delinquent mortgage loan by the master servicer on behalf of the
related trust fund.
Unless otherwise specified in the related prospectus supplement, in any
case in which property securing a loan has been, or is about to be, conveyed by
the borrower, the master servicer will, to the extent it has knowledge of the
conveyance or proposed conveyance, exercise its rights to accelerate the
maturity of the loan under any applicable due-on-sale clause, but only if the
exercise of its rights is permitted by applicable law and will not impair or
threaten to impair any recovery under any primary mortgage insurance policy. If
these conditions are not met or if the master servicer reasonably believes it is
unable under applicable law to enforce the due-on-sale clause, or if the loan is
insured by the FHA or partially guaranteed by the VA, the master servicer will
enter into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed. Pursuant to the assumption
agreement, the transferee of the property becomes liable for repayment of the
loan and, to the extent permitted by applicable law, the original borrower also
remains liable on the loan. Any fee collected by or on behalf of the master
servicer for entering into an assumption agreement will be retained by or on
behalf of the master servicer as additional servicing compensation. In the case
of Multifamily Loans and unless otherwise specified in the related prospectus
supplement, the master servicer will agree to exercise any right it may have to
accelerate the maturity of a Multifamily Loan to the extent it has knowledge of
any further encumbrance of the related mortgaged property effected in violation
of any applicable due-on-encumbrance clause. SEE "Material Legal Aspects of the
Mortgage Loans--Due-on-Sale Clauses" in this prospectus. In connection with any
assumption, the terms of the original loan may not be changed.
With respect to cooperative loans, any prospective purchaser of a
cooperative unit will generally have to obtain the approval of the board of
directors of the relevant cooperative before purchasing the shares and acquiring
rights under the related proprietary lease or occupancy agreement. SEE "Material
Legal Aspects of the Loans" in this prospectus. This approval is usually based
on the purchaser's income and net worth and numerous other factors. Although the
cooperative's approval is unlikely to be unreasonably withheld or delayed, the
need to acquire approval could limit the number of potential purchasers for
those shares and otherwise limit the trust fund's ability to sell and realize
the value of those shares.
In general, a "tenant-stockholder," as defined in Section 216(b)(2) of
the Internal Revenue 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 certain interest expenses
and real estate taxes allowable as a deduction under Section 216(a) of the Code
to the cooperative 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 the taxable
year in which these items are allowable as a deduction to the corporation,
Section 216(b)(1) requires, among other things, that at least 80% of the gross
income of the cooperative 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 particular
cooperative loans will qualify under this section for any given year. In the
event that a cooperative fail to qualify for one or more years, the value of the
collateral securing the related cooperative loan could be significantly impaired
because no deduction would be allowable to tenant-stockholders under Section
216(a) of the Code with respect to those years. In view of the significance of
the tax benefits accorded tenant-stockholders of a corporation that qualifies
under Section 216(b)(1) of the Code, the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
HAZARD INSURANCE
The master servicer will require each borrower to maintain a hazard
insurance policy providing for no less than the coverage of the standard form of
fire insurance policy with extended coverage customary for the type of mortgaged
property in the state where the property is located. This coverage will be in an
amount not less than the replacement value of the improvements or manufactured
home securing the loan or the principal balance owing on the loan, whichever is
less. All amounts collected by the master servicer under any hazard policy will
be deposited in the related security account, except for amounts to be applied
to the restoration or repair of the mortgaged property or released to the
borrower in accordance with the master servicer's normal servicing procedures.
In the event that the master servicer maintains a blanket policy insuring
against hazard losses on all the loans comprising part of a trust fund, it will
conclusively be deemed to have satisfied its obligation to maintain hazard
insurance. A blanket policy may contain a deductible clause, in which case the
master servicer will be required to deposit into the related security account
from its own funds the amounts which would have been deposited in the security
account but for the deductible clause. Any additional insurance coverage for
mortgaged properties with respect to a pool of Multifamily Loans will be
specified in the related prospectus supplement.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements or manufactured
home securing a loan by fire, lightning, explosion, smoke, windstorm and hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Although the policies relating to the loans may
have been underwritten by different insurers under different state laws in
accordance with different applicable forms and therefore may not contain
identical terms and conditions, the basic policy terms are dictated by
respective state laws. In addition, most 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 mud flows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. If the mortgaged property
securing a loan is located in a federally designated special flood area at the
time of origination, the master servicer will require the borrower to obtain and
maintain flood insurance.
The hazard insurance policies covering mortgaged properties typically
contain a clause which have the effect of requiring the insured at all times to
carry insurance of a specified percentage - generally 80% to 90% - of the full
replacement value of the mortgaged property in order to recover the full amount
of any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of
o the actual cash value (generally defined as replacement cost
at the time and place of loss, less physical depreciation) of
the improvements damaged or destroyed, generally defined to
equal replacement cost at the time and place of the loss less
physical depreciation; and
o such 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 the master servicer may cause
to be maintained on the improvements securing the loans will decline as the
principal balances owing on the loans decrease, and since improved real estate
generally has appreciated in value over time in the past, the effect of this
requirement may be that, in the event of a partial loss, hazard insurance
proceeds will be insufficient to restore the damaged property fully. If
specified in the related prospectus supplement, a special hazard insurance
policy will be obtained to insure against certain of the uninsured risks
described. SEE "Credit Enhancement and Other Support--Special Hazard Insurance
Policies" in this prospectus.
The master servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
cooperative loan. Generally, the cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a cooperative and the related
borrower on a cooperative loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative dwelling or the
cooperative's building could significantly reduce the value of the collateral
securing the cooperative loan to the extent not covered by other credit support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
PRIMARY MORTGAGE INSURANCE POLICIES. To the extent specified in the
related prospectus supplement, the master servicer will maintain, or cause each
sub-servicer to maintain, in full force and effect, a primary mortgage insurance
policy with regard to each loan for which coverage is required. The master
servicer will not cancel or refuse to renew any primary mortgage 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 agreement unless the
primary mortgage insurance policy that replaces the cancelled or nonrenewed
policy is maintained with an insurer whose claims-paying ability is sufficient
to maintain the current rating of the classes of securities of that series by
each rating agency named in the related prospectus supplement.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a primary mortgage insurance policy
covering a loan will consist of the insured percentage of the unpaid principal
amount of the covered loan, accrued and unpaid interest thereon and
reimbursement of certain expenses, less the following amounts:
o all rents or other payments collected or received by the
insured other than the proceeds of hazard insurance that are
derived from or in any way related to the mortgaged property,
o hazard insurance proceeds in excess of the amount required to
restore the mortgaged property and which have not been applied
to the payment of the loan,
o amounts expended but not approved by the issuer of the related
primary mortgage insurance policy,
o claim payments previously made by the primary insurer, and
o unpaid premiums.
Primary mortgage insurance policies generally reimburse losses
sustained by reason of defaults in payments by borrowers. Primary mortgage
insurance policies do not insure against, and exclude from coverage, a loss
sustained by reason of a default arising from or involving the following
matters, among others:
o fraud or negligence in origination or servicing of the loan,
including misrepresentation by the originator, borrower or
other persons involved in the origination of the loan,
o failure to construct the related mortgaged property in
accordance with specified plans,
o physical damage to the mortgaged property and
o lack of approval by the primary mortgage insurance policy
insurer of the master servicer or sub-servicer to act as
servicer of the loan.
RECOVERIES UNDER A PRIMARY MORTGAGE INSURANCE POLICY. As conditions
precedent to the filing or payment of a claim under a primary mortgage insurance
policy covering a loan, the insured will be required
o to advance or discharge all hazard insurance policy premiums;
o to advance
o real estate property taxes,
o all expenses required to maintain the related mortgaged
property in at least as good a condition as existed at the
effective date of the policy, ordinary wear and tear excepted,
o mortgaged property sales expenses,
o any outstanding liens on the mortgaged property (as defined in
the policy) and
o foreclosure costs, including court costs and reasonable
attorneys' fees,
o in each case as necessary and approved in advance by the
primary mortgage insurance policy insurer;
o in the event of any physical loss or damage to the mortgaged
property, to have the mortgaged property restored and repaired
to at least as good a condition as existed at the effective
date of the policy, ordinary wear and tear excepted; and
o to tender to the primary mortgage insurance policy carrier
good and merchantable title to and possession of the mortgaged
property.
In those cases in which a loan is serviced by a sub-servicer, the
sub-servicer, on behalf of itself, the trustee and securityholders, will present
claims to the primary mortgage insurance policy carrier, and all collections
under the policy will be deposited in the sub-servicing account. In all other
cases, the master servicer, on behalf of itself, the trustee and the
securityholders, will present claims to the carrier of each primary mortgage
insurance policy and will take such reasonable steps as are necessary to receive
payment or to permit recovery under the policy with respect to defaulted loans.
As set forth above, all collections by or on behalf of the master servicer under
any primary mortgage insurance policy and, when the mortgaged property has not
been restored, the hazard insurance policy are to be deposited in the security
account, subject to withdrawal as previously described.
If the mortgaged property securing a defaulted loan is damaged and any
proceeds from the related hazard insurance policy are insufficient to restore
the damaged property to a condition sufficient to permit recovery under any
related primary mortgage insurance policy, the master servicer is not required
to expend its own funds to restore the damaged property unless it determines
that
o the restoration will increase the proceeds to securityholders
upon liquidation of the loan after reimbursement of the master
servicer for its expenses, and
o the master servicer will be able to recover its expenses from
related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted loan is not available under the primary
mortgage insurance policy for the reasons set forth in the preceding paragraph,
or if the defaulted loan is not covered by a primary mortgage insurance policy,
the master servicer will be obligated to follow such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
loan. If the proceeds of any liquidation of the related mortgaged property are
less than the principal balance of the loan plus accrued interest that is
payable to securityholders, the trust fund will realize a loss in the amount of
that difference plus the amount of expenses that it incurred in connection with
the liquidation and that are reimbursable under the agreement. In the unlikely
event that proceedings result in a total recovery which, after reimbursement to
the master servicer of its expenses, is in excess of the principal balance of
the defaulted loan plus accrued interest that is payable to securityholders, the
master servicer will be entitled to withdraw or retain from the security account
amounts representing its normal servicing compensation with respect to that loan
and, unless otherwise specified in the related prospectus supplement, amounts
representing the balance of the excess amount, exclusive of any amount required
by law to be forwarded to the related borrower , as additional servicing
compensation.
If the master servicer or its designee recovers Insurance Proceeds
which, when added to any related Liquidation Proceeds and after deduction of
certain expenses reimbursable to the master servicer, exceed the principal
balance of the related loan plus accrued interest that is payable to
securityholders, the master servicer will be entitled to withdraw or retain from
the security account amounts representing its normal servicing compensation with
respect to that loan. In the event that the master servicer has expended its own
funds to restore the damaged mortgaged property and those funds have not been
reimbursed under the related hazard insurance policy, the master servicer will
be entitled to withdraw from the security account, out of related Liquidation
Proceeds or Insurance Proceeds, an amount equal to the expenses that it
incurred, in which event the trust fund may realize a loss up to the amount of
those expenses. Since Insurance Proceeds cannot exceed deficiency claims and
certain expenses incurred by the master servicer, no payment or recovery will
result in a recovery to the trust fund that exceeds the principal balance of the
defaulted loan together with accrued interest. SEE "Credit Enhancement and Other
Support" in this prospectus supplement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The master servicer's primary servicing compensation with respect to a
series of securities will come from the payment to it each month, out of each
interest payment on a loan, of an amount equal to the annual percentage
specified in the related prospectus supplement of the outstanding principal
balance of that loan. Since the master servicer's primary compensation is a
percentage of the outstanding principal balance of each mortgage loan, this
amount will decrease as the mortgage loans amortize. In addition to this primary
servicing compensation, the master servicer or the sub-servicers will be
entitled to retain all assumption fees and late payment charges to the extent
collected from borrowers and, if so provided in the related prospectus
supplement, any prepayment charges and any interest or other income which may be
earned on funds held in the security account or any sub-servicing account.
Unless otherwise specified in the related prospectus supplement, any
sub-servicer will receive a portion of the master servicer's primary
compensation as its sub-servicing compensation.
Unless otherwise specified in the related prospectus supplement, the
master servicer will pay from its servicing compensation, in addition to amounts
payable to any sub-servicer, certain expenses incurred in connection with its
servicing of the loans, including, without limitation:
o payment of any premium for any insurance policy, guaranty,
surety or other form of credit enhancement as specified in the
related prospectus supplement;
o payment of the fees and disbursements of the trustee and
independent accountants;
o payment of expenses incurred in connection with distributions
and reports to securityholders; and
o payment of any other expenses described in the related
prospectus supplement.
EVIDENCE AS TO COMPLIANCE
The operative agreements 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 related party participating in 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 operative agreement will also provide that the each party
participating in 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 operative agreement will also provide for delivery to the related
trustee or master servicer, 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 operative 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
operative 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.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITORS
The master servicer under each operative agreement will be named in the
related prospectus supplement. The entity serving as master servicer may have
normal business relationships with the depositor or the depositor's affiliates.
Each operative agreement will provide that the master servicer may not
resign from its obligations and duties under the agreement except (i) upon a
determination that it is no longer permissible to perform them under applicable
law or (ii) if so provided in the related operative agreement, a determination
by the master servicer that it will no longer engage in the business of
servicing mortgage loans. In no event will the master servicer's resignation
become effective until the trustee or a successor servicer has assumed the
master servicer's obligations and duties under the agreement.
Each operative agreement will further provide that none of the master
servicer, the depositor or any director, officer, employee or agent of the
master servicer or of the depositor will be under any liability to the related
trust fund or the securityholders for any action taken, or for refraining from
the taking of any action, in good faith pursuant to the agreement, or for errors
in judgment. However, none of the master servicer, the depositor or any
director, officer, employee or agent of the master servicer or of the depositor
will be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of
duties under the agreement or by reason of reckless disregard of obligations and
duties under the agreement. Each operative agreement will further provide that
the master servicer, the depositor and any director, officer, employee or agent
of the master servicer or of the depositor will be entitled to indemnification
by the related trust fund and will be held harmless against any loss, liability
or expense incurred in connection with (i) any legal action relating to the
agreement or the securities or (ii) a breach of a representation or warranty
regarding the loan or loans, other than
o any loss, liability or expense related to any specific loan in
the trust fund or the loans in general except for any loss,
liability or expense otherwise reimbursable under the
agreement, and
o any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of
duties under the agreement or by reason of reckless disregard
of obligations and duties under the agreement.
In addition to the foregoing, if so provided in the agreement, the
master servicer, the depositor and any director, officer, employee or agent of
the master servicer or of the depositor may be entitled to indemnification by
the related trust fund and may be held harmless against any loss, liability or
expense in connection with any actions taken under the agreement.
In addition, each operative agreement will provide that neither the
master servicer nor the depositor will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its
responsibilities under the agreement and which, in its opinion, may involve it
in any expense or liability. However, the master servicer or the depositor may,
in its discretion, undertake any action which it may deem necessary or desirable
with respect to the agreement and the rights and duties of the parties and the
interests of the securityholders. In that event, 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 to reimbursement from funds otherwise distributable to
securityholders.
Any entity into which the master servicer may be merged or
consolidated, or any entity resulting from any merger or consolidation to which
the master servicer is a party, or any entity succeeding to the business of the
master servicer, will be the successor of the master servicer under each
agreement, provided that the successor entity is qualified to sell loans to, and
service loans on behalf of, Fannie Mae or Freddie Mac and that the merger,
consolidation or succession does not adversely affect the then current rating of
the securities rated by each rating agency named in the related prospectus
supplement.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT; SERVICING AGREEMENT. Unless otherwise
specified in the related prospectus supplement, the following will be deemed
"events of default" under each agreement:
o any failure by the master servicer, trustee, servicer or
securities administrator to distribute to security holders of
any class any required payment - other than an advance - which
failure continues unremedied for five business days after the
giving of written notice to the master servicer by the trustee
or the depositor, or to the master servicer, the depositor and
the trustee by the holders of securities of that class
evidencing not less than 25% of the aggregate percentage
interests evidenced by that class;
o any failure by the master servicer to make an advance as
required under the agreement, unless cured as specified in the
agreement;
o any failure by the master servicer, trustee, servicer or
securities administrator duly to observe or perform in any
material respect any of its other covenants or agreements in
the agreement, which failure continues unremedied for a
specified number of days after the giving of written notice of
the failure to the master servicer by the trustee or the
depositor, or to the master servicer, the depositor and the
trustee by the holders of securities of any class evidencing
not less than 25% of the aggregate percentage interests
constituting that class; and
o events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain
actions by or on behalf of the master servicer indicating its
insolvency, reorganization or inability to pay its
obligations.
If specified in the related prospectus supplement, the agreement will
permit the trustee to sell the assets of the trust fund in the event that
payments are insufficient to make the payments required under the agreement. The
assets of the trust fund will be sold only under the circumstances and in the
manner specified in the related prospectus supplement.
So long as an event of default under the related agreement remains
unremedied, the depositor or the trustee may, and, at the direction of holders
of securities of any class evidencing not less than 51%, or such other
percentage as is specified in the applicable prospectus supplement, of the
aggregate percentage interests constituting that class and under such other
circumstances as may be specified in the agreement, the trustee shall, terminate
all of the rights and obligations of the master servicer relating to the trust
fund and in and to the related loans. Thereupon the trustee will succeed to all
of the responsibilities, duties and liabilities of the master servicer under the
agreement, including, if specified in the related prospectus supplement, the
obligation to make advances, and the trustee will be entitled to similar
compensation arrangements. In the event that the trustee is unwilling or unable
to act in this way, it may appoint, or petition a court of competent
jurisdiction to appoint, a loan servicing institution with a net worth of at
least $15,000,000 to act as successor to the master servicer under the
agreement. Pending the appointment, the trustee is obligated to act in this
capacity. The trustee and any successor master servicer may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the master servicer under the agreement.
No securityholder, solely by virtue of its status as a securityholder,
will have any right under any agreement to institute any proceeding with respect
to that agreement, unless
o the holder has previously given to the trustee written notice
of default;
o the holders of securities of any class evidencing not less
than 25% of the aggregate percentage interests constituting
that class have made written request upon the trustee to
institute the proceeding in its own name as trustee and have
offered a reasonable indemnity to the trustee; and
o the trustee for 60 days has neglected or refused to institute
any such proceeding.
INDENTURE. Unless otherwise specified in the related prospectus
supplement, the following will be deemed "events of default" under the indenture
for each series of notes:
o failure to pay for five days or more any principal or interest
on any note of that series;
o failure by the depositor or the trust to perform any other
covenant in the indenture, which failure continues unremedied
for 30 days after notice is given in accordance with the
procedures described in the related prospectus supplement;
o the material breach of any representation or warranty made by
the depositor or the trust in the indenture or in any document
delivered under the indenture, which breach continues uncured
for 30 days after notice is given in accordance with the
procedures described in the related prospectus supplement;
o events of bankruptcy insolvency, receivership or liquidation
of the depositor in the trust; or
o any other event of default specified in the indenture.
If an event of default with respect to the notes of a series (other
than principal only notes) occurs and is continuing, either the trustee or the
holders of a majority of the then aggregate outstanding amount of the notes of
that series may declare the principal amount of all the notes of that series to
be due and payable immediately. In the case of principal only notes, the portion
of the principal amount necessary to make such a declaration will be specified
in the related prospective supplement. This declaration may, under certain
circumstances, be rescinded and annulled by the holders of more than 50% of the
percentage ownership interest of the notes of that series.
If, following an event of default with respect to any series of notes,
the notes of that 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 that series and to continue
to apply distributions on the collateral as if there had been no declaration of
acceleration so long as the collateral continues to provide sufficient funds for
the payment of principal and interest on the notes 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 one of the following conditions precedent has occurred:
o the holders of 100% of the percentage ownership interest in
the related notes consent to the sale or liquidation;
o the proceeds of the sale or liquidation are sufficient to pay
the full amount of principal and accrued interest, due and
unpaid, on the related notes at the date of the sale or
liquidation; or
o the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the
related notes as they 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% of the percentage ownership
interest of each class of the related notes.
Unless otherwise specified in the related prospectus supplement, in the
event the principal of the notes of a series is declared due and payable as
described above, the holders of any of those notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount of those notes less the amount of the unamortized discount.
Subject to the provisions of the indenture relating to the duties of
the trustee, in case an event of default shall occur and be continuing with
respect to a series of notes, the trustee shall be under no obligation to
exercise any of the rights or powers under the indenture at the request or
direction of any of the holder of the related notes, unless the holders offer to
the trustee satisfactory security or indemnity against the trustee's costs,
expenses and liabilities which might be incurred in complying with their request
or direction. Subject to the indemnification provisions and certain limitations
contained in the indenture, the holders of a majority of the then aggregate
outstanding amount of the related notes of the series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the related notes, and holders of a majority of the then
aggregate outstanding amount of the related notes may, in certain cases, waive
any default other than a default in the payment of principal or interest or a
default in respect of a covenant or provision of the indenture that cannot be
modified without the waiver or consent of all the holders of the affected notes.
AMENDMENT
Unless otherwise specified in the related prospectus supplement, each
operative agreement may be amended by the depositor, the master servicer, the
trustee and other applicable parties, without the consent of any of the
securityholders, for the following purposes:
o to cure any ambiguity,
o to correct or supplement any provision in the agreement which
may be defective or inconsistent with any other provision, or
o to make any other revisions with respect to matters or
questions arising under the agreement which are not
inconsistent with its other provisions.
In no event, however, shall any amendment adversely affect in any
material respect the interests of any securityholder as evidenced by either (i)
an opinion of counsel or (ii) confirmation by the rating agencies that such
amendment will not result in the downgrading of the securities. No amendment
shall be deemed to adversely affect in any material respect the interests of any
securityholder who shall have consented thereto, and no opinion of counsel or
written notice from the rating agencies shall be required to address the effect
of any such amendment on any such consenting securityholder. In addition, an
agreement may be amended without the consent of any of the securityholders to
change the manner in which the security account is maintained, so long as the
amendment does not adversely affect the then current ratings of the securities
rated by each rating agency named in the prospectus supplement. In addition, if
a REMIC election is made with respect to a trust fund, the related agreement may
be amended to modify, eliminate or add to any of its provisions to such extent
as may be necessary to maintain the qualification of the trust fund as a REMIC,
but the trustee shall have first received an opinion of counsel to the effect
that the action is necessary or helpful to maintain the REMIC qualification.
Unless otherwise specified in the related prospectus supplement, each
operative agreement may also be amended by the depositor, the master servicer
and the trustee with consent of holders of securities evidencing not less than
66%, or such other percentage as is specified in the applicable prospectus
supplement, of the aggregate percentage ownership interests of each affected
class for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the agreement or of modifying in any
manner the rights of the holders of the related securities. In no event,
however, shall any amendment
o reduce in any manner the amount of, or delay the timing of,
payments received on loans which are required to be
distributed on any security without the consent of the holder
of that security, or
o reduce the percentage of the securities of any class the
holders of which are required to consent to any amendment
without the consent of the holders of all securities of that
class then outstanding.
If a REMIC election is made with respect to a trust fund, the trustee
will not be entitled to consent to an amendment to the agreement without having
first received an opinion of counsel to the effect that the amendment will not
cause the trust fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION; CALLS
POOLING AND SERVICING AGREEMENT; TRUST AGREEMENT. The obligations
created by the pooling and servicing agreement and trust agreement for the
related series of securities will terminate upon the payment to the
securityholders of all amounts held in the security account or held by the
master servicer, and required to be paid to the securityholders under the
agreement, following the later to occur of the following:
o the final payment or other liquidation of the last of the
assets of the trust fund subject to the agreement or the
disposition of all property acquired upon foreclosure of any
assets remaining in the trust fund, and
o the purchase from the trust fund by the servicer or the master
servicer, as applicable, or such other party as may be
specified in the related prospectus supplement, of all of the
remaining trust fund assets and all property acquired in
respect of those assets.
SEE "Material Federal Income Tax Consequences" in this prospectus.
Unless otherwise specified in the related prospectus supplement, any
purchase of trust fund assets and property acquired in respect of trust fund
assets will be made at the option of the related master servicer or, if
applicable, another designated party, at a price, and in accordance with the
procedures, specified in the related prospectus supplement. The exercise of this
right will effect early retirement of the securities of that series. However,
this right can be exercised only at the times and upon the conditions specified
in the related prospectus supplement. If a REMIC election has been made with
respect to the trust fund, any repurchase pursuant to the second bullet point in
the immediately preceding paragraph will be made only in connection with a
"qualified liquidation" of the REMIC within the meaning of Section 860F(a)(4) of
the Internal Revenue Code.
INDENTURE. The indenture will be discharged with respect to a series of
notes (except with respect to certain continuing rights specified in the
indenture) upon the delivery to the trustee for cancellation of all the notes of
that series or, with certain limitations, upon deposit with the trustee of funds
sufficient for the payment in full of all of the notes of that series.
If specified for the notes of any series, the indenture will provide
that the related trust fund will be discharged from any and all obligations in
respect of the notes of that series (except for certain obligations relating to
temporary notes and exchange of notes, registering the transfer or exchange
notes, replacing stolen, lost or mutilated notes, maintaining paying agencies
and holding monies for payment in trust) upon the deposit with the trustee, in
trust, of money and/or direct obligations of or obligations guaranteed by the
United States which, through the payment of interest and principal in accordance
with their terms, will provide money in an amount sufficient to pay the
principal and each installment of interest on the related notes on the last
scheduled distribution date for the notes and any installment of interest on the
notes in accordance with the terms of the indenture and the notes of that
series. In the event of any such defeasance and discharge of a series of notes,
holders of the related notes would be able to look only to such money and/or
direct obligations for payment of principal and interest, if any, on their notes
until maturity.
CALLS. One or more classes of securities may be subject to a mandatory
or optional call at the times and subject to the conditions specified in the
related prospectus supplement. With respect to any series of certificates which
provides for such a 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 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 of the aggregate principal balance of the mortgage loans as of the
cut-off date. In the event that any series of certificates provides for such a
purchase at 25% or more of the aggregate principal balance of the certificates
as of the Closing Date, the certificates will be identified with the word
"Callable." With respect to any series of notes which provides for such a
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 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 notes provides for such a purchase at 25% or more of the aggregate
principal balance of the notes as of the Closing Date, the notes will be
identified with the word "Callable." In the case of a mandatory call, an auction
call or in the event an optional call is exercised with respect to one or more
classes of securities, holders of each affected class of securities will receive
the outstanding principal balance of their securities together with accrued and
unpaid interest at the applicable pass-through rate, subject to the terms
specified in the related prospectus supplement.
THE TRUSTEE
The trustee under each agreement will be named in the related
prospectus supplement. The trustee shall at all times be an entity duly
organized and validly existing under the laws of the United States of America or
any state thereof, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authority. The
commercial bank or trust company serving as trustee may have normal banking
relationships with the depositor, the master servicer and any of their
respective affiliates.
DUTIES OF THE TRUSTEE
The trustee for each series of securities will make no representation
as to the validity or sufficiency of the related pooling and servicing agreement
or servicing agreement, 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 servicing agreement. However, upon receipt of any of the
various certificates, reports or other instruments required to be furnished to
it pursuant to the related operative agreement, a trustee will be required to
examine the documents and to determine whether they conform to the requirements
of the operative agreement.
As provided in the pooling and servicing agreement or servicing
agreement, if an event of default shall occur, the trustee may, by notice to the
master servicer or servicer, terminate all of the rights and obligations (but
not the liabilities) of the master servicer or servicer thereafter arising under
the operative agreements, but without prejudice to any rights it may have as a
security holder or to reimbursement of Monthly Advances and other advances of
its own funds. On or after the receipt by the master servicer or servicer of the
notice, all authority and power of the master servicer or servicer under the
operative agreements, whether with respect to the securities, the Mortgage
Loans, REO Property or under any other related agreements (but only to the
extent that such other agreements relate to the Mortgage Loans or related REO
Property) will pass to and be vested in the trustee. The trustee will act to
carry out the duties of the master servicer or servicer, including the
obligation to make any advance the nonpayment of which was an event of default.
Any such action taken by the trustee must be prior to the distribution on the
relevant Distribution Date.
Upon the receipt by the master servicer or servicer of a notice of
termination, the trustee (or such other successor master servicer or servicer)
will be the successor master servicer or servicer and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
master servicer or servicer by the terms and provisions of the applicable
agreement arising on and after its succession. The trustee, in its capacity as
successor to the master servicer or servicer, will assume all the obligation to
make advances. The trustee, however, will not be responsible for the lack of
information and/or documents that it cannot obtain through reasonable efforts.
The pooling and servicing agreement or servicing agreement will provide for a
period of transition (not to exceed 90 days) before the transition of servicing
obligations is fully effective. The trustee (or such other successor master
servicer) shall be entitled to such compensation as the master servicer or
servicer would have been entitled to hereunder if the notice of termination had
not been given. If the trustee is unwilling to act as successor master servicer
or servicer or if the trustee is legally unable so to act, the trustee will be
required under the related operative agreement to appoint or petition a court of
competent jurisdiction to appoint, any established housing and home finance
institution, bank or other mortgage loan or home equity loan servicer having a
net worth of not less than the amount set forth in the prospectus supplement as
the successor to any part of the responsibilities, duties or liabilities of the
master servicer or servicer. The appointment of any such successor master
servicer or servicer may not result in the qualification, reduction or
withdrawal of the ratings assigned to the related securities by the rating
agencies as evidenced by a letter to such effect from the rating agencies.
Pending appointment of a successor to the master servicer or servicer, unless
the trustee is prohibited by law from so acting, the trustee shall act in such
capacity as hereinabove provided. The successor may be entitled to receive
compensation out of payments on mortgage loans in an amount equal to the
compensation which the master servicer or servicer would otherwise have received
pursuant to the applicable agreement (or such other compensation as the trustee
and such successor shall agree, not to exceed the servicing fee). The
appointment of a successor master servicer or servicer shall not affect any
liability of the predecessor master servicer which may have arisen under the
applicable agreement prior to its termination as master servicer or servicer to
pay any deductible under an insurance policy or to reimburse the trustee), nor
shall any successor master servicer or servicer be liable for any acts or
omissions of the predecessor master servicer or servicer or for any breach by
its predecessor of any of its representations or warranties contained in the
applicable agreement or in any related document or agreement. Under the terms of
the pooling and servicing agreement or servicing agreement, all reasonable
servicing transfer costs may be paid by the predecessor master servicer or
servicer upon presentation of reasonable documentation of such costs, and if
such predecessor master servicer or servicer defaults in its obligation to pay
such costs, such costs may be paid by the successor master servicer or the
trustee (in which case the successor master servicer, the servicer or the
trustee, as applicable, shall be entitled to reimbursement from the assets of
the trust fund).
If the trustee succeeds to any duties of the master servicer or
servicer respecting the mortgage loans, it will do so in a separate capacity and
not in its capacity as trustee and, accordingly, the provisions of the operative
agreements concerning the trustee's duties will be inapplicable to the trustee
in its duties as successor in the servicing of the Mortgage Loans (although such
provisions shall continue to apply to the trustee in its capacity as trustee);
the provisions of the operative agreements relating to the master servicer or
servicer, however, shall apply to it in its capacity as successor.
Upon any termination or appointment of a successor to the master
servicer or the servicer the trustee shall give prompt written notice thereof to
security holders of record pursuant to the agreements and to the rating agencies
if required by the pooling and servicing agreement or servicing agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement,
the fees and normal disbursements of any trustee may be 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 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 at any time resign and be discharged from the trust by
giving written notice thereof to the depositor, the servicer, each rating agency
and other applicable parties. Upon receiving such notice of resignation, the
depositor shall promptly appoint a successor trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
trustee and one copy to the 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 holders of securities
evidencing not less than 51%, or such other percentage as is specified in the
applicable prospectus supplement, 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. If the trustee
resigns or is removed by the depositor, the expenses associated with the change
of trustees will be paid by the former trustee and reimbursed from the
distribution account by the paying agent. If the trustee is removed by holders
of securities, such holders shall be responsible for paying any compensation
payable to a successor trustee, in excess of the amount paid to the predecessor
trustee.
MATERIAL LEGAL ASPECTS OF THE LOANS
The following discussion contains general summaries of material legal
matters relating to the loans. Because the legal matters are determined
primarily by applicable state law and because state laws may differ
substantially, the summaries do not purport to be complete, to reflect the laws
of any particular state or to encompass the laws of all states in which security
for the loans may be situated. The summaries are qualified in their entirety by
reference to the applicable laws of the states in which loans may be originated.
GENERAL
SINGLE FAMILY LOANS, MULTIFAMILY LOANS AND HOME EQUITY LOANS. The loans
may be secured by deeds of trust, mortgages, security deeds or deeds to secure
debt, depending upon the prevailing practice in the state in which the property
subject to the loan is located. A mortgage creates a lien upon the real property
encumbered by the mortgage. The mortgage lien generally is not prior to the lien
for real estate taxes and assessments. Priority between mortgages depends on
their terms and generally on the order of recording with a state or county
office. There are two parties to a mortgage: the mortgagor, who is the borrower
and owner of the mortgaged property, and the mortgagee, who is the lender. Under
the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond
and the mortgage. Although a deed of trust is similar to a mortgage, a deed of
trust formally has three parties: the borrower-property owner called the trustor
(similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys to the
grantee title to, as opposed to merely creating a lien upon, the subject
property until such time as the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
COOPERATIVE LOANS. Certain of the loans may be cooperative loans. The
cooperative owns all the real property that comprises the related project,
including the land, separate dwelling units and all common areas. The
cooperative is directly responsible for project management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If, as is
generally the case, there is a blanket mortgage on the cooperative and/or
underlying land, the cooperative, as project mortgagor, is also responsible for
meeting these mortgage obligations. A blanket mortgage is ordinarily incurred by
the cooperative in connection with the construction or purchase of the
cooperative's apartment building. The interest of the occupant under proprietary
leases or occupancy agreements to which the cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. In addition, the blanket 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 lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of a trust fund
including cooperative loans, the collateral securing the cooperative loans.
A cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and the accompanying rights are financed through a
cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or against the
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.
MANUFACTURED HOUSING CONTRACTS. Each Manufactured Housing Contract
evidences both
o the obligation of the borrower to repay the loan it
represents, and
o the grant of a security interest in a manufactured home to
secure repayment of the loan.
The Manufactured Housing Contracts generally are "chattel paper" as
defined in the Uniform Commercial Code in effect in the states in which the
manufactured homes initially were registered. Pursuant to the UCC, the rules
governing the sale of chattel paper are similar to those governing the
perfection of a security interest in chattel paper. Under the related pooling
and servicing agreement, the depositor will transfer physical possession of the
Manufactured Housing Contracts to the trustee or its custodian. In addition the
depositor will file UCC-1 financing statements in the appropriate states to give
notice of the trustee's ownership of the Manufactured Housing 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. 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 generally issued by the
motor vehicles department of the state. In states which 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 that office, depending on
state law.
Unless otherwise specified in the related prospectus supplement, the
master servicer will be required to effect such notation or delivery of the
required documents and fees and to obtain possession of the certificate of
title, as appropriate under the laws of the state in which any manufactured home
is registered. If the master servicer fails to effect such notation or delivery,
due to clerical errors or otherwise, 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 the affected Manufactured Housing
Contract. As manufactured homes have become larger and have often been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes may, under certain circumstances,
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. Generally, Manufactured Housing Contracts will
contain provisions prohibiting the borrower from permanently attaching the
manufactured home to its site. So long as the borrower 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 which is prior
to the security interest originally retained by the seller and transferred to
the depositor.
The depositor will assign to the trustee, on behalf of the
securityholders, a security interest in the manufactured homes. Unless otherwise
specified in the related prospectus supplement, none of the depositor, the
master servicer or 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, 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 home owner, or administrative error by
state recording officials, the notation of the lien of the trustee 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
the manufactured home or subsequent lenders who take a security interest in the
manufactured home. In the case of any manufactured home as to which the security
interest assigned to the depositor and the trustee is not perfected, the
security interest would be subordinate to, among others, subsequent purchasers
for value of the manufactured home and holders of perfected security interests
in the home. There also exists a risk that, in not identifying the trustee, on
behalf of the securityholders, as the new secured party on the certificate of
title, the security interest of the trustee could be released through fraud or
negligence.
If the owner of a manufactured home moves it to a state other than the
state in which it initially is registered, the perfected security interest in
the manufactured home under the laws of most states would continue for four
months after relocation and thereafter until the owner re-registers the
manufactured home in the new state. If the owner were to relocate a manufactured
home to another state and re-register the manufactured home in the new state,
and if steps are not taken to re-perfect the trustee's security interest in the
new 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 trustee must
surrender possession if it holds the certificate of title to the manufactured
home or, in the case of manufactured homes registered in states which provide
for notation of lien, the master servicer would receive notice of surrender if
the security interest in the manufactured home is noted on the certificate of
title. Accordingly, the trustee would have the opportunity to re-perfect its
security interest in the manufactured home in the new state. In states which do
not require a certificate of title for registration of a manufactured home,
re-registration could defeat perfection. Similarly, when a borrower under a
Manufactured Housing Contract sells a manufactured home, the lender 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 Contract before the
lien is released. The master servicer will be obligated, at its own expense, to
take all steps 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 seller that it has no knowledge
of any repair liens with respect to any manufactured home securing a
Manufactured Housing Contract. However, repair liens could arise at any time
during the term of a Manufactured Housing Contract. No notice will be given to
the trustee or securityholders in the event a repair lien arises.
FORECLOSURE
SINGLE FAMILY LOANS, MULTIFAMILY LOANS AND HOME EQUITY LOANS.
Foreclosure of a deed of trust is generally accomplished by a non-judicial sale
under a specific provision in the deed of trust which authorizes the trustee to
sell the mortgaged property at public auction upon any default by the borrower
under the terms of the note or deed of trust. In some states, such as
California, the trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to certain
other persons. Before such non-judicial sale takes place, typically a notice of
sale must be posted in a public place and published during a specific period of
time in one or more newspapers, posted on the property and sent to parties
having an interest of record in the property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the mortgaged 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
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the deed
of trust is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan plus accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burden of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property.
When the beneficiary under a junior mortgage or deed of trust cures the
default on the related senior mortgage or reinstates or redeems the senior
mortgage by paying it in full, the amount paid by the beneficiary to cure,
reinstate or redeem the senior mortgage becomes part of the indebtedness secured
by the junior mortgage or deed of trust. SEE "--Junior Mortgages, Rights of
Senior Mortgages" below.
COOPERATIVE LOANS. Cooperative shares owned by a tenant-stockholder and
pledged to a lender are, in almost all cases, subject to restrictions on
transfer as set forth in the cooperative's articles of incorporation and
by-laws, as well as in the proprietary lease or occupancy agreement, and may be
cancelled by the cooperative if the tenant-stockholder fails to pay rent or
other obligations or charges owed, including mechanics' liens against the
cooperative apartment building incurred by such tenant-stockholder. The
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event an obligor fails to make payments
or defaults in the performance of covenants required thereunder. Typically, the
lender and the cooperative enter into a recognition agreement which establishes
the rights and obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with 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 the sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under 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 value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest.
Recognition agreements also provide that, in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, lenders are
not limited in any rights they may have to dispossess tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
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 foreclosure.
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 to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account for the surplus to subordinate lenders or the
tenant-stockholder as provided in the UCC. 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.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building but who did not purchase shares in
the cooperative when the building was so converted.
REPOSSESSION OF MANUFACTURED HOMES
Repossession of manufactured housing is governed by state law. A number
of states have enacted legislation that requires that the debtor be given an
opportunity to cure a monetary default (typically 30 days to bring the account
current) before repossession can commence. So long as a manufactured home has
not become attached to real estate in such way that it may be treated as a part
of the real estate under applicable state law, repossession in the event of a
default by the obligor will generally be governed by the UCC. Article 9 of the
UCC provides the statutory framework for the repossession of manufactured
housing. While the UCC as adopted by the various states may vary in certain
particulars, the general repossession procedure is discussed below.
Because manufactured homes generally depreciate in value, it is
unlikely that repossession and resale of a manufactured home will result in the
full recovery of the outstanding principal and unpaid interest on the related
defaulted Manufactured Housing Contract.
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, which are more commonly
employed, 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.
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 other terms
of the sale are commercially reasonable.
Sale proceeds are to be applied first to reasonable 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 judgment
in those states that do not prohibit or limit such judgments. The deficiency
judgment is a personal judgment against the debtor for the shortfall.
Occasionally, after resale of a manufactured home and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the party suing for the deficiency judgment to remit the surplus to the
subordinate creditors or the debtor, as provided in the UCC. 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.
Any contract secured by a manufactured home located in Louisiana will
be governed by Louisiana Revised Statutes in addition to Article 9 of the UCC.
Louisiana law provides similar mechanisms for perfection and enforcement of a
security interest 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 only after the
obligor's abandonment or with the obligor's consent given after or in
contemplation of default, or pursuant to judicial process and seizure by the
sheriff.
RIGHTS OF REDEMPTION
SINGLE FAMILY LOANS, MULTIFAMILY LOANS AND HOME EQUITY LOANS. 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 mortgaged property from the foreclosure sale. In some states,
redemption may occur only upon payment of the entire principal balance of the
loan plus accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption would defeat the title
of any purchaser from the lender subsequent to foreclosure or sale under a deed
of trust. Consequently, the practical effect of the redemption right is to force
the lender to retain the property and pay the expenses of ownership until the
redemption period has run.
MANUFACTURED HOUSING CONTRACTS. While state laws do not usually require
notice to be given 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 a manufactured home so that the
owner may redeem at or before resale. In addition, the sale generally must
comply with the requirements of the UCC.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes of the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to realize upon its
security if the default under the security agreement is not monetary, such as
the borrower's failure to maintain the property adequately or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition to the
statutorily prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in some cases
involving the sale by a trustee under a deed of trust or by a mortgagee under a
mortgage having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Certain states,
including California, have adopted statutory prohibitions restricting the right
of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property sold at the foreclosure sale. As a result of these prohibitions, it is
anticipated that in many instances the master servicer will not seek deficiency
judgments against defaulting borrowers. Under the laws applicable in most
states, a creditor is entitled to obtain a deficiency judgment for any
deficiency following possession and resale of a manufactured home. However, some
states impose prohibitions or limitations on deficiency judgments in these
cases.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the Bankruptcy Code, the
federal Servicemembers Civil Relief Act and state laws affording relief to
debtors, may interfere with or affect the ability of the secured mortgage lender
to realize upon its security. For example, in a proceeding under the Bankruptcy
Code, a lender may not foreclose on the mortgaged property without the
permission of the bankruptcy court. If the mortgaged property is not the
debtor's principal residence and the bankruptcy court determines that the value
of the mortgaged property is less than the principal balance of the mortgage
loan, the rehabilitation plan proposed by the debtor may
o reduce the secured indebtedness to the value of the mortgaged
property as of the date of the commencement of the bankruptcy
thereby rendering the lender a general unsecured creditor for
the difference,
o reduce the monthly payments due under the mortgage loan,
o change the rate of interest of the mortgage loan, and
o alter the mortgage loan repayment schedule.
The effect of proceedings under the Bankruptcy Code, including but not
limited to any automatic stay, could result in delays in receiving payments on
the mortgage loans underlying a series of certificates and possible reductions
in the aggregate amount of payments.
The federal tax laws provide priority to certain tax liens over the
lien of a mortgage or secured party. 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, or TILA,
as implemented by Regulation Z, Real Estate Settlement Procedures Act, 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
borrowers' rescinding the mortgage loans either against the originators or
assignees. Further, the failure of the originator 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
the Home Ownership and Equity Protection Act of 1994, or Homeownership Act,
which amended TILA to provide new requirements applicable to loans not made to
finance the purchase of a mortgaged property that exceed certain interest rate
and/or points and fees thresholds. The Homeownership Act requires certain
additional disclosures, specifies when those disclosures are to be made and
limits or prohibits inclusion of certain features in High Cost Loans. Purchasers
or assignees of any High Cost Loan, including any trust, could be liable under
federal law for all claims and be subject to all defenses that the borrower
could assert against the originator of the High Cost Loan under TILA or any
other law, unless the purchaser or assignee did not know, and could not with
reasonable diligence have determined, that the loan was subject to 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 loan includes features prohibited by the
Homeownership Act. The maximum damages that may be recovered from an assignee,
including the related 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 both the federal and state levels that are designed to
discourage predatory lending practices. Some states have enacted, and other
state or local governments may enact, laws that impose requirements and
restrictions greater than those in the Homeownership Act. These laws prohibit
inclusion of certain features in mortgage loans that have interests 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.
Purchasers or assignees of a mortgage loan, including the related trust, could
be exposed to all claims and defenses that the borrower could assert against the
originator of the mortgage loan for a violation of state law. Claims and
defenses available to the borrower could include actual, statutory and punitive
damages, costs and attorneys' fees, rescission rights, defenses to foreclosure
action or an action to collect, and other equitable remedies.
The depositor will represent and warrant that all of the mortgage loans
in the related pool complied in all material respects with all applicable local,
state and federal laws at the time of origination. Although the depositor will
be obligated to repurchase any mortgage loan as to which a breach of its
representation and warranty has occurred (so long as the breach is materially
adverse to the interests of the securityholders), the repurchase price of those
mortgage loans could be less than the monetary damages and/or any equitable
remedies imposed pursuant to various state laws.
Lawsuits have been brought in various states making claims against
assignees of High Cost Loans for violations of federal and 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.
The so-called Holder-in-Due-Course Rule of the Federal Trade Commission
has the effect of subjecting a seller and certain 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 this FTC Rule is limited to the amounts
paid by a debtor on a Manufactured Housing Contract, and the holder of the
Manufactured Housing Contract may also be unable to collect amounts still due
under the Manufactured Housing Contract.
Most of the Manufactured Housing Contracts in a pool will be subject to
the requirements of this FTC Rule. Accordingly, the trustee, as holder of the
Manufactured Housing 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, or that the purchaser of the home improvements may assert
against the contractor, subject to a maximum liability equal to the amounts paid
by the obligor on the Manufactured Housing Contract. If an obligor is successful
in asserting any such claim or defense, and if the seller had or should have had
knowledge of such claim or defense, the master servicer will have the right to
require the seller to repurchase the Manufactured Housing Contract because of a
breach of its representation and warranty that no claims or defenses exist which
would affect the borrower's obligation to make the required payments under the
Manufactured Housing Contract.
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials including such manufactured housing components as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts and others
in the distribution process. Plaintiffs have won judgments in some of these
lawsuits.
Under the FTC Rule discussed above, the holder of a Manufactured
Housing Contract secured by a manufactured home with respect to which a
formaldehyde claim has been asserted successfully may be liable to the borrower
for the amount paid by the borrower on that Manufactured Housing Contract and
may be unable to collect amounts still due under that Manufactured Housing
Contract. Because the successful assertion of this type of claim would
constitute the breach of a representation or warranty of the seller, the related
securityholders would suffer a loss only to the extent that
o the seller fails to perform its obligation to repurchase that
Manufactured Housing Contract, and
o the seller, the applicable depositor or the trustee is
unsuccessful in asserting a claim of contribution or
subrogation on behalf of the securityholders against the
manufacturer or other who are directly liable to the plaintiff
for damages.
Typical product liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities from the
presence of formaldehyde in manufactured housing. As a result, recoveries from
manufacturers and component suppliers may be limited to their corporate assets
without the benefit of insurance.
DUE-ON-SALE CLAUSES
Unless otherwise provided in the related prospectus supplement, each
conventional loan will contain a due-on-sale clause which will generally provide
that, if the mortgagor or obligor sells, transfers or conveys the mortgaged
property, the loan may be accelerated by the mortgagee or secured party. Unless
otherwise provided in the related prospectus supplement, the master servicer
will, to the extent it has knowledge of the sale, transfer or conveyance,
exercise its rights to accelerate the maturity of the related loans through
enforcement of the due-on-sale clauses, subject to applicable state law. Section
341(b) of the Garn-St. Germain Depository Institutions Act of 1982 (Garn-St.
Germain) permits a lender, subject to certain conditions, to "enter into or
enforce a contract containing a due-on-sale clause with respect to a real
property loan," notwithstanding any contrary state law. Garn-St. Germain gave
states that previously had enacted "due-on-sale" restrictions a three-year
window to reenact the previous restrictions or enact new restrictions. Only six
states acted within this window period: Arizona, Florida, Michigan, Minnesota,
New Mexico and Utah. Consequently, due-on-sale provisions in documents governed
by the laws of those state are NOT preempted by federal law. With respect to
loans secured by an owner-occupied residence including a manufactured home, the
Garn-St Germain Act sets forth nine specific instances in which a mortgagee
covered by the act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in transfer of the
mortgaged property to an uncreditworthy person, which could increase the
likelihood of default, or may result in a mortgage bearing an interest rate
below the current market rate being assumed by a new home buyer, which may
affect the average life of the loans and the number of loans which may extend to
maturity.
In addition, under the federal Bankruptcy Code, due-on-sale clauses may
not be enforceable in bankruptcy proceedings and under certain circumstances may
be eliminated in a resulting loan modification.
PREPAYMENT CHARGES; LATE FEES
Under certain state laws, prepayment charges with respect to
prepayments on loans secured by liens encumbering owner-occupied residential
properties may not be imposed after a certain period of time following the
origination of a loan. Since many of the mortgaged properties will be
owner-occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the loans. The absence of this type of a restraint on
prepayment, particularly with respect to fixed rate loans having higher loan
rates or APRs, may increase the likelihood of refinancing or other early
retirement of the loans. Legal restrictions, if any, on prepayment of
Multifamily Loans will be described in the related prospectus supplement.
Loans may also contain provisions obligating the borrower to pay a late
fee if payments are not timely made. In some states there may be specific
limitations on the late charges that a lender may collect from the borrower for
delinquent payments. Unless otherwise specified in the related prospectus
supplement, late fees will be retained by the applicable servicer as additional
servicing compensation.
Some state laws restrict the imposition of prepayment charges and late
fees even when the loans expressly provide for the collection of those charges.
Although the Alternative Mortgage Transaction Parity Act 1982, or 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 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 any entity identified in the
accompanying prospectus supplement will be entitled to all prepayment charges
and late payment charges received on the loans and these amounts will not be
available for payment on the securities. The Office of Thrift Supervision or
OTS, the agency that administers the Parity Act for unregulated housing
creditors, has withdrawn its favorable Parity Act regulations and chief counsel
opinions that authorized lenders to charge prepayment charges and late fees in
certain circumstances notwithstanding contrary state law, effective July 1,
2003. However, the OTS's ruling does not have retroactive effect on loans
originated before July 1, 2003.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 provides that state usury limitations shall not apply to
certain types of residential first mortgage loans originated by certain lenders
after March 31, 1980. The Office of Thrift Supervision, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and regulations and
to publish interpretations governing implementation of Title V. The statute
authorized any state to reimpose limitations on interest rates and finance
charges by adopting before April 1, 1983 a law or constitutional provision which
expressly rejects application of the federal law. Fifteen states adopted such a
law prior to the April 1, 1983 deadline. In addition, even where Title V was not
rejected, any state is authorized to adopt a provision limiting discount points
or other charges on loans covered by Title V. No Manufactured Housing Contract
secured by a manufactured home located in any state in which application of
Title V was expressly rejected or a provision limiting discount points or other
charges has been adopted will be included in any trust fund if the Manufactured
Housing Contract imposes finance charges or provides for discount points or
charges in excess of permitted levels.
Title V also provides that state usury limitations will not apply to
any loan which is secured by a first lien on certain kinds of manufactured
housing provided that certain conditions are satisfied. These conditions relate
to the terms of any prepayment, balloon payment, late charges and deferral fees
and the requirement of a 30-day notice period prior to instituting any action
leading to repossession of or foreclosure with respect to the related unit.
SERVICEMEMBERS CIVIL RELIEF ACT
Generally, under the terms of the Servicemembers Civil Relief Act
(referred to herein as the Relief Act), borrowers who enter military service
after the origination of their mortgage loan may not be charged interest above
an annual rate of 6% during the period of active duty status. In addition to
adjusting the interest, the lender must forgive any such interest in excess of
the annual 6% rate, unless a court or administrative agency of the United States
or of any state orders otherwise upon application of the lender. The Relief Act
applies to borrowers who are members of the Air Force, Army, Marines, Navy or
Coast Guard, and officers of the U.S. Public Health Service or the National
Oceanic and Atmospheric Administration assigned to duty with the military. The
Relief Act also applies to borrowers who are members of the National Guard or
are on reserve status at the time their mortgage is originated and are later
called to active duty.
Some states, such as California, provide similar protection to National
Guard members called up to active service and reservists called to active duty
as that provided by the Relief Act. It is possible that the interest rate
limitation could have an effect, for an indeterminate period of time, on the
ability of the master servicer to collect full amounts of interest on affected
mortgage loans. Unless otherwise provided in the related prospectus supplement,
any shortfall in interest collections resulting from the application of the
Relief Act or a similar state law could result in losses to the related
securityholders. In addition, the Relief Act imposes limitations which would
impair the ability of the master servicer to foreclose on an affected mortgage
loan during the borrower's period of active duty status. Thus, in the event that
a mortgage loan goes into default, the application of the Relief Act could cause
delays and losses occasioned by the lender's inability to realize upon the
mortgaged property in a timely fashion.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the payment of
the costs of clean-up. In several states such a lien has priority over the lien
of an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), the United States Environmental Protection Agency (EPA) may impose a
lien on property where the EPA has incurred clean-up costs. However, a CERCLA
lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states and under CERCLA, there is a possibility
that a lender may be held liable as an "owner" or "operator" for costs of
addressing releases or threatened releases of hazardous substances at a
property, regardless of whether or not the environmental damage or threat was
caused by a current or prior owner or operator. CERCLA imposes liability for
such costs on any and all "responsible parties," including owners or operators
of the property who did not cause or contribute to the contamination.
Furthermore, liability under CERCLA is not limited to the original or
outstanding balance of a loan or to the value of the related mortgaged property.
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 "owner" or "operator" those who, without participating in
the management of a facility, hold indicia of ownership primarily to protect a
security interest in the facility. Thus, if a lender's activities begin to
encroach on the actual management of a contaminated facility or property, the
lender may incur liability as an "owner" or "operator" under CERCLA. Similarly,
if a lender forecloses and takes title to a contaminated facility or property,
the lender may incur CERCLA liability in various circumstances, including, but
not limited to, when it holds the facility or property as an investment,
including leasing the facility or property to a third party, or fails to market
the property in a timely fashion.
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996, or 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 which a lender can engage in without losing the benefit of the
secured creditor exemption. For a lender to be deemed to have participated in
the management of a mortgaged property, the lender must actually participate in
the management or operational affairs of the mortgaged property. The
Conservation Act provides that "merely having the capacity to influence, or the
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 (1) exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling or disposal practices
for the mortgaged property, or (2) assumes responsibility for the overall
management of the mortgaged property, including day-to-day decision-making for
environmental compliance, or (3) assumes management of substantially 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 in the event that it forecloses on a mortgaged property,
purchases it at a foreclosure sale or accepts a deed-in-lieu of foreclosure so
long as the lender seeks to sell the mortgaged property at the earliest
practicable commercially reasonable time on commercially reasonable terms.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act, which regulates underground petroleum storage tanks other than
heating oil tanks. The EPA has adopted a lender liability rule for underground
storage tanks under Subtitle I of the Resource Conservation Act. Under this
rule, a holder of a security interest in an underground storage tank or real
property containing an underground storage tank is not considered an operator of
the underground storage tank as long as petroleum is not added to, stored in or
dispensed from the tank. Moreover, under the Conservation Act, the protections
accorded to lenders under CERCLA are also accorded to holders of security
interests in underground petroleum storage tanks. It should be noted, however,
that liability for cleanup of petroleum contamination may be governed by state
law, which may not provide for any specific protection for secured creditors.
The Conservation Act specifically addresses the potential liability
under CERCLA of lenders that hold mortgages or similar conventional security
interests in real property, as the trust fund generally does in connection with
the loans. However, the Conservation Act does not clearly address the potential
liability of lenders who retain legal title to a property and enter into an
agreement with the purchaser for the payment of the purchase price and interest
over the term of the contract as is the case with the installment contracts.
If a lender (including a lender under an installment contract) is or
becomes liable under CERCLA, it may be authorized to bring a statutory action
for contribution against any other "responsible parties," including a previous
owner or operator. However, these persons or entities may be bankrupt or
otherwise judgment proof, and the costs associated with environmental cleanup
and related actions may be substantial. Moreover, some state laws imposing
liability for addressing hazardous substances do not contain exemptions from
liability for lenders. Whether the costs of addressing contamination at a
property pledged as collateral for one of the loans (or at a property subject to
an installment contract), would be imposed on the trust fund, and thus occasion
a loss to the securityholders, depends on the specific factual and legal
circumstances at issue.
Except as otherwise specified in the applicable prospectus supplement,
at the time the mortgage loans were originated, no environmental assessment or a
very limited environment assessment of the mortgage properties was conducted.
Traditionally, many residential mortgage lenders have not taken steps
to determine whether contaminants are present on a mortgaged property prior to
the origination of a single family mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Except as otherwise specified in the
applicable prospectus supplement, neither the depositor nor any master servicer
will be required by any agreement to undertake any of 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 mortgaged property or any casualty
resulting from the presence or effect of contaminants. However, the master
servicer will not be obligated to foreclose on any mortgaged 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 securityholders of the related series.
The pooling and servicing agreement will provide that the master
servicer, acting on behalf of the trust fund, may not acquire title to a
multifamily residential property or mixed-use property underlying a loan or take
over its operation unless the master servicer has previously determined, based
upon a report prepared by a person who regularly conducts environmental audits,
that the mortgaged property is in compliance with applicable environmental laws
and regulations or that the acquisition would not be more detrimental than
beneficial to the value of the mortgaged property and the interests of the
related securityholders.
THE HOME IMPROVEMENT CONTRACTS
GENERAL. The Home Improvement Contracts, other than those that are
unsecured or secured by mortgages on real estate, generally are "chattel paper"
or constitute "purchase money security interests" each as defined in the UCC.
Under the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related agreement,
the depositor will transfer physical possession of these contracts to the
trustee or a designated custodian or may retain possession of them as custodian
for the trustee. In addition, the depositor will file a UCC-1 financing
statement in the appropriate states to give notice of the trustee's ownership of
the contracts. Unless otherwise specified in the related prospectus supplement,
the contracts will not be stamped or otherwise marked to reflect their
assignment from the depositor to the trustee. Therefore, if through negligence,
fraud or otherwise, a subsequent purchaser were able to take physical possession
of the contracts without notice of such assignment, the trustee's interest in
the contracts could be defeated.
SECURITY INTERESTS IN HOME IMPROVEMENTS. The Home Improvement Contracts
that are secured by the related home improvements grant to the originator a
purchase money security interest in the home improvements to secure all or part
of the purchase price of the home improvements and related services. A financing
statement generally is not required to be filed to perfect a purchase money
security interest in consumer goods and the purchase money security interests
are assignable. In general, a purchase money security interest grants to the
holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of the collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in the home improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose such characterization upon incorporation
of such materials into the related property, will not be secured by a purchase
money security interest in the home improvement being financed.
ENFORCEMENT OF SECURITY INTEREST IN HOME IMPROVEMENTS. So long as the
home improvement has not become subject to the real estate law, a creditor can
repossess a home improvement securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (I.E., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
at or before the resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
INSTALLMENT CONTRACTS
Under an installment contract the seller retains legal title to the
property and enters into an agreement with the purchaser/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 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 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 the 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 such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the installment 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 such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an installment 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.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the loans comprising the trust fund for a series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the trust fund (and therefore the
securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste, and to appear in and defend any action or proceeding purporting to affect
the property or the rights of the mortgagee under the mortgage. Upon a failure
of the mortgagor to perform any of these obligations, the mortgagee is given the
right under certain mortgages to perform the obligation itself, at its election,
with the mortgagor agreeing to reimburse the mortgagee for any sums expended by
the mortgagee on behalf of the mortgagor. All sums so expended by the mortgagee
become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make revolving credit line loans typically contains
a "future advance" clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
cut-off date with respect to any mortgage will not be included in the trust
fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
THE TITLE I PROGRAM
GENERAL. Certain of the loans contained in a trust fund may be loans
insured under the FHA Title I Insurance program created pursuant to Sections 1
and 2(a) of the National Housing Act of 1934. Under the Title I Program, the FHA
is authorized and empowered to insure qualified lending institutions against
losses on eligible loans. The Title I Program operates as a coinsurance program
in which the FHA insures up to 90% of certain losses incurred on an individual
insured loan, including the unpaid principal balance of the loan, but only to
the extent of the insurance coverage available in the lender's FHA insurance
coverage reserve account. The owner of the loan bears the uninsured loss on each
loan.
Title I loan means a loan made to finance actions or items that
substantially protect or improve the basic livability or utility of a one- to
four-family residential property.
There are two basic methods of lending or originating such loans which
include a "direct loan" or a "dealer loan." With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from the lender. The lender may disburse proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or other parties to the
transaction. With respect to a dealer Title I loan, a dealer may include a
seller, a contractor or supplier of goods or services.
Loans insured under the Title I Program are required to have fixed
interest rates and generally provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually where a borrower has an irregular flow of income. The first or
last payments (or both) may vary in amount but may not exceed 150% of the
regular installment payment, and the first payment may be due no later than two
months from the date of the loan. The note must contain a provision permitting
full or partial prepayment of the loan. The interest rate must be negotiated and
agreed to by the borrower and the lender and must be fixed for the term of the
loan and recited in the note. Interest on an insured loan must accrue from the
date of the loan and be calculated according to the actuarial method. The lender
must assure that the note and all other documents evidencing the loan are in
compliance with applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD unless the lender determines and documents in
the loan file the existence of compensating factors concerning the borrower's
creditworthiness which support approval of the loan.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
REQUIREMENTS FOR TITLE I LOANS. The maximum principal amount for Title
I loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that such maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. Generally, the term of a Title I loan may not be less
than six months nor greater than 20 years and 32 days. A borrower may obtain
multiple Title I loans with respect to multiple properties, and a borrower may
obtain more than one Title I loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I loans in the same
property does not exceed the maximum loan amount for the type of Title I loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I loan requires that the borrower have
at least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturity
of the Title I loan or a recorded land installment contract for the purchase of
the real property. In the case of a Title I loan with a total principal balance
in excess of $15,000, if the property is not occupied by the owner, the borrower
must have equity in the property being improved at least equal to the principal
amount of the loan, as demonstrated by a current appraisal. Any Title I loan in
excess of $7,500 must be secured by a recorded lien on the improved property
which is evidenced by a mortgage or deed of trust executed by the borrower and
all other owners in fee simple.
The proceeds from a Title I loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I loan, the lender is
required to obtain, promptly upon completion of the improvements but not later
than 6 months after disbursement of the loan proceeds with one 6 month extension
if necessary, a completion certificate, signed by the borrower. The lender is
required to conduct an on-site inspection on any Title I loan where the
principal obligation is $7,500 or more, and on any direct Title I loan where the
borrower fails to submit a completion certificate.
FHA INSURANCE COVERAGE. Under the Title I Program, the FHA establishes
an insurance coverage reserve account for each lender which has been granted a
Title I contract of insurance. The amount of insurance coverage in this account
is a maximum of 10% of the amount disbursed, advanced or expended by the lender
in originating or purchasing eligible loans registered with the FHA for Title I
insurance, with certain adjustments. The balance in the insurance coverage
reserve account is the maximum amount of insurance claims the FHA is required to
pay to the Title I lender. Loans to be insured under the Title I Program will be
registered for insurance by the FHA and the insurance coverage attributable to
such loans will be included in the insurance coverage reserve account for the
originating or purchasing lender following the receipt and acknowledgment by the
FHA of a loan report on the prescribed form pursuant to the Title I regulations.
For each eligible loan reported and acknowledged for insurance, the FHA charges
a premium. For loans having a maturity of 25 months or less, the FHA bills the
lender for the entire premium in an amount equal to the product of 0.50% of the
original loan amount and the loan term. For home improvement loans with a
maturity greater than 25 months, each year that a loan is outstanding the FHA
bills the lender for a premium in an amount equal to 0.50% of the original loan
amount. If a loan is prepaid during the year, the FHA will not refund or abate
the premium paid for that year.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans and
(ii) the amount of insurance coverage attributable to insured loans sold by the
lender, and such insurance coverage may be reduced for any FHA insurance claims
rejected by the FHA. The balance of the lender's FHA insurance coverage reserve
account will be further adjusted as required under Title I or by the FHA, and
the insurance coverage therein may be earmarked with respect to each or any
eligible loans insured thereunder, if a determination is made by the Secretary
of HUD that it is in its interest to do so. Originations and acquisitions of new
eligible loans will continue to increase a lender's insurance coverage reserve
account balance by 10% of the amount disbursed, advanced or expended in
originating or acquiring such eligible loans registered with the FHA for
insurance under the Title I Program. The Secretary of HUD may transfer insurance
coverage between insurance coverage reserve accounts with earmarking with
respect to a particular insured loan or group of insured loans when a
determination is made that it is in the Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an insured
loan is transferred with recourse or with a guaranty or repurchase agreement,
the FHA, upon receipt of written notification of the transfer of such loan in
accordance with the Title I regulations, will transfer from the transferor's
insurance coverage reserve account to the transferee's insurance coverage
reserve account an amount, if available, equal to 10% of the actual purchase
price or the net unpaid principal balance of such loan (whichever is less).
However, under the Title I Program not more than $5,000 in insurance coverage
shall be transferred to or from a lender's insurance coverage reserve account
during any October 1 to September 30 period without the prior approval of the
Secretary of HUD. Amounts which may be recovered by the Secretary of HUD after
payment of an insurance claim are not added to the amount of insurance coverage
in the related lender's insurance coverage reserve account.
CLAIMS PROCEDURES UNDER TITLE I. Under the Title I Program the lender
may accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I loan, the
lender may either (a) proceed against the property under any security
instrument, or (b) make a claim under the lender's contract of insurance. If the
lender chooses to proceed against the property under a security instrument (or
if it accepts a voluntary conveyance or surrender of the property), the lender
may file an insurance claim only with the prior approval of the Secretary of
HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any Title I loan must be filed
with the FHA no later than 9 months after the date of default of the loan.
Concurrently with filing the insurance claim, the lender shall assign to the
United States of America the lender's entire interest in the loan note (or a
judgment in lien of the note), in any security held and in any claim filed in
any legal proceedings. If, at the time the note is assigned to the United
States, the Secretary has reason to believe that the note is not valid or
enforceable against the borrower, the FHA may deny the claim and reassign the
note to the lender. If either such defect is discovered after the FHA has paid a
claim, the FHA may require the lender to repurchase the paid claim and to accept
a reassignment of the loan note. If the lender subsequently obtains a valid and
enforceable judgment against the borrower, the lender may resubmit a new
insurance claim with an assignment of the judgment. Although the FHA may contest
any insurance claim and make a demand for repurchase of the loan at any time up
to two years from the date the claim was certified for payment and may do so
thereafter in the event of fraud or misrepresentation on the part of the lender,
the FHA has expressed an intention to limit the period of time within which it
will take such action to one year from the date the claim was certified for
payment.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the claimable amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. The "claimable
amount" means an amount equal to 90% of the sum of:
o the unpaid loan obligation (net unpaid principal and the
uncollected interest earned to the date of default) with
adjustments thereto if the lender has proceeded against
property securing the loan;
o the interest on the unpaid amount of the loan obligation from
the date of default to the date of the claim's initial
submission for payment plus 15 calendar days (but not to
exceed 9 months from the date of default), calculated at the
rate of 7% per year;
o the uncollected court costs;
o the attorney's fees not to exceed $500; and
o the expenses for recording the assignment of the security to
the United States.
The Secretary of HUD may deny a claim for insurance in whole or in part
for any violations of the regulations governing the Title I Program; however,
the Secretary of HUD may waive such violations if it determines that enforcement
of the regulations would impose an injustice upon a lender which has
substantially complied with the regulations in good faith.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of the material federal income tax consequences
of the purchase, ownership and disposition of certificates is based on the
opinion of tax counsel to the depositor, any of Sidley Austin LLP, Thacher
Proffitt & Wood LLP or McKee Nelson LLP, as specified in the related prospectus
supplement. This summary is based on the provisions of the Internal Revenue Code
of 1986, as amended, and the regulations, including the REMIC Regulations,
rulings and decisions promulgated thereunder and, where applicable, proposed
regulations, all of which are subject to change either prospectively or
retroactively. This summary does not address the material federal income tax
consequences of an investment in securities applicable to certain financial
institutions, banks, insurance companies, tax exempt organizations, dealers in
options, currency or securities, traders in securities that elect to mark to
market, or persons who hold positions other than securities such that the
securities are treated as part of a hedging transaction, straddle, conversion or
other integrated transaction which are subject to special rules. Because of the
complexity of the tax issues involved, we strongly suggest that prospective
investors consult their tax advisors regarding the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
securities.
GENERAL
The federal income tax consequences to securityholders will vary
depending on whether an election is made to treat the trust fund relating to a
particular series of securities as a REMIC under the Code. The prospectus
supplement for each series of securities will specify whether a REMIC election
will be made. In the discussion that follows, all references to a "section" or
"sections" shall be understood to refer, unless otherwise specifically
indicated, to a section or sections of the Code.
If a REMIC election is not made, in the opinion of tax counsel the
trust fund will not be classified as a publicly traded partnership, a taxable
mortgage pool, or an association taxable as a corporation. A trust fund that
qualifies as a "grantor trust" for federal income tax purposes also will receive
an opinion of tax counsel to the effect that:
o the trust fund will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code; and
o owners of certificates will be treated for federal income tax
purposes as owners of a portion of the trust fund's assets as
described below.
A trust fund that issues notes may also receive an opinion of tax
counsel regarding the characterization of the notes as debt instruments for
federal income tax purposes.
With respect to each trust fund that elects REMIC status, in the
opinion of tax counsel, assuming compliance with all provisions of the related
agreement, the trust fund will qualify as a REMIC and the related certificates
will be considered to be regular interests or residual interests in the REMIC.
The related prospectus supplement for each series of securities will indicate
whether the trust fund will make a REMIC election and whether a class of
securities will be treated as a regular or residual interest in the REMIC.
Each opinion is an expression of an opinion only, is not a guarantee of
results and is not binding on the Internal Revenue Service or any third party.
If, contrary to the opinion of tax counsel, the IRS successfully were
to assert that a class of notes did not represent debt instruments for federal
income tax purposes, that class of notes would be treated as equity interests in
the related trust fund. The trust fund would then be treated as a partnership
and could be a publicly traded partnership. If the trust fund were classified as
a publicly traded partnership, it would not be subject to taxation as a
corporation because its income would constitute "qualifying income" not derived
in the conduct of a financial business. Nevertheless, if the trust fund were
classified as a partnership, treatment of a class of notes as equity interests
in such a partnership could have adverse tax consequences to certain holders.
For example, income to foreign holders of such a class generally would be
subject to U.S. tax and withholding requirements, and individual holders of such
a class would be allocated their proportionate share of the trust's income but
might be subject to certain limitations on their ability to deduct their share
of the trust's expenses.
TAXATION OF DEBT SECURITIES
STATUS AS REAL PROPERTY LOANS. Except to the extent otherwise provided
in the related prospectus supplement, if the securities are regular interests in
a REMIC or represent interests in a grantor trust, in the opinion of tax
counsel:
o securities held by a domestic building and loan association
will constitute "loans... secured by an interest in real
property" within the meaning of section 7701(a)(19)(C)(v) of
the Code; and
o securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of section
856(c)(4)(A) of the Code and interest on securities will be
considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the
meaning of section 856(c)(3)(B) of the Code.
INTEREST AND ACQUISITION DISCOUNT. In the opinion of tax counsel,
securities that are REMIC regular interests are generally taxable to holders in
the same manner as evidences of indebtedness issued by the REMIC. Stated
interest on the securities that are REMIC regular interests will be taxable as
ordinary income and taken into account using the accrual method of accounting,
regardless of the holder's normal accounting method. Interest (other than
original issue discount) on securities (other than securities that are REMIC
regular interests) which are characterized as indebtedness for federal income
tax purposes will be includible in income by their holders in accordance with
their usual methods of accounting. When we refer to "debt securities" in this
section, we mean securities characterized as debt for federal income tax
purposes and securities that are REMIC regular interests.
In the opinion of tax counsel, "compound interest securities" (I.E.,
debt securities that permit all interest to accrue for more than one year before
payments of interest are scheduled to begin) will, and certain of the other debt
securities issued at a discount may, be issued with "original issue discount" or
OID. The following discussion is based in part on the OID Regulations. A holder
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the debt securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a debt security and its issue price. In the
opinion of tax counsel, a holder of a debt security must include OID in gross
income as ordinary interest income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included in
income in advance of the receipt of the cash representing that income. The
amount of OID on a debt security will be considered to be zero if it is less
than a de minimis amount determined under the Code.
The issue price of a debt security is the first price at which a
substantial amount of debt securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of debt securities is sold for cash on
or prior to the closing date, the issue price for that class will be treated as
the fair market value of that class on the closing date. The issue price of a
debt security also includes the amount paid by an initial debt security holder
for accrued interest that relates to a period prior to the issue date of the
debt security. The stated redemption price at maturity of a debt security
includes the original principal amount of the debt security, but generally will
not include distributions of interest if the distributions constitute "qualified
stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as described
below), provided that the interest payments are unconditionally payable at
intervals of one year or less during the entire term of the debt security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Debt securities may provide for default remedies in the
event of late payment or nonpayment of interest. Although the matter is not free
from doubt, the trustee intends to treat interest on such debt securities as
unconditionally payable and as constituting qualified stated interest, not OID.
However, absent clarification of the OID Regulations, where debt securities do
not provide for default remedies, the interest payments will be included in the
debt security's stated redemption price at maturity and taxed as OID. Interest
is payable at a single fixed rate only if the rate appropriately takes into
account the length of the interval between payments. Distributions of interest
on debt securities with respect to which deferred interest will accrue, will not
constitute qualified stated interest payments, in which case the stated
redemption price at maturity of such debt securities includes all distributions
of interest as well as principal thereon. Where the interval between the issue
date and the first distribution date on a debt security is longer than the
interval between subsequent distribution dates, the greater of (i) the interest
foregone and (ii) the excess of the stated principal amount over the issue price
will be included in the stated redemption price at maturity and tested under the
DE MINIMIS rule described below. Where the interval between the issue date and
the first distribution date on a debt security is shorter than the interval
between subsequent distribution dates, all of the additional interest will be
included in the stated redemption price at maturity and tested under the DE
MINIMIS rule described below. In the case of a debt security with a long first
period that has non-DE MINIMIS OID, all stated interest in excess of interest
payable at the effective interest rate for the long first period will be
included in the stated redemption price at maturity and the debt security will
generally have OID. Holders of debt securities are encouraged to consult their
own tax advisors to determine the issue price and stated redemption price at
maturity of a debt security.
Under the DE MINIMIS rule, OID on a debt security will be considered to
be zero if the OID is less than 0.25% of the stated redemption price at maturity
of the debt security multiplied by the weighted average maturity of the debt
security. For this purpose, the weighted average maturity of the debt security
is computed as the sum of the amounts determined by multiplying the number of
full years (I.E., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the debt security and the
denominator of which is the stated redemption price at maturity of the debt
security. Holders generally must report DE MINIMIS OID pro rata as principal
payments are received, and such income will be capital gain if the debt security
is held as a capital asset. However, accrual method holders may elect to accrue
all DE MINIMIS OID as well as market discount under a constant interest method.
Debt securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is generally treated as payable at a
qualified variable rate and not as contingent interest if
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments, and
o interest is based on a "qualified floating rate," an
"objective rate," or a combination of "qualified floating
rates" that do not operate in a manner that significantly
accelerates or defers interest payments on the debt security.
In the case of compound interest securities, certain interest weighted
securities, and certain of the other debt securities, none of the payments under
the instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption price
at maturity.
The Internal Revenue Service issued contingent payment regulations
governing the calculation of OID on instruments having contingent interest
payments. These contingent payment regulations represent the only guidance
regarding the views of the IRS with respect to contingent interest instruments
and specifically do not apply for purposes of calculating OID on debt
instruments subject to section 1272(a)(6) of the Code, such as the debt
securities.
Additionally, the OID Regulations do not contain provisions
specifically interpreting section 1272(a)(6) of the Code. Until the Treasury
issues guidance to the contrary, the trustee intends to base its computation on
section 1272(a)(6) and the OID Regulations as described in this prospectus.
However, because no regulatory guidance currently exists under section
1272(a)(6) of the Code, there can be no assurance that such methodology
represents the correct manner of calculating OID.
The holder of a debt security issued with OID must include in gross
income, for all days during its taxable year on which it holds the debt
security, the sum of the "daily portions" of OID. The amount of OID includible
in income by a holder will be computed by allocating to each day during a
taxable year a pro rata portion of the original issue discount that accrued
during the relevant accrual period. In the case of a debt security that is not a
Regular Interest Security and the principal payments on which are not subject to
acceleration resulting from prepayments on the loans, the amount of OID
includible in income of a holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the debt security and the adjusted issue price of the
debt security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to the debt security in all
prior periods, other than qualified stated interest payments.
Certain classes of the debt securities may be "pay-through securities,"
which are debt instruments that are subject to acceleration due to prepayments
on other debt obligations securing those instruments. The amount of OID to be
included in the income of a pay-through security is computed by taking into
account the prepayment rate assumed in pricing the debt instrument. The amount
of OID that will accrue during an accrual period on a pay-through security is
the EXCESS, if any, of the
o sum of
o the present value of all payments remaining to be made on the
pay-through security as of the close of the accrual period and
o the payments during the accrual period of amounts included in
the stated redemption price of the pay-through security,
OVER
o the adjusted issue price of the pay-through security at the
beginning of the accrual period.
The present value of the remaining payments is to be determined on the
basis of three factors:
o the original yield to maturity of the pay-through security
(determined on the basis of compounding at the end of each
accrual period and properly adjusted for the length of the
accrual period),
o events that have occurred before the end of the accrual
period, and
o the assumption that the remaining payments will be made in
accordance with the original prepayment assumption.
The effect of this method is to increase the portions of OID required
to be included in income by a holder to take into account prepayments with
respect to the loans at a rate that exceeds the prepayment assumption, and to
decrease (but not below zero for any period) the portions of OID required to be
included in income by a holder of a pay-through security to take into account
prepayments with respect to the loans at a rate that is slower than the
prepayment assumption. Although OID will be reported to holders of pay-through
securities based on the prepayment assumption, no representation is made to
holders that loans will be prepaid at that rate or at any other rate.
The depositor may adjust the accrual of OID on a class of securities
that are regular REMIC interests (or other regular interests in a REMIC) in a
manner that it believes to be appropriate, to take account of realized losses on
the loans, although the OID Regulations do not provide for such adjustments. If
the IRS were to require that OID be accrued without such adjustments, the rate
of accrual of OID for a class of securities that are regular REMIC interests
could increase.
Certain classes of securities that are regular REMIC interests may
represent more than one class of REMIC regular interests. Unless otherwise
provided in the related prospectus supplement, the applicable trustee intends,
based on the OID Regulations, to calculate OID on such securities as if, solely
for the purposes of computing OID, the separate regular interests were a single
debt instrument.
A subsequent holder of a debt security will also be required to include
OID in gross income, but the holder who purchases the debt security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a debt security's issue price) to offset such
OID by comparable economic accruals of portions of the excess.
EFFECTS OF DEFAULTS AND DELINQUENCIES. In the opinion of tax counsel,
holders will be required to report income with respect to the related securities
under an accrual method without giving effect to delays and reductions in
distributions attributable to a default or delinquency on the loans, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income (including OID) reported by a
holder of a security in any period could significantly exceed the amount of cash
distributed to the holder in that period. The holder will eventually be allowed
a loss (or will be allowed to report a lesser amount of income) to the extent
that the aggregate amount of distributions on the securities is reduced as a
result of a loan default. However, the timing and character of losses or
reductions in income are uncertain and, accordingly, holders of securities are
encouraged to consult their own tax advisors on this point.
INTEREST WEIGHTED SECURITIES. An "interest weighted security" is a
security that is a REMIC regular interest or a "stripped" security (as discussed
under "--Tax Status as a Grantor Trust; General" below) the payments on which
consist solely or primarily of a specified portion of the interest payments on
qualified mortgages held by the REMIC or on loans underlying pass-through
securities. It is not clear how income should be accrued with respect to
interest weighted securities. The trustee intends to take the position that all
of the income derived from an interest weighted security should be treated as
OID and that the amount and rate of accrual of such OID should be calculated by
treating the interest weighted security as a compound interest security.
However, in the case of interest weighted securities that are entitled to some
payments of principal and are REMIC regular interests, the IRS could assert that
income derived from the interest weighted security should be calculated as if
the security were a security purchased at a premium equal to the excess of the
price paid by the holder for the Security over its stated principal amount, if
any. Under this approach, a holder would be entitled to amortize such premium
only if it has in effect an election under section 171 of the Code with respect
to all taxable debt instruments held by such holder, as described below.
Alternatively, the IRS could assert that an interest weighted security should be
taxable under the rules governing bonds issued with contingent payments. This
treatment may be more likely in the case of interest weighted securities that
are stripped securities as described below. SEE "--Non-REMIC Certificates--B.
Multiple Classes of Senior Certificates--Stripped Bonds and Stripped Coupons"
below.
VARIABLE RATE DEBT SECURITIES. In the opinion of tax counsel, in the
case of debt securities bearing interest at a rate that varies directly,
according to a fixed formula, with an objective index, it appears that the yield
to maturity of the debt securities and in the case of pay-through securities,
the present value of all payments remaining to be made on the debt securities,
should be calculated as if the interest index remained at its value as of the
issue date of the securities. Because the proper method of adjusting accruals of
OID on a variable rate debt security is uncertain, holders of variable rate debt
securities are encouraged to consult their own tax advisers regarding the
appropriate treatment of such securities for federal income tax purposes.
MARKET DISCOUNT. In the opinion of tax counsel, a purchaser of a
security may be subject to the market discount rules of sections 1276 through
1278 of the Code. A holder that acquires a debt security with more than a
prescribed de minimis amount of "market discount" (generally, the excess of the
principal amount of the debt security over the purchaser's purchase price) will
be required to include accrued market discount in income as ordinary income in
each month, but limited to an amount not exceeding the principal payments on the
debt security received in that month and, if the securities are sold, the gain
realized. This market discount would accrue in a manner to be provided in
Treasury regulations but, until such regulations are issued, market discount
would in general accrue either
o on the basis of a constant yield (in the case of a pay-through
security, taking into account a prepayment assumption) or
o in the ratio of (a) in the case of securities (or in the case
of a pass-through security, as set forth below, the loans
underlying the security) not originally issued with OID,
stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period
or (b) in the case of securities (or, in the case of a
pass-through security, as described below, the loans
underlying the security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the debt security (or, in the case of a pass-through security, the
loans), the excess of interest paid or accrued to purchase or carry the security
(or, in the case of a pass-through security, as described below, the underlying
loans) with market discount over interest received on the security is allowed as
a current deduction only to the extent such excess is greater than the market
discount that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon the
sale, disposition, or repayment of the security (or in the case of a
pass-through security, an underlying loan). A holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule will not apply.
PREMIUM. In the opinion of tax counsel, a holder who purchases a debt
security (other than an interest weighted security to the extent described
above) at a cost greater than its stated redemption price at maturity, generally
will be considered to have purchased the security at a premium, which it may
elect to amortize as an offset to interest income on the security (and not as a
separate deduction item) on a constant yield method. Although no regulations
addressing the computation of premium accrual on comparable securities have been
issued, the legislative history of the 1986 Act indicates that premium is to be
accrued in the same manner as market discount. Accordingly, it appears that the
accrual of premium on a class of pay-through securities will be calculated using
the prepayment assumption used in pricing the class. If a holder makes an
election to amortize premium on a debt security, the election will apply to all
taxable debt instruments (including all REMIC regular interests and all
pass-through certificates representing ownership interests in a trust holding
debt obligations) held by the holder at the beginning of the taxable year in
which the election is made, and to all taxable debt instruments acquired
thereafter by the holder, and will be irrevocable without the consent of the
IRS. Purchasers who pay a premium for the securities are encouraged to consult
their tax advisers regarding the election to amortize premium and the method to
be employed.
On December 30, 1997, the IRS issued final amortizable bond premium
regulations dealing with amortizable bond premium. The regulations specifically
do not apply to prepayable debt instruments subject to section 1272(a)(6) of the
Code. Absent further guidance from the IRS, the trustee intends to account for
amortizable bond premium in the manner described above. Prospective purchasers
of the debt securities are encouraged to consult their tax advisors regarding
the possible application of the amortizable bond premium regulations.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The OID
Regulations permit the holder of a debt security to elect to accrue all
interest, discount (including de minimis market discount or OID) and premium
income as interest, based on a constant yield method for Debt securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a debt security with market discount, the holder of the debt security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the debt security acquires during the year of the election or
thereafter. Similarly, the holder of a debt security that makes this election
for a debt security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a debt security is irrevocable.
SALE OR EXCHANGE OF A DEBT SECURITY. Sale or exchange of a debt
security prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the seller's adjusted basis
in the debt security. Such adjusted basis generally will equal the seller's
purchase price for the debt security, increased by the OID and market discount
included in the seller's gross income with respect to the debt security, and
reduced by principal payments on the debt security previously received by the
seller and any premium amortized by the seller. Such gain or loss will be
capital gain or loss to a seller for which a debt security is a "capital asset"
within the meaning of section 1221 of the Code except to the extent of any
accrued but unrecognized market discount, and will be long-term or short-term
depending on whether the debt security has been owned for the long-term capital
gain holding period (currently more than one year).
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors are encouraged to consult
their own tax advisors concerning these tax law provisions.
It is possible that capital gain realized by holders of debt securities
could be considered gain realized upon the disposition of property that was part
of a "conversion transaction." A sale of a debt security will be part of a
conversion transaction if substantially all of the holder's expected return is
attributable to the time value of the holder's net investment, and at least one
of the following conditions is met:
o the holder entered the contract to sell the debt security
substantially contemporaneously with acquiring the debt
security;
o the debt security is part of a straddle;
o the debt security is marketed or sold as producing capital
gain; or
o other transactions to be specified in Treasury regulations
that have not yet been issued occur.
If the sale or other disposition of a debt security is part of a
conversion transaction, all or any portion of the gain realized upon the sale or
other disposition would be treated as ordinary income instead of capital gain.
NON-U.S. PERSONS. Generally, to the extent that a debt security
evidences ownership in mortgage loans that are issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under section
1441 or 1442 of the Code to (i) an owner that is not a U.S. Person or (ii) a
debt securityholder holding on behalf of an owner that is not a U.S. Person,
will be subject to federal income tax, collected by withholding, at a rate of
30% (or such lower rate as may be provided for interest by an applicable tax
treaty). Accrued OID recognized by the owner on the sale or exchange of such a
debt security also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent that
a debt security evidences ownership in mortgage loans issued after July 18,
1984, if
o the debt securityholder does not actually or constructively
own 10% or more of the combined voting power of all classes of
equity in the issuer (which for purposes of this discussion
may be defined as the trust fund);
o the debt securityholder is not a controlled foreign
corporation within the meaning of section 957 of the Code
related to the issuer; and
o the debt securityholder complies with certain identification
requirements, including delivery of a statement, signed by the
debt securityholder under penalties of perjury, certifying
that it is not a U.S. Person and providing its name and
address.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each holder of a debt security at any time during the year,
such information as may be deemed necessary or desirable to assist
securityholders in preparing their federal income tax returns, or to enable
holders to make the information available to owners or other financial
intermediaries of holders that hold the debt securities as nominees. If a
holder, owner or other recipient of a payment on behalf of an owner fails to
supply a certified taxpayer identification number or if the Secretary of the
Treasury determines that such person has not reported all interest and dividend
income required to be shown on its federal income tax return, backup withholding
may be required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against the
recipient's federal income tax liability.
NON-REMIC CERTIFICATES
SINGLE CLASS OF SENIOR CERTIFICATES
CHARACTERIZATION. The trust fund may be created with one class of
senior certificates and one class of subordinated certificates. In this case,
each senior certificateholder will be treated as the owner of a pro rata
undivided interest in the interest and principal portions of the trust fund
represented by that senior certificate and will be considered the equitable
owner of a pro rata undivided interest in each of the mortgage loans in the
related mortgage pool. Any amounts received by a senior certificateholder in
lieu of amounts due with respect to any mortgage loan because of a default or
delinquency in payment will be treated for federal income tax purposes as having
the same character as the payments they replace.
Each holder of a senior certificate will be required to report on its
federal income tax return its pro rata share of the entire income from the
mortgage loans in the trust fund represented by that senior certificate,
including interest, original issue discount, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges received
by the master servicer in accordance with the senior certificateholder's method
of accounting. Under section 162 or 212 of the Code, each senior
certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the master servicer, provided that these
amounts are reasonable compensation for services rendered to the trust fund. A
senior certificateholder that is an individual, estate or trust will be entitled
to deduct its share of expenses only to the extent such expenses, plus all other
section 212 expenses, exceed 2% of that senior certificateholder's adjusted
gross income. A senior certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the master servicer. A senior certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the master servicer, whichever
is earlier. If the servicing fees paid to the master servicer were deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as a retained ownership interest by the master servicer, or any
person to whom the master servicer assigned for value all or a portion of the
servicing fees, in a portion of the interest payments on the mortgage loans. The
mortgage loans might then be subject to the "coupon stripping" rules of the Code
discussed below.
Unless otherwise specified in the related prospectus supplement, tax
counsel will deliver its opinion to the depositor with respect to each series of
certificates that:
o a senior certificate owned by a "domestic building and loan
association" within the meaning of section 7701(a)(19) of the
Code representing principal and interest payments on mortgage
loans will be considered to represent "loans . . . secured by
an interest in real property which is . . . residential
property" within the meaning of section 7701(a)(19)(C)(v) of
the Code to the extent that the mortgage loans represented by
that senior certificate are of a type described in the
section;
o a senior certificate owned by a real estate investment trust
representing an interest in mortgage loans will be considered
to represent "real estate assets" within the meaning of
section 856(c)(4)(A) of the Code and interest income on the
mortgage loans will be considered "interest on obligations
secured by mortgages on real property" within the meaning of
section 856(c)(3)(B) of the Code to the extent that the
mortgage loans represented by that senior certificate are of a
type described in the section; and
o a senior certificate owned by a REMIC will be an "obligation
... which is principally secured by an interest in real
property" within the meaning of section 860G(a)(3)(A) of the
Code.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
section 593(d) of the Code to any taxable year beginning after December 31,
1995.
The assets constituting certain trust funds may include "buydown"
mortgage loans. The characterization of any investment in "buydown" mortgage
loans will depend upon the precise terms of the related buydown agreement, but
to the extent that such "buydown" mortgage loans are secured in part by a bank
account or other personal property, they may not be treated in their entirety as
assets described in the foregoing sections of the Code. There are no directly
applicable precedents with respect to the federal income tax treatment or the
characterization of investments in "buydown" mortgage loans. Accordingly,
holders of senior certificates should consult their own tax advisors with
respect to characterization of investments in senior certificates representing
an interest in a trust fund that includes "buydown" mortgage loans.
PREMIUM. The price paid for a senior certificate by a holder will be
allocated to the holder's undivided interest in each mortgage loan based on each
mortgage loan's relative fair market value, so that the holder's undivided
interest in each mortgage loan will have its own tax basis. A senior
certificateholder that acquires an interest in mortgage loans at a premium may
elect to amortize the premium under a constant interest method, provided that
the mortgage loan was originated after September 27, 1985. Premium allocable to
a mortgage loan originated on or before September 27, 1985 should be allocated
among the principal payments on the mortgage loan and allowed as an ordinary
deduction as principal payments are made. Amortizable bond premium will be
treated as an offset to interest income on a senior certificate. The basis for a
senior certificate will be reduced to the extent that amortizable premium is
applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under section 171 of the
Code. A certificateholder that makes this election for a certificate that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that the certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a senior certificate acquired at a premium
should recognize a loss, if a mortgage loan prepays in full, equal to the
difference between the portion of the prepaid principal amount of the mortgage
loan that is allocable to the senior certificate and the portion of the adjusted
basis of the senior certificate that is allocable to the mortgage loan. If a
reasonable prepayment assumption is used to amortize the premium, it appears
that a loss would be available, if at all, only if prepayments have occurred at
a rate faster than the reasonable assumed prepayment rate. It is not clear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
On December 30, 1997, the Internal Revenue Service issued final
amortizable bond premium regulations. These regulations, which generally are
effective for bonds issued or acquired on or after March 2, 1998 (or, for
holders making an election for the taxable year that included March 2, 1998 or
any subsequent taxable year, shall apply to bonds held on or after the first day
of the taxable year of the election). The amortizable bond premium regulations
specifically do not apply to prepayable debt instruments or any pool of debt
instruments, such as the trust fund, the yield on which may be affected by
prepayments which are subject to section 1272(a)(6) of the Code. Absent further
guidance from the IRS and unless otherwise specified in the related prospectus
supplement, the trustee will account for amortizable bond premium in the manner
described above. Prospective purchasers are encouraged to consult their tax
advisors regarding amortizable bond premium and the amortizable bond premium
regulations.
ORIGINAL ISSUE DISCOUNT. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code (currently sections 1271 through 1273 and section 1275) relating to
original issue discount (OID) will be applicable to a senior certificateholder's
interest in those mortgage loans meeting the conditions necessary for these
sections to apply. Accordingly, the following discussion is based in part on the
Treasury's OID Regulations issued on February 2, 1994 under sections 1271
through 1273 and section 1275 of the Code. Certificateholders should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the certificates. Rules regarding
periodic inclusion of OID income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. OID could arise by the financing of points or
other charges by the originator of the mortgages in an amount greater than a
statutory DE MINIMIS exception to the extent that the points are not currently
deductible under applicable provisions of the Code or are not for services
provided by the lender. OID generally must be reported as ordinary gross income
as it accrues under a constant interest method. SEE "--B. Multiple Classes of
Senior Certificates--Senior Certificates Representing Interests in Loans Other
than ARM Loans--ACCRUAL OF ORIGINAL ISSUE DISCOUNT" below.
MARKET DISCOUNT. A senior certificateholder that acquires an undivided
interest in mortgage loans may be subject to the market discount rules of
sections 1276 through 1278 to the extent an undivided interest in a mortgage
loan is considered to have been purchased at a "market discount." Generally, the
excess of the portion of the principal amount of a mortgage loan allocable to
the holder's undivided interest over the holder's tax basis in such interest.
Market discount with respect to a senior certificate will be considered to be
zero if the amount allocable to the senior certificate is less than 0.25% of the
senior certificate's stated redemption price at maturity multiplied by the
weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors are encouraged to consult their own tax advisors regarding
the application of these rules and the advisability of making any of the
elections allowed under sections 1276 through 1278 of the Code.
The Code provides that any principal payment, whether a scheduled
payment or a prepayment, or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants to the Department of the Treasury authority to
issue regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. Although the Treasury has not yet issued regulations, rules
described in the relevant legislative history will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount either on
the basis of a constant interest rate or according to one of the following
methods. If a senior certificate is issued with OID, the amount of market
discount that accrues during any accrual period is equal to the product of
o the total remaining market discount
TIMES
o a fraction, the numerator of which is the original issue
discount accruing during the period and the denominator of
which is the total remaining original issue discount at the
beginning of the accrual period.
For senior certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of
o the total remaining market discount
TIMES
o a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be
paid at the beginning of the accrual period.
For purposes of calculating market discount under any of the above
methods in the case of instruments (such as the senior certificates) which
provide for payments which may be accelerated by reason of prepayments of other
obligations securing such instruments, the same prepayment assumption applicable
to calculating the accrual of original issue discount will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a senior
certificate purchased at a discount or premium in the secondary market.
A holder who acquires a senior certificate at a market discount also
may be required to defer, until the maturity date of the senior certificate or
its earlier disposition in a taxable transaction, the deduction of a portion of
the amount of interest that the holder paid or accrued during the taxable year
on indebtedness incurred or maintained to purchase or carry the senior
certificate in excess of the aggregate amount of interest (including OID)
includible in such holder's gross income for the taxable year with respect to
the senior certificate. The amount of such net interest expense deferred in a
taxable year may not exceed the amount of market discount accrued on the senior
certificate for the days during the taxable year on which the holder held the
senior certificate and, in general, would be deductible when such market
discount is includible in income. The amount of any remaining deferred deduction
is to be taken into account in the taxable year in which the senior certificate
matures or is disposed of in a taxable transaction. In the case of a disposition
in which gain or loss is not recognized in whole or in part, any remaining
deferred deduction will be allowed to the extent of gain recognized on the
disposition. This deferral rule does not apply if the senior certificateholder
elects to include such market discount in income currently as it accrues on all
market discount obligations acquired by the senior certificateholder in that
taxable year or thereafter.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The OID
Regulations permit a certificateholder to elect to accrue all interest, discount
(including DE MINIMIS market or original issue discount) and premium in income
as interest, based on a constant yield method for certificates acquired on or
after April 4, 1994. If such an election is made with respect to a mortgage loan
with market discount, the certificateholder will be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that such certificateholder
acquires during the year of the election or thereafter. Similarly, a
certificateholder that makes this election for a certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
certificateholder owns or acquires. SEE "--Regular Certificates--ORIGINAL ISSUE
DISCOUNT AND PREMIUM" below. The election to accrue interest, discount and
premium on a constant yield method with respect to a certificate is irrevocable.
ANTI-ABUSE RULE. The IRS is permitted to apply or depart from the rules
contained in the OID Regulations as necessary or appropriate to achieve a
reasonable result where a principal purpose in structuring a mortgage asset,
mortgage loan or senior certificate, or the effect of applying the otherwise
applicable rules, is to achieve a result that is unreasonable in light of the
purposes of the applicable statutes (which generally are intended to achieve the
clear reflection of income for both issuers and holders of debt instruments).
MULTIPLE CLASSES OF SENIOR CERTIFICATES
Stripped Bonds and Stripped Coupons
GENERAL. Pursuant to section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. For purposes
of sections 1271 through 1288 of the Code, section 1286 treats a stripped bond
or a stripped coupon as an obligation issued on the date that such stripped
interest is created. If a trust fund is created with two classes of senior
certificates, one class of senior certificates will represent the right to
principal and interest, or principal only, on all or a portion of the mortgage
loans ("stripped bond certificates"), while the second class of senior
certificates will represent the right to some or all of the interest on such
portion ("stripped coupon certificates").
Servicing fees in excess of reasonable servicing fees will be treated
under the stripped bond rules. If such excess servicing fee is less than 100
basis points (I.E., 1% interest on the mortgage loan principal balance) or the
certificates are initially sold with a DE MINIMIS discount (assuming no
prepayment assumption is required), any non-DE MINIMIS discount arising from a
subsequent transfer of the certificates should be treated as market discount.
The IRS appears to require that reasonable servicing fees be calculated on a
mortgage loan by mortgage loan basis, which could result in some mortgage loans
being treated as having more than 100 basis points of interest stripped off.
Although not entirely clear, a stripped bond certificate generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, if the
discount on a stripped bond certificate is larger than a DE MINIMIS amount (as
calculated for purposes of the original issue discount rules), a purchaser of
such a certificate will be required to accrue the discount under the original
issue discount rules of the Code. SEE "--Single Class of Senior
Certificates--ORIGINAL ISSUE DISCOUNT" above. However, a purchaser of a stripped
bond certificate will be required to account for any discount on the certificate
as market discount rather than original issue discount if either
o the amount of OID with respect to the certificate was treated
as zero under the OID DE MINIMIS rule when the certificate was
stripped, or
o no more than 100 basis points (including any amount of
servicing in excess of reasonable servicing) are stripped off
the trust fund's mortgage loans.
Pursuant to Revenue Procedure 91-49 issued on August 8, 1991,
purchasers of stripped bond certificates using an inconsistent method of
accounting must change their method of accounting and request the consent of the
IRS to the change in their accounting method on a statement attached to their
first timely tax return filed after August 8, 1991.
The precise tax treatment of stripped coupon certificates is
substantially uncertain. The Code could be read literally to require that
original issue discount computations be made on a mortgage loan by mortgagee
loan basis. However, based on recent IRS guidance, it appears that a stripped
coupon certificate should be treated as a single installment obligation subject
to the original issue discount rules of the Code. As a result, all payments on a
stripped coupon certificate would be included in the certificate's stated
redemption price at maturity for purposes of calculating income on such
certificate under the original issue discount rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
mortgage loans will give rise to a loss to the holder of a stripped bond
certificate purchased at a premium or a stripped coupon certificate. If a senior
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 senior certificate, it appears that no loss
may be available as a result of any particular prepayment unless prepayments
occur at a rate faster than the assumed prepayment rate. However, if the senior
certificate is treated as an interest in discrete mortgage loans or if no
prepayment assumption is used, then, when a mortgage loan is prepaid, the holder
of the certificate should be able to recognize a loss equal to the portion of
the adjusted issue price of the certificate that is allocable to the mortgage
loan.
Because of the complexity of these issues, we strongly suggest that
holders of stripped bond certificates and stripped coupon certificates consult
with their own tax advisors regarding the proper treatment of these certificates
for federal income tax purposes.
TREATMENT OF CERTAIN OWNERS. Several sections of the Code provide
beneficial treatment to certain taxpayers that invest in mortgage loans of the
type that make up the trust fund. With respect to these sections, no specific
legal authority exists regarding whether the character of the senior
certificates, for federal income tax purposes, will be the same as that of the
underlying mortgage loans. While section 1286 treats a stripped obligation as a
separate obligation for purposes of the provisions of the Code addressing
original issue discount, it is not clear whether such characterization would
apply with regard to these other sections. Although the issue is not free from
doubt, in the opinion of tax counsel, based on policy considerations, each class
of senior certificates should be considered to represent "real estate assets"
within the meaning of section 856(c)(4)(A) of the Code and "loans . . . secured
by, an interest in real property which is . . . residential real property"
within the meaning of section 7701(a)(19)(C)(v) of the Code, and interest income
attributable to senior certificates should be considered to represent "interest
on obligations secured by mortgages on real property" within the meaning of
section 856(c)(3)(B) of the Code, provided that in each case the underlying
mortgage loans and interest on such mortgage loans qualify for such treatment.
Prospective purchasers to which such characterization of an investment in senior
certificates is material are encouraged to consult their own tax advisors
regarding the characterization of the senior certificates and related income.
Senior certificates will be "obligations (including any 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.
Senior Certificates Representing Interests in Loans Other Than ARM
Loans
GENERAL. The OID rules of sections 1271 through 1275 of the Code will
be applicable to a senior certificateholder's interest in those mortgage loans
as to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, OID could arise by the charging of points by the originator of the
mortgage in an amount greater than the statutory DE MINIMIS exception, including
a payment of points that is currently deductible by the borrower under
applicable provisions of the Code, or, under certain circumstances, by the
presence of "teaser" rates on the mortgage loans. OID on each senior certificate
must be included in the owner's ordinary income for federal income tax purposes
as it accrues, in accordance with a constant interest method that takes into
account the compounding of interest, in advance of receipt of the cash
attributable to such income. The amount of OID required to be included in an
owner's income in any taxable year with respect to a senior certificate
representing an interest in mortgage loans other than mortgage loans with
interest rates that adjust periodically (ARM loans) likely will be computed as
described under "--ACCRUAL OF ORIGINAL ISSUE DISCOUNT" below. The following
discussion is based in part on the OID Regulations and in part on the provisions
of the Tax Reform Act of 1986, as amended. The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994, but may be
relied upon as authority with respect to debt instruments such as the senior
certificates issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the mortgage loans should be used or, in the case of
stripped bond certificates or stripped coupon certificates, the date when these
certificates are acquired. The holder of a senior certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the mortgage loans underlying each senior certificate
will be treated as having been issued on the date they were originated with an
amount of OID equal to the excess of such mortgage loan's stated redemption
price at maturity over its issue price. The issue price of a mortgage loan is
generally the amount lent to the mortgagee, which may be adjusted to take into
account certain loan origination fees. The stated redemption price at maturity
of a mortgage loan is the sum of all payments to be made on such mortgage loan
other than payments that are treated as qualified stated interest payments. The
accrual of this OID, as described under "-- ACCRUAL OF ORIGINAL ISSUE DISCOUNT"
below, will, unless otherwise specified in the related prospectus supplement,
utilize the original yield to maturity of the senior certificate calculated
based on a reasonable assumed prepayment rate for the mortgage loans underlying
the senior certificates and will take into account events that occur during the
calculation period. This prepayment assumption will be determined in the manner
prescribed by regulations that have not yet been issued. The legislative history
of the Tax Reform Act provides, however, that the regulations will require that
this prepayment assumption be the prepayment assumption that is used in
determining the offering price of the certificate. No representation is made
that any certificate will prepay at the prepayment assumption or at any other
rate. The prepayment assumption contained in the Code literally only applies to
debt instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments, such
as the certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the master
servicer intends to calculate and report OID under the method described below.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT. Generally, the owner of a senior
certificate must include in gross income the sum of the "daily portions," as
defined below, of the OID on that senior certificate for each day on which it
owns the senior certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of
original issue discount with respect to each component generally will be
determined as follows under the Amendments. A calculation will be made by the
master servicer or such other entity specified in the related prospectus
supplement of the portion of original issue discount that accrues during each
successive monthly accrual period (or shorter period from the date of original
issue) that ends on the day in the calendar year corresponding to each of the
distribution dates on the senior certificate (or the day prior to each such
date). This will be done, in the case of each full month accrual period, by
adding
o the present value at the end of the accrual period (determined
by using as a discount factor the original yield to maturity
of the respective component, under the Prepayment Assumption)
of all remaining payments to be received under the Prepayment
Assumption on the respective component, and
o any payments received during such accrual period (other than a
payment of qualified stated interest), and subtracting from
that total the "adjusted issue price" of the respective
component at the beginning of such accrual period.
The "adjusted issue price" of a senior certificate at the beginning of
the first accrual period is its issue price; the "adjusted issue price" of a
senior certificate at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period reduced by the
amount of any payment (other than a payment of qualified stated interest) made
at the end of or during that accrual period. The OID during the accrual period
will then be divided by the number of days in the period to determine the daily
portion of OID for each day in the period. With respect to an initial accrual
period shorter than a full monthly accrual period, the daily portions of
original issue discount must be determined according to an appropriate
allocation under any reasonable method.
OID generally must be reported as ordinary gross income as it accrues
under a constant interest method that takes into account the compounding of
interest as it accrues rather than when received. However, the amount of OID
includible in the income of a holder of an obligation is reduced when the
obligation is acquired after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued OID, less prior
payments of principal. Accordingly, if mortgage loans acquired by a
certificateholder are purchased at a price equal to the then unpaid principal
amount of such mortgage loan, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
mortgage loan (I.E., points) will be includible by such holder. Other OID on the
mortgage loans (E.G., that arising from a "teaser" rate) would still need to be
accrued.
Senior Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the senior certificates (if the related trust fund includes ARM loans), which
represent interests in ARM loans. Additionally, the IRS has not issued guidance
under the coupon stripping rules of the Code with respect to these instruments.
In the absence of any authority, the master servicer will report OID on senior
certificates attributable to ARM loans ("stripped ARM obligations") to holders
in a manner it believes to be consistent with the rules described under the
heading "-- Senior Certificates Representing Interests in Loans Other Than ARM
Loans" above and with the OID Regulations. In general, application of these
rules may require inclusion of income on a stripped ARM obligation in advance of
the receipt of cash attributable to such income. Further, the addition of
deferred interest resulting from negative amortization to the principal balance
of an ARM loan may require the inclusion of such amount in the income of the
senior certificateholder when the amount accrues. Furthermore, the addition of
deferred interest to the senior certificate's principal balance will result in
additional income (including possibly OID income) to the senior
certificateholder over the remaining life of the senior certificates.
Because the treatment of stripped ARM obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to these certificates.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT REGULATIONS TO CERTAIN NON-REMIC
CERTIFICATES
Final regulations issued on June 11, 1996 with respect to OID under
section 1275 include "contingent payment regulations" covering obligations that
provide for one or more contingent payments. Rights to interest payments on a
mortgage loan might be considered to be contingent within the meaning of the
contingent payment regulations if the interest would not be paid if the borrower
exercised its right to prepay the mortgage loan. However, in the case of an
investor having a right to shares of the interest and principal payments on a
mortgage loan when the share of interest is not substantially greater than the
share of principal, the possibility of prepayment should not be considered to
characterize otherwise noncontingent interest payments as contingent payments.
The absence of interest payments following a prepayment would be the normal
consequence of the return of the investor's capital in the form of a principal
payment. On the other hand, a right to interest on such a mortgage loan is more
likely to be regarded as contingent if held by an investor that does not also
hold a right to the related principal. Such an investor would not recover its
capital through receipt of a principal payment at the time of the prepayment of
the mortgage loan.
Applying these principles to the senior certificates, because the
mortgage loans are subject to prepayment at any time, payments on a class of
senior certificates representing a right to interest on the mortgage loans could
be considered to be contingent within the meaning of the contingent payment
regulations, at least if the senior certificate was issued at a premium. The
likelihood that such payments will be considered contingent increases the
greater the amount of such premium.
In the event that payments on a senior certificate in respect of
interest on the mortgage loans are considered contingent, then the holder would
generally report income or loss as described under the heading "--Stripped Bonds
and Stripped Coupons" above; PROVIDED, HOWEVER, that the yield that would be
used in calculating interest income would not be the actual yield but would
instead equal the "applicable Federal rate" (AFR), in effect at the time of
purchase of the senior certificate by the holder. The AFR generally is an
average of current yields on Treasury securities computed and published monthly
by the IRS. In addition, once the holder's adjusted basis in the senior
certificate has been reduced (by prior distributions or losses) to an amount
equal to the aggregate amount of the remaining noncontingent payments of the
mortgage loans that are allocable to the senior certificate (or to zero if the
senior certificate does not share in principal payments), then the holder would
recognize income in each subsequent month equal to the full amount of interest
on the mortgage loans that accrues in that month and is allocable to the senior
certificate. It is uncertain whether, under the contingent payment regulations,
any other adjustments would be made to take account of prepayments of the
mortgage loans.
SALE OR EXCHANGE OF A SENIOR CERTIFICATE
Sale or exchange of a senior certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the seller's adjusted basis in the senior certificate. Such
adjusted basis generally will equal the seller's purchase price for the senior
certificate, increased by the OID and market discount included in the seller's
gross income with respect to the senior certificate, and reduced by principal
payments on the senior certificate previously received by the seller and any
premium amortized by the seller. Such gain or loss will be capital gain or loss
to a seller for which a senior certificate is a "capital asset" within the
meaning of section 1221 of the Code except to the extent of any accrued but
unrecognized market discount, and will be long-term or short-term depending on
whether the senior certificate has been owned for the long-term capital gain
holding period (currently more than one year).
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors are encouraged to consult
their own tax advisors concerning these tax law provisions.
It is possible that capital gain realized by holders of the senior
certificates could be considered gain realized upon the disposition of property
that was part of a "conversion transaction." A sale of a senior certificate will
be part of a conversion transaction if substantially all of the holder's
expected return is attributable to the time value of the holder's net
investment, and at least one of the following conditions is met:
o the holder entered the contract to sell the senior certificate
substantially contemporaneously with acquiring the senior
certificate;
o the senior certificate is part of a straddle;
o the senior certificate is marketed or sold as producing
capital gain; or
o other transactions to be specified in Treasury regulations
that have not yet been issued occur.
If the sale or other disposition of a senior certificate is part of a
conversion transaction, all or any portion of the gain realized upon the sale or
other disposition would be treated as ordinary income instead of capital gain.
Senior 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 senior certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
NON-U.S. PERSONS
Generally, to the extent that a senior certificate evidences ownership
in mortgage loans that are issued on or before July 18, 1984, interest or OID
paid by the person required to withhold tax under section 1441 or 1442 to (i) an
owner that is not a U.S. Person or (ii) a senior certificateholder holding on
behalf of an owner that is not a U.S. Person, will be subject to federal income
tax, collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by the
owner on the sale or exchange of such a senior certificate also will be subject
to federal income tax at the same rate. Generally, such payments would not be
subject to withholding to the extent that a senior certificate evidences
ownership in mortgage loans issued after July 18, 1984, if
o the senior certificateholder does not actually or
constructively own 10% or more of the combined voting power of
all classes of equity in the issuer (which for purposes of
this discussion may be defined as the trust fund);
o the senior certificateholder is not a controlled foreign
corporation within the meaning of section 957 of the Code
related to the issuer; and
o the senior certificateholder complies with certain
identification requirements, including delivery of a
statement, signed by the senior certificateholder under
penalties of perjury, certifying that it is not a U.S. Person
and providing its name and address.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The master servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each certificateholder at any time
during the year, such information as may be deemed necessary or desirable to
assist securityholders in preparing their federal income tax returns, or to
enable holders to make the information available to owners or other financial
intermediaries of holders that hold the certificates as nominees. If a holder,
owner or other recipient of a payment on behalf of an owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, backup withholding may be
required with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against the recipient's
federal income tax liability.
REMIC CERTIFICATES
GENERAL
The trust fund relating to a series of certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (SEE, however, "--Prohibited Transactions and Other Taxes") below, if a
trust fund with respect to which a REMIC election is made fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year (including the implementation of restrictions on the purchase and
transfer of the residual interest in a REMIC as described under "--Residual
Certificates" below), the Code provides that a trust fund will not be treated as
a REMIC for such year and thereafter. In that event, such entity may be taxable
as a separate corporation, and the related REMIC certificates may not be
accorded the status or given the tax treatment described below. While the Code
authorizes the Treasury to issue regulations providing relief in the event of an
inadvertent termination of status as a REMIC, no such regulations have been
issued. Moreover, any relief 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 such status are not satisfied. With respect
to each trust fund that elects REMIC status, in the opinion of tax counsel,
assuming compliance with all provisions of the related Agreement, the trust fund
will qualify as a REMIC and the related certificates will be considered to be
regular interests ("regular certificates") or residual interests ("residual
certificates") in the REMIC. The related prospectus supplement for each series
of certificates will indicate whether the trust fund will make a REMIC election
and whether a class of certificates will be treated as a regular or residual
interest in the REMIC.
In general, with respect to each series of certificates for which a
REMIC election is made,
o certificates held by a thrift institution taxed as a "domestic
building and loan association" will constitute assets
described in section 7701(a)(19)(C) of the Code;
o certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of section
856(c)(4)(A) of the Code; and
o interest on certificates held by a real estate investment
trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code.
If less than 95% of the REMIC's assets are assets qualifying under any
of the foregoing sections, the certificates will be qualifying assets only to
the extent that the REMIC's assets are qualifying assets. In addition, payments
on mortgage loans held pending distribution on the REMIC certificates will be
considered to be qualifying assets under the foregoing sections.
In some instances, the mortgage loans may not be treated entirely as
assets described in the foregoing sections. SEE, in this regard, the discussion
of "buydown" mortgage loans contained in "--NON-REMIC CERTIFICATES--SINGLE CLASS
OF SENIOR CERTIFICATES" above. REMIC certificates held by a real estate
investment trust will not constitute "Government Securities" within the meaning
of section 856(c)(4)(A) of the Code and REMIC certificates held by a regulated
investment company will not constitute "Government Securities" within the
meaning of section 851(b)(4)(A)(ii) of the Code. REMIC certificates held by
certain financial institutions will constitute "evidences of indebtedness"
within the meaning of section 582(c)(1) of the Code.
A "qualified mortgage" for REMIC purposes is any obligation that is
principally secured by an interest in real property and that is transferred to
the REMIC within a prescribed time period in exchange for regular or residual
interests in the REMIC. The REMIC Regulations provide that manufactured housing
or mobile homes (not including recreational vehicles, campers or similar
vehicles) which are "single family residences" under section 25(e)(10) of the
Code will qualify as real property without regard to state law classifications.
Under section 25(e)(10), a single family residence includes any manufactured
home which has a minimum of 400 square feet of living space and a minimum width
in excess of 102 inches and which is of a kind customarily used at a fixed
location.
TIERED REMIC STRUCTURES
For certain series of certificates, two separate elections may be made
to treat designated portions of the related trust fund as REMICs (respectively,
the "subsidiary REMIC" and the "master REMIC") for federal income tax purposes.
Upon the issuance of any such series of certificates, tax counsel will deliver
its opinion generally to the effect that, assuming compliance with all
provisions of the related pooling and servicing agreement, the master REMIC as
well as any subsidiary REMIC will each qualify as a REMIC and the REMIC
certificates issued by the master REMIC and the subsidiary REMIC, respectively,
will be considered to evidence ownership of regular certificates or residual
certificates in the related REMIC within the meaning of the REMIC provisions.
Only REMIC certificates issued by the master REMIC will be offered
under this prospectus. The subsidiary REMIC and the master REMIC will be treated
as one REMIC solely for purposes of determining
o whether the REMIC certificates will be (i) "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code
or (ii) "loans secured by an interest in real property" under
section 7701(a)(19)(C) of the Code; and
o whether the income on the certificates is interest described
in section 856(c)(3)(B) of the Code.
REGULAR CERTIFICATES
GENERAL. Except as otherwise stated in this discussion, 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 regular certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
regular certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT AND PREMIUM. The regular certificates may be
issued with OID within the meaning of section 1273(a) of the Code. Generally,
the amount of OID, if any, will equal the difference between the "stated
redemption price at maturity" of a regular certificate and its "issue price."
Holders of any class of certificates issued with OID will be required to include
such OID in gross income for federal income tax purposes as it accrues, in
accordance with a constant interest method based on the compounding of interest,
in advance of receipt of the cash attributable to such income. The following
discussion is based in part on the OID Regulations and in part on the provisions
of the Tax Reform Act. Holders of regular certificates should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities such as the regular certificates.
Rules governing OID are set forth in sections 1271 through 1273 and
section 1275 of the Code. These rules require that the amount and rate of
accrual of OID be calculated based on a Prepayment Assumption and prescribe a
method for adjusting the amount and rate of accrual of such discount where the
actual prepayment rate differs from the Prepayment Assumption. Under the Code,
the Prepayment Assumption must be determined in the manner prescribed by
regulations which have not yet been issued. The Legislative History provides,
however, that Congress intended the regulations to require that the Prepayment
Assumption be the prepayment assumption that is used in determining the initial
offering price of the regular certificates. The prospectus supplement for each
series of regular certificates will specify the prepayment assumption to be used
for the purpose of determining the amount and rate of accrual of OID. No
representation is made that the regular certificates will prepay at the
prepayment assumption or at any other rate.
In general, each regular certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a regular certificate is the first price at which a substantial amount of
regular certificates of that class are sold to the public (excluding bond
houses, brokers, underwriters or wholesalers). If less than a substantial amount
of a particular class of regular certificates is sold for cash on or prior to
the date of their initial issuance, the issue price for that class will be
treated as the fair market value of that class on the initial issue date. The
issue price of a regular certificate also includes the amount paid by an initial
regular certificateholder for accrued interest that relates to a period prior to
the initial issue date of the regular certificate. The stated redemption price
at maturity of a regular certificate includes the original principal amount of
the regular certificate, but generally will not include distributions of
interest if such distributions constitute "qualified stated interest." Qualified
stated interest generally means interest payable at a single fixed rate or
qualified variable rate (as described below) provided that the interest payments
are unconditionally payable at intervals of one year or less during the entire
term of the regular certificate. Interest is payable at a single fixed rate only
if the rate appropriately takes into account the length of the interval between
payments. Distributions of interest on regular certificates with respect to
which deferred interest will accrue will not constitute qualified stated
interest payments, in which case the stated redemption price at maturity of the
regular certificates includes all distributions of interest as well as principal
thereon.
Where the interval between the initial issue date and the first
distribution date on a regular certificate is longer than the interval between
subsequent distribution dates, the greater of any OID (disregarding the rate in
the first period) and any interest foregone during the first period is treated
as the amount by which the stated redemption price at maturity of the
certificate exceeds its issue price for purposes of the DE MINIMIS rule
described below. The OID Regulations suggest that all interest on a
long-first-period regular certificate that is issued with non-DE MINIMIS OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first distribution date on a regular certificate
is shorter than the interval between subsequent distribution dates, interest due
on the first Distribution Date in excess of the amount that accrued during the
first period would be added to the certificates stated redemption price at
maturity. Regular securityholders are encouraged to consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a regular certificate.
Under the DE MINIMIS rule, OID on a regular certificate will be
considered to be zero if the amount of OID is less than 0.25% of the stated
redemption price at maturity of the regular certificate multiplied by the
weighted average maturity of the regular certificate. For this purpose, the
weighted average maturity of the regular certificate is computed as the sum of
the amounts determined by multiplying
o the number of full years (I.E., rounding down partial years)
from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made
TIMES
o a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at
maturity of the regular certificate and the denominator of
which is the stated redemption price at maturity of the
regular certificate.
Although currently unclear, it appears that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the mortgage loans and the anticipated reinvestment rate, if any,
relating to the regular certificates. This prepayment assumption with respect to
a series of regular certificates will be set forth in the related prospectus
supplement. Holders generally must report DE MINIMIS OID pro rata as principal
payments are received and such income will be capital gain if the regular
certificate is held as a capital asset. However, accrual method holders may
elect to accrue all DE MINIMIS OID as well as market discount under a constant
interest method.
The prospectus supplement with respect to a trust fund may provide for
certain regular certificates to be issued as "super-premium" certificates at
prices significantly exceeding their principal amounts or based on notional
principal balances. The income tax treatment of these super-premium certificates
is not entirely certain. For information reporting purposes, the trust fund
intends to take the position that the stated redemption price at maturity of the
super-premium certificates is the sum of all payments to be made on these
certificates determined under the prepayment assumption set forth in the related
prospectus supplement, with the result that the super-premium certificates would
be treated as being issued with OID. The calculation of income in this manner
could result in negative OID (which delays future accruals of OID rather than
being immediately deductible) when prepayments on the mortgage loans exceed
those estimated under the prepayment assumption. The IRS might contend, however,
that the contingent payment regulations should apply to the super-premium
certificates.
Although the contingent payment regulations are not applicable to
instruments governed by section 1272(a)(6) of the Code, they represent the only
guidance regarding the current view of the IRS with respect to contingent
payment instruments. In the alternative, the IRS could assert that the stated
redemption price at maturity of such regular certificates should be limited to
their principal amount (subject to the discussion under "--ACCRUED INTEREST
CERTIFICATES" below), so that such regular certificates would be considered for
U.S. federal income tax purposes to be issued at a premium. If such position
were to prevail, the rules described under "--PREMIUM" below would apply. It is
unclear when a loss may be claimed for any unrecovered basis for a super-premium
certificate. It is possible that a holder of a super-premium certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments, or when the final payment is received
with respect to the super-premium certificate.
Under the REMIC Regulations, if the issue price of a regular
certificate (other than regular certificate based on a notional amount) does not
exceed 125% of its actual principal amount, the interest rate is not considered
disproportionately high. Accordingly, a regular certificate generally should not
be treated as a super-premium certificate and the rules described below under
"--PREMIUM" below should apply. However, it is possible that holders of regular
certificates issued at a premium, even if the premium is less than 25% of the
certificate's actual principal balance, will be required to amortize the premium
under an OID method or contingent interest method even though no election under
section 171 of the Code is made to amortize such premium.
Generally, a regular certificateholder must include in gross income the
"daily portions," as determined below, of the OID that accrues on a regular
certificate for each day the regular certificateholder holds the regular
certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a regular certificate, a calculation will be
made of the portion of the OID that accrues during each successive accrual
period that ends on the day in the calendar year corresponding to a distribution
date (or if distribution dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on the last day
of the immediately preceding month) and begins on the day after the end of the
immediately preceding accrual period (or on the issue date in the case of the
first accrual period). This will be done, in the case of each full accrual
period, by adding
o the present value at the end of the accrual period (determined
by using as a discount factor the original yield to maturity
of the regular certificates as calculated under the Prepayment
Assumption) of all remaining payments to be received on the
regular certificate under the Prepayment Assumption, and
o any payments included in the stated redemption price at
maturity received during the accrual period,
and subtracting from that total the "adjusted issue price" of the
regular certificates at the beginning of the accrual period.
The "adjusted issue price" of a regular certificate at the beginning of
the first accrual period is its issue price; the "adjusted issue price" of a
regular certificate at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the accrual period. The OID accrued during an accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the accrual period. The calculation of OID under the method
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in a given accrual period to reflect the fact that
prepayments are occurring faster or slower than under the Prepayment Assumption.
With respect to an initial accrual period shorter than a full accrual period,
the daily portions of OID may be determined according to an appropriate
allocation under any reasonable method.
A subsequent purchaser of a regular certificate issued with OID who
purchases the regular certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that regular certificate. In computing
the daily portions of OID for such a purchaser (as well as an initial purchaser
that purchases at a price higher than the adjusted issue price but less than the
stated redemption price at maturity), however, the daily portion is reduced by
the amount that would be the daily portion for such day (computed in accordance
with the rules set forth above) multiplied by a fraction, the numerator of which
is the amount, if any, by which the price paid by such holder for that regular
certificate exceeds the following amount:
o the sum of the issue price plus the aggregate amount of OID
that would have been includible in the gross income of an
original regular certificateholder (who purchased the regular
certificate at its issue price),
LESS
o any prior payments included in the stated redemption price at
maturity,
and the denominator of which is the sum of the daily portions for that
regular certificate for all days beginning on the date after the purchase date
and ending on the maturity date computed under the Prepayment Assumption. A
holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as original issue.
VARIABLE RATE REGULAR CERTIFICATES. Regular certificates may provide
for interest based on a variable rate. Interest based on a variable rate will
constitute qualified stated interest and not contingent interest if, generally,
o the interest is unconditionally payable at least annually;
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments; and
o interest is based on a "qualified floating rate," an
"objective rate," a combination of a single fixed rate and one
or more "qualified floating rates," one "qualified inverse
floating rate," or a combination of "qualified floating rates"
that do not operate in a manner that significantly accelerates
or defers interest payments on the regular certificate.
The amount of OID with respect to a regular certificate bearing a
variable rate of interest will accrue in the manner described under "--ORIGINAL
ISSUE DISCOUNT AND PREMIUM" above by assuming generally that the index used for
the variable rate will remain fixed throughout the term of the certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the depositor intends to treat interest on
a regular certificate that is a weighted average of the net interest rates on
mortgage loans as qualified stated interest. In such case, the weighted average
rate used to compute the initial pass-through rate on the regular certificates
will be deemed to be the index in effect through the life of the regular
certificates. It is possible, however, that the IRS may treat some or all of the
interest on regular certificates with a weighted average rate as taxable under
the rules relating to obligations providing for contingent payments. Such
treatment may effect the timing of income accruals on regular certificates.
MARKET DISCOUNT. A purchaser of a regular certificate may be subject to
the market discount provisions of sections 1276 through 1278 of the Code. Under
these provisions and the OID Regulations, "market discount" equals the excess,
if any, of
o the regular certificate's stated principal amount or, in the
case of a regular certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had
purchased the regular certificate from an original holder)
OVER
o the price for the regular certificate paid by the purchaser.
A holder who purchases a regular certificate at a market discount will
recognize income upon receipt of each distribution representing stated
redemption price. In particular, under section 1276 of the Code such a holder
generally will be required to allocate each principal distribution first to
accrued market discount not previously included in income and to recognize
ordinary income to that extent. A certificateholder may elect to include market
discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing. If made, such election will
apply to all market discount bonds acquired by 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 using the accrual
method of accounting to elect to accrue all interest, discount (including DE
MINIMIS market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election is made with respect to a
regular certificate with market discount, the certificateholder will be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that the
certificateholder acquires during the year of the election or thereafter.
Similarly, a certificateholder that makes this election for a certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that the certificateholder owns or acquires. SEE "--ORIGINAL ISSUES
DISCOUNT AND PREMIUM" above. The election to accrue interest, discount and
premium on a constant yield method with respect to a certificate is irrevocable.
Market discount with respect to a regular certificate will be
considered to be zero if the amount allocable to the regular certificate is less
than 0.25% of the regular certificate's stated redemption price at maturity
multiplied by the regular certificate's weighted average maturity remaining
after the date of purchase. If market discount on a regular certificate is
considered to be zero under this rule, the actual amount of market discount must
be allocated to the remaining principal payments on the regular certificate and
gain equal to such allocated amount will be recognized when the corresponding
principal payment is made. Treasury regulations implementing the market discount
rules have not yet been issued; therefore, investors are encouraged to consult
their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under sections 1276 through
1278 of the Code.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury to issue regulations
providing for the computation of accrued 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, rules described in the legislative
history of the Tax Reform Act will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. For
regular certificates issued with OID, the amount of market discount that accrues
during a period is equal to the product of
o the total remaining market discount
MULTIPLIED BY
o a fraction, the numerator of which is the OID accruing during
the period and the denominator of which is the total remaining
OID at the beginning of the period.
For regular certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of
o the total remaining market discount
MULTIPLIED BY
o a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be
paid at the beginning of the period.
For purposes of calculating market discount under any of the above
methods in the case of instruments (such as the regular certificates) which
provide for payments which may be accelerated by reason of prepayments of other
obligations securing such instruments, the same prepayment assumption applicable
to calculating the accrual of OID will apply.
A holder of a regular certificate that acquires it at a market discount
also may be required to defer, until the maturity date of the regular
certificate or its earlier disposition in a taxable transaction, the deduction
of a portion of the amount of interest that the holder paid or accrued during
the taxable year on indebtedness incurred or maintained to purchase or carry the
regular certificate in excess of the aggregate amount of interest (including
OID) includible in the holder's gross income for the taxable year with respect
to the regular certificate. The amount of such net interest expense deferred in
a taxable year may not exceed the amount of market discount accrued on the
regular certificate for the days during the taxable year on which the holder
held the regular certificate and, in general, would be deductible when such
market discount is includible in income. The amount of any remaining deferred
deduction is to be taken into account in the taxable year in which the regular
certificate matures or is disposed of in a taxable transaction. In the case of a
disposition in which gain or loss is not recognized in whole or in part, any
remaining deferred deduction will be allowed to the extent of gain recognized on
the disposition. This deferral rule does not apply if the regular
certificateholder elects to include such market discount in income currently as
it accrues on all market discount obligations acquired by the regular
certificateholder in that taxable year or thereafter.
PREMIUM. A purchaser of a regular certificate who purchases the regular
certificate at a cost (not including accrued qualified stated interest) greater
than its remaining stated redemption price at maturity will be considered to
have purchased the regular certificate at a premium and may elect to amortize
such premium under a constant yield method. A certificateholder that makes this
election for a certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such certificateholder acquires during the
year of the election or thereafter. It is not clear whether the prepayment
assumption would be taken into account in determining the life of the regular
certificate for this purpose. However, the legislative history of the Tax Reform
Act states that the same rules that apply to accrual of market discount (which
rules require use of a prepayment assumption in accruing market discount with
respect to regular certificates without regard to whether the certificates have
OID) will also apply in amortizing bond premium under section 171 of the Code.
The Code provides that amortizable bond premium will be allocated among the
interest payments on the regular certificates and will be applied as an offset
against the interest payment.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations on the amortization of bond premium. The foregoing discussion is
based in part on such proposed regulations. On December 30, 1997, the IRS issued
the amortizable bond premium regulations which generally are effective for bonds
acquired on or after March 2, 1998 or, for holders making an election to
amortize bond premium as described above, the taxable year that includes March
2, 1998 or any subsequent taxable year, will apply to bonds held on or after the
first day of taxable year in which such election is made. Neither the proposed
regulations nor the final regulations, by their express terms, apply to
prepayable securities described in section 1272(a)(6) of the Code such as the
regular certificates. Holders of regular certificates are encouraged to consult
their tax advisors regarding the possibility of making an election to amortize
any such bond premium.
DEFERRED INTEREST. Certain classes of regular certificates will provide
for the accrual of interest when one or more ARM Loans are adding deferred
interest to their principal balance by reason of negative amortization. Any
deferred interest that accrues with respect to a class of regular certificates
will constitute income to the holders of such certificates prior to the time
distributions of cash with respect to deferred interest are made. It is unclear,
under the OID Regulations, whether any of the interest on such certificates will
constitute qualified stated interest or whether all or a portion of the interest
payable on the certificates must be included in the stated redemption price at
maturity of the certificates and accounted for as OID (which could accelerate
such inclusion). Interest on regular certificates must in any event be accounted
for under an accrual method by the holders of these certificates. Applying the
latter analysis therefore may result only in a slight difference in the timing
of the inclusion in income of interest on the regular certificates.
EFFECTS OF DEFAULTS AND DELINQUENCIES. Certain series of certificates
may contain one or more classes of subordinated certificates and, in the event
there are defaults or delinquencies on the mortgage loans, amounts that would
otherwise be distributed on the subordinated certificates may instead be
distributed on the senior certificates. Holders of subordinated certificates
nevertheless will be required to report income with respect to these
certificates under an accrual method without giving effect to delays and
reductions in distributions on such subordinated certificates attributable to
defaults and delinquencies on the mortgage loans, except to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a holder of a subordinated certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the subordinated certificate is reduced as a result of defaults
and delinquencies on the mortgage loans. However, the timing and character of
such losses or reductions in income are uncertain. Accordingly, holders of
subordinated certificates are encouraged to consult their own tax advisors on
this point.
SALE, EXCHANGE OR REDEMPTION. If a regular certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the regular certificate. The
adjusted basis generally will equal the cost of the regular certificate to the
seller, increased by any OID and market discount included in the seller's gross
income with respect to the regular certificate, and reduced (but not below zero)
by payments included in the stated redemption price at maturity previously
received by the seller and by any amortized premium. Similarly, a holder who
receives a payment which is part of the stated redemption price at maturity of a
regular certificate will recognize gain equal to the excess, if any, of the
amount of the payment over the holder's adjusted basis in the regular
certificate. The holder of a regular certificate that receives a final payment
which is less than the holder's adjusted basis in the regular certificate will
generally recognize a loss. Except as provided in the following paragraph and as
provided under "--MARKET DISCOUNT" above, any such gain or loss will be capital
gain or loss, provided that the regular certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of section 1221 of
the Code.
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors are encouraged to consult
their own tax advisors concerning these tax law provisions.
Gain from the sale or other disposition of a regular certificate that
might otherwise be capital gain will be treated as ordinary income to the extent
that such gain does not exceed the EXCESS, if any, of:
o the amount that would have been includible in such holder's
income with respect to the regular certificate had income
accrued thereon at a rate equal to 110% of the AFR as defined
in section 1274(d) of the Code determined as of the date of
purchase of such regular certificate,
OVER
o the amount actually includible in the holder's income.
Gain from the sale or other disposition of a regular certificate that
might otherwise be capital gain will be treated as ordinary income, (i) if the
regular certificate is held as part of a "conversion transaction" as defined in
section 1258(c) of the Code, up to the amount of interest that would have
accrued at the applicable federal rate under section 1274(d) of the Code in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, or (ii) if the regular
certificate is held as part of a straddle. Potential investors are encouraged to
consult their tax advisors with respect to the tax consequences of ownership and
disposition of an investment in regular certificates in their particular
circumstances.
Regular 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 regular certificate by a bank or a thrift institution to which
such section applies will be ordinary income or loss.
The regular certificate information reports will include a statement of
the adjusted issue price of the regular certificate at the beginning of each
accrual period. In addition, the reports will include information necessary to
compute the accrual of any market discount that may arise upon secondary trading
of regular certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
ACCRUED INTEREST CERTIFICATES. Regular certificates that are "payment
lag" certificates may provide for payments of interest based on a period that
corresponds to the interval between distribution dates but that ends prior to
each distribution date. The period between the initial issue date of the payment
lag certificates and their first distribution date may or may not exceed such
interval. Purchasers of payment lag certificates for which the period between
the initial issue date and the first distribution date does not exceed such
interval could pay upon purchase of the regular certificates accrued interest in
excess of the accrued interest that would be paid if the interest paid on the
distribution date were interest accrued from distribution date to distribution
date. If a portion of the initial purchase price of a regular certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest"), and the regular certificate provides for a payment of stated
interest on the first payment date (and the first payment date, is within one
year of the issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the regular certificate's issue price may be computed by
subtracting from the issue price the amount of pre-issuance accrued interest,
rather than as an amount payable on the regular certificate. However, it is
unclear under this method how the proposed OID Regulations treat interest on
payment lag certificates as described above. Therefore, in the case of a payment
lag certificate, the REMIC intends to include accrued interest in the issue
price and report interest payments made on the first distribution date as
interest only to the extent such payments represent interest for the number of
days that the certificateholder has held the payment lag certificate during the
first accrual period.
Investors are encouraged to consult their own tax advisors concerning
the treatment for federal income tax purposes of payment lag certificates.
NON-INTEREST EXPENSES OF THE REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other noninterest expenses will be
allocated as a separate item to those regular securityholders that are
"pass-through interest holders." Generally, a single-class REMIC is defined as
(i) a REMIC that would be treated as a fixed investment trust under Treasury
regulations but for its qualification as a REMIC or (ii) a REMIC that is
substantially similar to an investment trust but is structured with the
principal purpose of avoiding this allocation requirement imposed by the
temporary regulations. Such a pass-through interest holder would be required to
add its allocable share, if any, of such expenses to its gross income and to
treat the same amount as an item of investment expense. An individual generally
would be allowed a deduction for such expenses only as a miscellaneous itemized
deduction subject to the limitations under section 67 of the Code. That section
allows such deductions only to the extent that in the aggregate such expenses
exceed 2% 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 certain amount (the "applicable
amount") will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over the applicable amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. As a
result of the Economic Growth and Tax Relief Reconciliation Act of 2001 (the
"2001 Act"), limitations imposed by section 68 of the Code on claiming itemized
deductions will be phased-out commencing in 2006. Unless amended, this provision
of the 2001 Act will no longer apply for taxable years beginning on or after
December 31, 2010. The amount of additional taxable income recognized by
residual securityholders who are subject to the limitations of either section 67
or section 68 may be substantial. The REMIC is required to report to each
pass-through interest holder and to the IRS such holder's allocable share, if
any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities including regulated investment companies, but does
not include real estate investment trusts. Certificateholders that are
"pass-through interest holders" are encouraged to consult their own tax advisors
about the impact of these rules on an investment in the regular certificates.
TREATMENT OF REALIZED LOSSES. Although not entirely clear, it appears
that holders of regular certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any regular certificates becoming wholly or partially worthless
and that, in general, holders of certificates that are not corporations should
be allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any regular certificates becoming wholly worthless.
Although the matter is not entirely clear, non-corporate holders of certificates
may be allowed a bad debt deduction at such time that the principal balance of
any regular certificate is reduced to reflect realized losses resulting from any
liquidated mortgage loans. The IRS, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect realized
losses only after all mortgage loans remaining in the related trust fund have
been liquidated or the certificates of the related series have been otherwise
retired. Prospective investors in and holders of the certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such certificates, including any
loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
certificates.
NON-U.S. PERSONS. Generally, payments of interest (including any
payment with respect to accrued OID) on the regular certificates to a regular
certificateholder who is a non-U.S. Person not engaged in a trade or business
within the United States will not be subject to federal withholding tax if
o the regular certificateholder does not actually or
constructively own 10% or more of the combined voting power of
all classes of equity in the issuer (which for purposes of
this discussion may be defined as the trust fund or the
beneficial owners of the related residual certificates);
o the regular certificateholder is not a controlled foreign
corporation (within the meaning of section 957 of the Code)
related to the issuer; and
o the regular certificateholder complies with certain
identification requirements, including delivery of a
statement, signed by the regular certificateholder under
penalties of perjury, certifying that it is a foreign person
and providing its name and address.
If a regular certificateholder is not exempt from withholding,
distributions of interest, including distributions in respect of accrued OID,
the holder may be subject to a 30% withholding tax, subject to reduction under
any applicable tax treaty.
Further, it appears that a regular certificate would not be included in
the estate of a nonresident alien individual and would not be subject to United
States estate taxes. However, securityholders who are non-resident alien
individuals are encouraged to consult their tax advisors concerning this
question.
Regular securityholders who are non-U.S. Persons and persons related to
such holders should not acquire any residual certificates, and residual
securityholders and persons related to residual securityholders should not
acquire any regular certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each regular certificateholder at any time during such year,
such information as may be deemed necessary or desirable to assist regular
securityholders in preparing their federal income tax returns or to enable
holders to make such information available to owners or other financial
intermediaries of holders that hold regular certificates. If a holder, owner or
other recipient of a payment on behalf of an owner fails to supply a certified
taxpayer identification number or if the Secretary of the Treasury determines
that such person has not reported all interest and dividend income required to
be shown on its federal income tax return, backup withholding may be required
with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
RESIDUAL CERTIFICATES
ALLOCATION OF THE INCOME OF THE REMIC TO THE RESIDUAL CERTIFICATES. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "--Prohibited
Transactions and Other Taxes" below. Instead, each original holder of a residual
certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which such holder owns any residual certificates. The taxable income of
the REMIC for each day will be determined by allocating the taxable income of
the REMIC for each calendar quarter ratably to each day in the quarter. The
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding residual certificates that the holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the residual securityholders without regard to the
timing or amounts of cash distributions by the REMIC. Ordinary income derived
from residual certificates will be "portfolio income" for purposes of the
taxation of taxpayers subject to the limitations on the deductibility of
"passive losses." As residual interests, the residual certificates will be
subject to tax rules, described below, that differ from those that would apply
if the residual certificates were treated for federal income tax purposes as
direct ownership interests in the certificates or as debt instruments issued by
the REMIC.
A residual certificateholder may be required to include taxable income
from the residual certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(I.E., a fast-pay, slow-pay structure) may generate such a mismatching of income
and cash distributions (I.E., "phantom income"). This mismatching may be caused
by the use of certain required tax accounting methods by the REMIC, variations
in the prepayment rate of the underlying mortgage loans and certain other
factors. Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield of a
residual certificate to a residual certificateholder. Investors are encouraged
to consult their own tax advisors concerning the federal income tax treatment of
a residual certificate and the impact of such tax treatment on the after-tax
yield of a residual certificate.
A subsequent residual certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that the residual certificateholder owns the residual
certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original residual certificateholder,
as described above. The legislative history of the Tax Reform Act indicates that
certain adjustments may be appropriate to reduce (or increase) the income of a
subsequent holder of a residual certificate that purchased the residual
certificate at a price greater than (or less than) the adjusted basis the
residual certificate would have in the hands of an original residual
certificateholder. SEE "--SALE OR EXCHANGE OF RESIDUAL CERTIFICATES" below. It
is not clear, however, whether such adjustments will in fact be permitted or
required and, if so, how they would be made. The REMIC Regulations do not
provide for any such adjustments.
TAXABLE INCOME OF THE REMIC ATTRIBUTABLE TO RESIDUAL CERTIFICATES. The
taxable income of the REMIC will reflect a netting of the income from the
mortgage loans and the REMIC's other assets and the deductions allowed to the
REMIC for interest and OID on the regular certificates and, except as described
under "--NON-INTEREST EXPENSES OF THE REMIC" below, other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the regular and residual certificates (or, if a class of certificates is not
sold initially, their fair market values). Such aggregate basis will be
allocated among the mortgage loans and other assets of the REMIC in proportion
to their respective fair market values. A mortgage loan will be deemed to have
been acquired with discount or premium to the extent that the REMIC's basis
therein is less or greater, respectively than its principal balance. Any such
discount (whether market discount or OID) will be includible in the income of
the REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing OID on
the regular certificates. The REMIC expects to 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 would be amortized under a constant yield method.
It is likely that the yield of a mortgage loan would be calculated for this
purpose taking account of the prepayment assumption. However, the election would
not apply to any mortgage loan originated on or before September 27, 1985.
Instead, premium on such a mortgage loan would be allocated among the principal
payments thereon and would be deductible by the REMIC as those payments become
due.
The REMIC will be allowed a deduction for interest and OID on the
regular certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to regular
certificates except that the 0.25% per annum DE MINIMIS rule and adjustments for
subsequent holders described therein will not apply.
A residual certificateholder will not be permitted to amortize the cost
of the residual certificate as an offset to its share of the REMIC's taxable
income. However, such taxable income will not include cash received by the REMIC
that represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the residual certificates will be added to the issue
price of the regular certificates in determining the REMIC's initial basis in
its assets. SEE "--SALE OR EXCHANGE OF RESIDUAL CERTIFICATES" below. For a
discussion of possible adjustments to income of a subsequent holder of a
residual certificate to reflect any difference between the actual cost of the
residual certificate to such holder and the adjusted basis the residual
certificate would have in the hands of an original residual certificateholder,
SEE "-- ALLOCATION OF THE INCOME OF THE REMIC TO THE RESIDUAL CERTIFICATES"
above.
ADDITIONAL TAXABLE INCOME OF RESIDUAL INTERESTS. Any payment received
by a holder of a residual certificate in connection with the acquisition of the
residual certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt or
accrual as ordinary income, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of residual certificates are encouraged to consult their
tax advisors concerning the treatment of such payments for income tax purposes.
NET LOSSES OF THE REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. The net loss
would be allocated among the residual securityholders in the same manner as the
REMIC's taxable income. The net loss allocable to any residual certificate will
not be deductible by the holder to the extent that such net loss exceeds such
holder's adjusted basis in the residual certificate. Any net loss that is not
currently deductible by reason of this limitation may only be used by the
residual certificateholder to offset its share of the REMIC's taxable income in
future periods (but not otherwise). The ability of residual securityholders that
are individuals or closely held corporations to deduct net losses may be subject
to additional limitations under the Code.
MARK-TO-MARKET REGULATIONS. Prospective purchasers of a residual
certificate should be aware that the IRS finalized mark-to-market regulations
which provide that a residual certificate acquired after January 3, 1995 cannot
be marked to market. The mark-to-market regulations replaced the temporary
regulations which allowed a residual certificate to be marked to market provided
that it was not a "negative value" residual interest.
INDUCEMENT FEES. The Treasury Department has issued final regulations,
effective May 11, 2004, that address the federal income tax treatment of
"inducement fees" received by transferees of noneconomic REMIC residual
interests. The final regulations require inducement fees to be included in
income over a period reasonably related to the period in which the related REMIC
residual interest is expected to generate taxable income or net loss allocable
to the holder. The final regulations provide two safe harbor methods that permit
transferees to include inducement fees in income either (i) in the same amounts
and over the same period that the taxpayer uses for financial reporting
purposes, provided that such period is not shorter than the period the REMIC is
expected to generate taxable income or (ii) ratably over the remaining
anticipated weighted average life of all the regular and residual interests
issued by the REMIC, determined based on actual distributions projected as
remaining to be made on such interests under the prepayment assumption. If the
holder of a REMIC residual interest sells or otherwise disposes of the residual
certificate, any unrecognized portion of the inducement fee must be taken into
account at the time of the sale or disposition. The final regulations also
provide that an inducement fee shall be treated as income from sources within
the United States. In addition, the IRS has issued administrative guidance
addressing the procedures by which transferees of noneconomic REMIC residual
interests may obtain automatic consent from the IRS to change the method of
accounting for REMIC inducement fee income to one of the safe harbor methods
provided in these final regulations (including a change from one safe harbor
method to the other safe harbor method). Prospective purchasers of the residual
certificates are encouraged to consult with their tax advisors regarding the
effect of these final regulations and the related guidance regarding the
procedures for obtaining automatic consent to change the method of accounting.
NON-INTEREST EXPENSES OF THE REMIC. The REMIC's taxable income will be
determined in the same manner as if the REMIC were an individual. However, all
or a portion of the REMIC's servicing, administrative and other non-interest
expenses will be allocated as a separate item to residual securityholders that
are "pass-through interest holders." Such a holder would be required to add an
amount equal to its allocable share, if any, of such expenses to its gross
income and to treat the same amount as an item of investment expense.
Individuals are generally allowed a deduction for such an investment expense
only as a miscellaneous itemized deduction subject to the limitations under
section 67 of the Code which allows such deduction only to the extent that, in
the aggregate, all such expenses exceed 2% of an individual's adjusted gross
income. In addition, the personal exemptions and itemized deductions of
individuals with adjusted gross incomes above particular levels are subject to
certain limitations which reduce or eliminate the benefit of such items. The
REMIC is required to report to each pass-through interest holder and to the IRS
the holder's allocable share, if any, of the REMIC's non-interest expenses. The
term "pass-through interest holder" generally refers to individuals, entities
taxed as individuals and certain pass-through entities, but does not include
real estate investment trusts. Residual securityholders that are "pass-through
interest holders" are encouraged to consult their own tax advisors about the
impact of these rules on an investment in the residual certificates. SEE "--
Regular CERTIFICATES--NON-INTEREST EXPENSES OF THE REMIC" above.
EXCESS INCLUSIONS. A portion of the income on a residual certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will, with an exception discussed below for certain thrift institutions, be
subject to federal income tax in all events. Thus, for example, an excess
inclusion
o may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a residual
certificateholder;
o will be treated as "unrelated business taxable income" within
the meaning of section 512 of the Code if the residual
certificateholder is a pension fund or any other organization
that is subject to tax only on its unrelated business taxable
income (SEE "Tax-Exempt Investors" below); and
o is not eligible for any reduction in the rate of withholding
tax in the case of a residual certificateholder that is a
foreign investor.
SEE "--NON-U.S. PERSONS" below. The exception for thrift institutions
is available only to the institution holding the residual certificate and not to
any affiliate of the institution, unless the affiliate is a subsidiary all the
stock of which, and substantially all the indebtedness of which, is held by the
institution, and which is organized and operated exclusively in connection with
the organization and operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
residual certificateholder, the excess inclusions for any calendar quarter is
the EXCESS, if any, of
o the income of the residual certificateholder for that calendar
quarter from its residual certificate
OVER
o the sum of the "daily accruals" for all days during the
calendar quarter on which the residual certificateholder holds
the residual certificate.
For this purpose, the daily accruals with respect to a residual
certificate are determined by allocating to each day in the calendar quarter its
ratable portion of the product of the "adjusted issue price" of the residual
certificate at the beginning of the calendar quarter and 120% of the "Federal
long-term rate" in effect at the time the residual certificate is issued. For
this purpose, the "adjusted issue price" of a residual certificate at the
beginning of any calendar quarter equals the issue price of the residual
certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the residual certificate before the beginning of such quarter. The "Federal
long-term 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.
In the case of any residual certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such residual
certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of section 857(b)(2) of the Code, excluding
any net capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by the shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to a
residual certificate as if held directly by such shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject to
similar rules.
In addition, the Code provides three rules for determining the effect
of excess inclusions on the alternative minimum taxable income of a residual
certificateholder. First, the alternative minimum taxable income for the
residual certificateholder is determined without regard to the special rule that
taxable income cannot be less than excess inclusion. Second, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. Third, the residual certificateholder's
alternative minimum taxable income for a tax year cannot be less than excess
inclusions for the year. The effect of this last statutory amendment is to
prevent the use of nonrefundable tax credits to reduce a taxpayer's income tax
below its tentative minimum tax computed only on excess inclusions.
PAYMENTS. Any distribution made on a residual certificate to a residual
certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the residual certificateholder's adjusted basis in the
residual certificate. To the extent a distribution exceeds such adjusted basis,
it will be treated as gain from the sale of the residual certificate.
PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the residual certificates. In the case of a "single class REMIC," however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the holders of the regular certificates
and the holders of the residual certificates on a daily basis in proportion to
the relative amounts of income accruing to each certificateholder on that day.
In the case of individuals (or trusts, estates or other persons who compute
their income in the same manner as individuals) who own an interest in a regular
certificate directly or through a pass-through entity which is required to pass
miscellaneous itemized deductions through to its owners or beneficiaries (E.G.,
a partnership, an S corporation or a grantor trust), such expenses will be
deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. The reduction or disallowance of this deduction coupled with the
allocation of additional income may have a significant impact on the yield of
the regular certificate to such a holder. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. In general terms, a single class REMIC is one that
either (i) would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC (treating all interests as ownership interests,
even if they would be classified as debt for federal income tax purposes) or
(ii) is similar to such a trust and is structured with the principal purpose of
avoiding the single class REMIC rules. Unless otherwise stated in the applicable
prospectus supplement, the expenses of the REMIC will be allocated to holders of
the related residual certificates in their entirety and not to holders of the
related regular certificates.
SALE OR EXCHANGE OF RESIDUAL CERTIFICATES. If a residual certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and its adjusted
basis in the residual certificate (except that the recognition of loss may be
limited under the "wash sale" rules described below). A holder's adjusted basis
in a residual certificate generally equals the cost of the residual certificate
to the residual certificateholder, increased by the taxable income of the REMIC
that was included in the income of the residual certificateholder with respect
to the residual certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to the residual certificateholder
with respect to the residual certificate and by the distributions received
thereon by the residual certificateholder. In general, any such gain or loss
will be capital gain or loss provided the residual certificate is held as a
capital asset. However, residual certificates will be "evidences of
indebtedness" within the meaning of section 582(c)(1) of the Code, so that gain
or loss recognized from sale of a residual certificate by a bank or thrift
institution to which such section applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a residual certificate reacquires the residual certificate or acquires
any other residual certificate, any residual interest in another REMIC or
similar interest in a "taxable mortgage pool" (as defined in section 7701(i)) of
the Code during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of section 1091 of the Code. In that event, any loss realized by the residual
certificateholder on the sale will not be deductible, but instead will increase
the residual certificateholder's adjusted basis in the newly acquired asset.
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors are encouraged to consult
their own tax advisors concerning these tax law provisions.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The REMIC is subject to a tax at a rate equal to 100% of the net income
derived from "prohibited transactions." In general, a prohibited transaction
means the disposition of a mortgage loan other than pursuant to certain
specified exceptions, the receipt of investment income from a source other than
a mortgage loan or certain other permitted investments or the disposition of an
asset representing a temporary investment of payments on the mortgage loans
pending payment on the residual certificates or regular certificates. In
addition, the assumption of a mortgage loan by a subsequent purchaser could
cause the REMIC to recognize gain which would also be subject to the 100% tax on
prohibited transactions.
In addition, certain contributions to a REMIC made after the initial
issue date of the certificates could result in the imposition of a tax on the
REMIC equal to 100% of the value of the contributed property.
It is not anticipated that the REMIC will engage in any prohibited
transactions or receive any contributions subject to the contributions tax.
However, in the event that the REMIC is subject to any such tax, unless
otherwise disclosed in the related prospectus supplement, such tax would be
borne first by the residual securityholders, to the extent of amounts
distributable to them, and then by the master servicer.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of section 860F(a)(4)(A)(i) of the Code, which may be accomplished by
designating in the REMIC's final tax return a date on which such adoption is
deemed to occur, and sells all of its assets (other than cash) within a 90-day
period beginning on such date, the REMIC will not be subject to any prohibited
transaction tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash (other than the amounts retained to meet
claims) to holders of regular and residual certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the
regular certificates. If a residual certificateholder's adjusted basis in the
residual certificate exceeds the amount of cash distributed to the residual
certificateholder in final liquidation of its interest, it would appear that the
residual certificateholder would be entitled to a loss equal to the amount of
such excess. It is unclear whether such a loss, if allowed, will be a capital
loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code,
the REMIC will be treated as a partnership and the residual securityholders will
be treated as the partners. Under temporary regulations, however, if there is at
no time during the taxable year more than one residual certificateholder, a
REMIC shall not be subject to the rules of subchapter C of chapter 63 of the
Code relating to the treatment of partnership items for a taxable year.
Accordingly, the REMIC will file an annual tax return on Form 1066, U.S. Real
Estate Mortgage Investment Conduit Income Tax Return. In addition, certain other
information will be furnished quarterly to each residual certificateholder who
held the residual certificate on any day in the previous calendar quarter.
Each residual certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
residual certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. Any person that holds a residual
certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any residual certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of section 512 of the Code will be subject to
such tax on that portion of the distributions received on a residual certificate
that is considered an "excess inclusion." SEE"--Residual Certificates-- EXCESS
INCLUSIONS" above.
NON-U.S. PERSONS
Amounts paid to residual securityholders who are not U.S. Persons (SEE
"--Regular Certificates--Non-U.S. Persons" above) are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to residual securityholders should qualify as "portfolio
interest," subject to the conditions described in "--Regular Certificates"
above, but only to the extent that the mortgage loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a residual
certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. SEE "-- Residual Certificates--Excess
Inclusions" above. If the portfolio interest exemption is unavailable, such
amount will be subject to United States withholding tax when paid or otherwise
distributed (or when the residual certificate is disposed of) under rules
similar to those for withholding upon disposition of debt instruments that have
OID. The Code, however, grants the Treasury authority to issue regulations
requiring that those amounts be taken into account earlier than otherwise
provided where necessary to prevent avoidance of tax (E.G., where the residual
certificates do not have significant value). SEE "--Residual
Certificates--Excess Inclusions" above. If the amounts paid to residual
securityholders that are not U.S. Persons are effectively connected with their
conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding tax will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U. S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of residual
certificates, SEE "--Tax-Related Restrictions on Transfers of Residual
Certificates" below.
Regular securityholders and persons related to such holders should not
acquire any residual certificates, and residual securityholders and persons
related to residual securityholders should not acquire any regular certificates
without consulting their tax advisors as to the possible adverse tax
consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF RESIDUAL CERTIFICATES
DISQUALIFIED ORGANIZATIONS. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations." Further, a tax is
imposed on the transfer of a residual interest in a REMIC to a disqualified
organization. The amount of the tax equals the product of
o an amount (as determined under the REMIC Regulations) equal to
the present value of the total anticipated "excess inclusions"
with respect to such interest for periods after the transfer
MULTIPLIED BY
o the highest marginal federal income tax rate applicable to
corporations.
The tax is imposed on the transferor unless the transfer is through an
agent (including a broker or other middlemen) for a disqualified organization,
in which event the tax is imposed on the agent. The person otherwise liable for
the tax shall be relieved of liability for the tax if the transferee furnished
to such person an affidavit that the transferee is not a disqualified
organization and, at the time of the transfer, such person does not have actual
knowledge that the affidavit is false. A "disqualified organization" means
o the United States, any state, possession, or political
subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the
foregoing (provided that such term does not include an
instrumentality if all its activities are subject to tax and,
except for Freddie Mac, a majority of its board of directors
is not selected by any such governmental agency),
o any organization (other than certain farmers' cooperatives)
generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business
taxable income,"
o a rural electric or telephone cooperative, and
o electing large partnerships.
A tax is imposed on a "pass-through entity" holding a residual interest
in a REMIC if at any time during the taxable year of the pass-through entity a
disqualified organization is the record holder of an interest in such entity.
The amount of the tax is equal to the product of
o the amount of excess inclusions for the taxable year allocable
to the interest held by the disqualified organization, and
o the highest marginal federal income tax rate applicable to
corporations.
The pass-through entity otherwise liable for the tax, for any period
during which the disqualified organization is the record holder of an interest
in such entity, will be relieved of liability for the tax if such record holder
furnishes to such entity an affidavit that such record holder is not a
disqualified organization and, for such period, the pass-through entity does not
have actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means
o a regulated investment company, real estate investment trust
or common trust fund,
o a partnership, trust or estate, and
o certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any
person holding an interest in a pass-through entity as a nominee for another
will, with respect to such interest, be treated as a pass-through entity. The
tax on pass-through entities is generally effective for periods after March 31,
1988, except that in the case of regulated investment companies, real estate
investment trusts, common trust funds and publicly-traded partnerships the tax
shall apply only to taxable years of such entities beginning after December 31,
1988.
In order to comply with these rules, the pooling and servicing
agreement will provide that no record or beneficial ownership interest in a
residual certificate may be, directly or indirectly, purchased, transferred or
sold without the express written consent of the master servicer. The master
servicer will grant such consent to a proposed transfer only if it receives the
following: (i) an affidavit from the proposed transferee to the effect that it
is not a disqualified organization and is not acquiring the residual certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the residual
certificate.
NON-ECONOMIC RESIDUAL CERTIFICATES. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a non-economic residual
certificate to a U.S. Person, unless no significant purpose of the transfer is
to enable the transferor to impede the assessment or collection of tax. A
"non-economic residual certificate" is any residual certificate (including a
residual certificate with a positive value at issuance) unless at the time of
transfer, taking into account the prepayment assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents,
o the present value of the expected future distributions on the
residual certificate at least equals the product of the
present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in
which the transfer occurs, and
o the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an
amount sufficient to satisfy the accrued taxes.
A significant purpose to impede the assessment or collection of tax
exists if the transferor, at the time of the transfer, either knew or should
have known that the transferee would be unwilling or unable to pay taxes due on
its share of the taxable income of the REMIC. A transferor is presumed not to
have such knowledge if
o the transferor conducted a reasonable investigation of the
transferee's financial condition and found that the transferee
had historically paid its debts as they come due and found no
evidence to indicate that the transferee would not continue to
pay its debts in the future; and
o the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of
the cash flow and the transferee represents that it intends to
pay such taxes associated with the residual interest as they
become due.
Final Treasury regulations issued on July 18, 2002 (the "New REMIC
Regulations"), provide that transfers of non-economic residual interests must
meet two additional requirements to qualify for the safe harbor:
o the transferee must represent that it will not cause income
from the non-economic residual interest to be attributable to
a foreign permanent establishment or fixed base (within the
meaning of an applicable income tax treaty, hereafter a
"foreign branch") of the transferee or another U.S. taxpayer;
and
o the transfer must satisfy either an "asset test" or a "formula
test" provided under the REMIC Regulations.
A transfer to an "eligible corporation," generally a domestic
corporation, will satisfy the asset test if:
o at the time of the transfer, and at the close of each of the
transferee's two fiscal years preceding the transferee's
fiscal year of transfer, the transferee's gross and net assets
for financial reporting purposes exceed $100 million and $10
million, respectively, in each case, exclusive of any
obligations of certain related persons;
o the transferee agrees in writing that any subsequent transfer
of the interest will be to another eligible corporation in a
transaction that satisfies the asset test, and the transferor
does not know or have reason to know that the transferee will
not honor these restrictions on subsequent transfers, and
o a reasonable person would not conclude, based on the facts and
circumstances known to the transferor on or before the date of
the transfer (specifically including the amount of
consideration paid in connection with the transfer of the
non-economic residual interest), that the taxes associated
with the residual interest will not be paid.
In addition, the direct or indirect transfer of the residual interest
to a foreign branch of a domestic corporation is not treated as a transfer to an
eligible corporation under the asset test.
The formula test provides that the transfer of a non-economic residual
interest will not qualify under the formula test unless the present value of the
anticipated tax liabilities associated with holding the residual interest does
not exceed the present value of the sum of
o any consideration given to the transferee to acquire the
interest (the inducement payment),
o future distributions on the interest, and
o any anticipated tax savings associated with holding the
interest as the REMIC generates losses.
For purposes of this calculation, the present value is calculated using
a discount rate equal to the lesser of the applicable federal rate and the
transferee's cost of borrowing.
If the transferee has been subject to the alternative minimum tax in
the preceding two years and will compute its taxable income in the current
taxable year using the alternative minimum tax rate, then it may use the
alternative minimum tax rate in lieu of the corporate tax rate. In addition, the
direct or indirect transfer of the residual interest to a foreign branch of a
domestic corporation is not treated as a transfer to an eligible corporation
under the formula test.
The New REMIC Regulations generally apply to transfers of non-economic
residual interests occurring on or after February 4, 2000. The requirement of a
representation that a transfer of a non-economic residual interest is not made
to a foreign branch of a domestic corporation and the requirement of using the
short term applicable federal rate for purposes of the formula test apply to
transfers occurring on or after August 19, 2002.
If a transfer of a non-economic residual certificate is disregarded,
the transferor would continue to be treated as the owner of the residual
certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
FOREIGN INVESTORS. The REMIC Regulations provide that the transfer of a
residual certificate that has a "tax avoidance potential" to a "foreign person"
will be disregarded for federal income tax purposes. This rule appears to apply
to a transferee who is not a U.S. Person, unless such transferee's income in
respect of the residual certificate is effectively connected with the conduct of
a United States trade or business. A residual certificate is deemed to have a
tax avoidance potential unless, at the time of transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee amounts that
will equal at least 30% of each excess inclusion and that such amounts will be
distributed at or after the time the excess inclusion accrues and not later than
the end of the calendar year following the year of accrual. If the non- U.S.
Person transfers the residual certificate to a U.S. Person, the transfer will be
disregarded and the foreign transferor will continue to be treated as the owner,
if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusions. The pooling and servicing agreement will provide that
no record or beneficial ownership interest in a residual certificate may be,
directly or indirectly, transferred to a non-U.S. Person unless such person
provides the trustee with a duly completed IRS Form W-8ECI and the trustee
consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in residual certificates are advised to consult
their own tax advisors with respect to transfers of the residual certificates
and, in addition, pass-through entities are advised to consult their own tax
advisors with respect to any tax which may be imposed on a pass-through entity.
REPORTABLE TRANSACTIONS
Pursuant to recently enacted legislation, a penalty in the amount of
$10,000 in the case of a natural person and $50,000 in any other case is imposed
on any taxpayer that fails to file timely an information return with the IRS
with respect to a "reportable transaction" (as defined in Section 6011 of the
Code). The rules defining "reportable transactions" are complex. In general,
they include transactions that result in certain losses that exceed threshold
amounts and transactions that result in certain differences between the
taxpayer's tax treatment of an item and book treatment of that same item.
Prospective investors are advised to consult their own tax advisers regarding
any possible disclosure obligations in light of their particular circumstances.
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 TAX CONSIDERATIONS
In addition to the federal income tax consequences described in this
prospectus under "Material Federal Income Tax Considerations" above, potential
investors should consider the state and local income tax consequences of the
acquisition, ownership, and disposition of the certificates. State and local
income tax law may differ substantially from the corresponding federal law, and
this discussion does not purport to describe any aspect of the income tax laws
of any state or locality. Therefore, potential investors are encouraged to
consult their own tax advisors with respect to the various tax consequences of
investments in the certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code. The
related prospectus supplement will contain information concerning considerations
relating to ERISA and the Code that are applicable to the particular securities
offered by the prospectus supplement.
ERISA imposes requirements on certain employee benefit plans (and the
Code imposes requirements on certain other retirement plans and arrangements,
including individual retirement accounts and annuities and Keogh plans) as well
as on collective investment funds and separate accounts in which these plans,
accounts or arrangements are invested, and on persons who bear specified
relationships to these types of plans or arrangements ("Parties in Interest") or
are fiduciaries with respect to these types of plans or arrangements. In this
prospectus we refer to these types of plans and arrangements as "Plans."
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of a Plan be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of the Plan. ERISA also imposes certain duties on
persons who are fiduciaries of Plans, such as the duty to invest prudently, to
diversify investments unless it is prudent not to do so, and to invest in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of that Plan (subject to
certain exceptions not here relevant). In addition to the imposition of general
fiduciary standards of investment prudence and diversification, ERISA and
Section 4975 of the Code prohibit a broad range of transactions involving Plan
assets and Parties in Interest, and impose additional prohibitions where Parties
in Interest are fiduciaries with respect to a Plan. Parties in Interest that
participate in a prohibited transaction may be subject to excise taxes imposed
pursuant to Section 4975 of the Code, or penalties imposed pursuant to Section
502(i) of ERISA, unless a statutory, regulatory or administrative exemption is
available.
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA) and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA's requirements. Accordingly, assets of such plans may be
invested in securities without regard to the ERISA considerations described
above and below, subject to the provisions of 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 is subject to the prohibited transaction
rules set forth in Section 503 of the Code.
The United States Department of Labor (DOL) issued regulations
concerning the definition of what constitutes the assets of a Plan (DOL Reg.
Section 2510.3-101). Under this "Plan Assets Regulation," the underlying assets
and properties of corporations, partnerships, trusts and certain other entities
in which a Plan makes an "equity" investment could be deemed, for purposes of
ERISA, to be assets of the investing Plan in certain circumstances.
The Plan Assets Regulation provides that, generally, the assets of an
entity in which a Plan invests will not be deemed to be assets of the Plan for
purposes of ERISA if the equity interest acquired by the investing Plan is a
"publicly-offered security," or if equity participation by "benefit plan
investors" is not "significant." In general, a publicly-offered security, as
defined in the Plan Assets Regulation, is a security that is widely held, freely
transferable and registered under the Securities Exchange Act of 1934. Equity
participation in an entity by "benefit plan investors" is not significant if,
after the most recent acquisition of an equity interest in the entity, less than
25% of the value of each class of equity interest in the entity is held by
benefit plan investors, which include benefit plans described in ERISA or under
Section 4975 of the Code, whether or not they are subject to ERISA, as well as
entities the underlying assets of which include assets of the benefit plan by
reason of investment in the entity by the benefit plan.
If no exception under the Plan Assets Regulation applies and if a Plan
(or a person investing assets of a Plan, such as an insurance company general
account) acquires an equity interest in the trust, then the assets of the trust
could be considered to be assets of the Plan. In that event, the master servicer
and other persons exercising management or discretionary control over the assets
of the trust could become subject to the fiduciary responsibility provisions of
Title I of ERISA to the extent that they exercised discretionary control of Plan
assets. In addition, parties with certain relationships to investing plans or
providing services with respect to the issuer's assets could be deemed to be
Parties in Interest with respect to investing plans and could become subject to
the prohibited transaction provisions of Section 406 of ERISA and Section 4975
of the Code with respect to transactions involving the assets of the trust.
Because the loans held by the trust may be deemed assets of each Plan that
purchases an equity interest, an investment in an equity interest issued by the
trust by a Plan may not only be a prohibited transaction under ERISA and subject
to an excise tax under Section 4975 of the Code, but may cause transactions
undertaken in the course of operating the trust to constitute prohibited
transactions, unless a statutory, regulatory or administrative exemption
applies.
Without regard to whether securities are considered to be equity
interest in the trust, the trust, certain affiliates of the trust (including the
holder of the trust certificate), or a seller of a security (including an
underwriter) might be considered or might become Parties in Interest with
respect to a Plan. In this case, the acquisition or holdings of the securities
by or on behalf of the Plan could constitute or give rise to a prohibited
transaction, within the meaning of ERISA and the Code, unless they were subject
to one or more exemptions. Depending on the relevant facts and circumstances,
certain prohibited transaction exemptions may apply to the purchase or holding
of securities-for example, Prohibited Transaction Class Exemption ("PTCE")
96-23, which exempts certain transactions effected on behalf of a Plan by an
"in-house asset manager"; PTCE 95-60, which exempts certain transactions by
insurance company general accounts; PTCE 91-38, which exempts certain
transactions by bank collective investment funds; PTCE 90-1, which exempts
transactions by insurance company pooled separate accounts; or PTCE 84-14; which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager." There can be no assurance that any of these
exemptions will apply with respect to any Plan's investment in securities, or
that such an exemption, if it did apply, would apply to all prohibited
transactions that may occur in connection with the investment. Furthermore,
these exemptions would not apply to transactions involved in operation of the
trust if, as described above, the assets of the trust were considered to include
Plan assets.
INSURANCE COMPANY GENERAL ACCOUNTS
The DOL has published final regulations under Section 401(c) of ERISA
describing a safe harbor for insurers that, on or before December 31, 1998,
issued certain non-guaranteed policies supported by their general accounts to
Plans (Labor Reg. Section 2550.401c-1). Under this regulation, an insurer will
not be considered an ERISA fiduciary with respect to its general account by
virtue of a Plan's investment in such a policy. In general, to meet the safe
harbor, an insurer must
o disclose certain specified information to investing Plan
fiduciaries initially and on an annual basis;
o allow Plans to terminate or discontinue a policy on 90 days'
notice to the insurer, and to elect, without penalty, either a
lump-sum payment or annual installment payments over a
ten-year period, with interest; and
o give Plans written notice of "insurer-initiated amendments" 60
days before the amendments take effect.
PROHIBITED TRANSACTION CLASS EXEMPTION 83-1
Any fiduciary or other Plan asset investor that proposes to purchase
securities on behalf of, or with assets of, a Plan is encouraged to consult with
its counsel on the potential applicability of ERISA and Section 4975 of the Code
to that investment and the availability of any prohibited transaction class
exemption in connection therewith. In particular, in connection with a
contemplated purchase of certificates, but not notes, representing a beneficial
ownership interest in a pool of single-family residential mortgages, the
fiduciary should consider the availability of PTCE 83-1 for various transactions
involving mortgage pool investment trusts. PTCE 83-1 permits, subject to certain
conditions, transactions that might otherwise be prohibited between Plans and
Parties in Interest with respect to those plans related to the origination,
maintenance and termination of mortgage pools consisting of mortgage loans
secured by first or second mortgages or deeds of trust on single-family
residential property, and the acquisition and holding of certain mortgage pool
pass-through certificates representing an interest in those mortgage pools by
Plans. However, PTCE 83-1 does not provide exemptive relief with respect to
certificates evidencing interests in trusts which include mortgage loans secured
by third or more junior liens, revolving credit loans, loans on unimproved land,
contracts, cooperative loans, multifamily or mixed-use mortgage loans or some
types of private securities, or which contain an interest rate swap (a "swap"),
a yield maintenance agreement (a "cap") or a pre-funding arrangement. In
addition, PTCE 83-1 does not provide exemptive relief for transactions involving
subordinated securities. The prospectus supplement may indicate whether it is
expected that PTCE 83-1 will apply to securities offered by that prospectus
supplement.
UNDERWRITER EXEMPTION
On September 6, 1990 the DOL issued to Greenwich Capital Markets, Inc.
an underwriter exemption (PTE 90-59, Application No. D-8374, 55 Fed. Reg. 36724
(1990)) (the "Exemption") from certain of the prohibited transaction rules of
ERISA and the related excise tax provisions of Section 4975 of the Code with
respect to the initial purchase, holding and subsequent resale by Plans of
"securities" that are obligations of an issuer containing certain receivables,
loans and other obligations, and with respect to which Greenwich Capital
Markets, Inc. is the underwriter, manager or co-manager of an underwriting
syndicate. The Exemption, which was amended and expanded by PTE 97-34, 62 Fed.
Reg. 39021 (1997); PTE 2000-58, 65 Fed. Reg. 67765 (2000); and PTE 2002-41, 67
Fed. Reg. 54487 (2002), provides relief which is generally similar to that
provided by PTCE 83-1, but is broader in several respects.
The Exemption contains a number of requirements. It does not apply to
any investment pool unless, among other things, the investment pool satisfies
the following conditions:
o the investment pool consists only of assets of a type which
have been included in other investment pools;
o securities evidencing interests in such other investment pools
have been purchased by investors other than Plans for at least
one year prior to the Plan's acquisition of securities
pursuant to the exemption; and
o securities in such other investment pools have been rated in
one of the three (or four, if the investment pool contains
certain types of assets) highest generic rating categories by
one of the credit rating agencies noted below.
The Exemption sets forth general conditions which must be satisfied for
a transaction to be eligible for exemptive relief thereunder. Generally, the
Exemption holds that the acquisition of the securities by a Plan must be on
terms (including the price for the securities) that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party. The Exemption requires that the rights and interests evidenced by the
securities not be "subordinated" to the rights and interests evidenced by other
securities of the same trust, except when the trust holds certain types of
assets. The Exemption requires that securities acquired by a Plan have received
a rating at the time of their acquisition that is in one of the three (or four,
if the trust holds certain types of assets) highest generic rating categories of
Standard & Poor's, Moody's Investors Service, Inc. or Fitch Ratings. The
Exemption specifies that the pool trustee must not be an affiliate of any other
member of the "Restricted Group" (defined below), other than an underwriter. The
Exemption stipulates that any Plan investing in the securities must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the SEC
under the Securities Act of 1933, as amended. The Exemption requires that
certain payments made in connection with the creation and operation of the trust
and the sale of its securities be reasonable. Finally, the Exemption requires
that, depending on the type of issuer, the documents establishing the issuer and
governing the transaction contain certain provisions to protect the assets of
the issuer, and that the issuer receive certain legal opinions.
If an issuer holds obligations that have loan-to-value ratios in excess
of 100%, the Exemption may apply to only the issuer's non-subordinated
securities rated in one of the two highest generic rating categories by at least
one of the rating agencies named in the Exemption if both of the following
conditions are met:
o the obligations are residential or home equity loans, and
o the fair market value of the real property collateral securing
the loan on the closing date is at least 80% of the sum of the
outstanding principal balance of the loan held in the
investment pool and the outstanding principal balance of any
other loan of higher lien priority secured by the same real
property collateral.
Moreover, the Exemption generally provides relief from certain
self-dealing and conflict of interest prohibited transactions that may occur
when the Plan fiduciary causes a Plan to acquire securities of an issuer holding
receivables as to which the fiduciary (or its affiliate) is an obligor, provided
that, among other requirements:
o in the case of an acquisition in connection with the initial
issuance of securities, at least 50% of each class of
securities in which Plans have invested and at least 50% of
the aggregate interest in the issuer is acquired by persons
independent of the Restricted Group;
o the fiduciary (or its affiliate) is an obligor with respect to
not more than 5% of the fair market value of the obligations
contained in the issuer;
o the Plans' investment in securities of any class does not
exceed 25% of all of the securities of that class outstanding
at the time of the acquisition; and
o immediately after the acquisition, no more than 25% of the
assets of any Plan with respect to which the person is a
fiduciary is invested in securities representing an interest
in one or more issuers containing assets sold or serviced by
the same entity.
This relief is not available to Plans sponsored by the "Restricted
Group," which consists of the seller, the underwriter, the trustee, the master
servicer, any servicer, any counterparty of a permitted swap or notional
principal contract or any insurer with respect to the mortgage loans, any
obligor with respect to mortgage loans included in the investment pool
constituting more than 5% of the aggregate principal balance of the assets in
the investment pool, or any affiliate of those parties, and in general the
Exemption provides only limited relief to such Plans.
If pre-funding is anticipated, the Exemption extends exemptive relief
to securities issued in transactions using pre-funding accounts, whereby a
portion of the loans backing the securities are transferred to the trust fund
within a specified period following the closing date (the "DOL Pre-Funding
Period"), when the conditions of the Exemption are satisfied and the pre-funding
accounts meet certain requirements.
The Exemption, as amended, extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions involving trusts that
contain a swap or a cap, provided the swap or cap satisfies certain criteria and
the other requirements of the Exemption are met. Among other requirements, the
counterparty to the swap or cap must maintain ratings at certain levels from
Exemption rating agencies, and the documentation for the swap or cap must
provide for certain remedies if the rating declines. The swap or cap must be an
interest rate notional contract denominated in U.S. dollars, may not be
leveraged, and must satisfy several other criteria, including limitations on its
notional amount. Securities of any class affected by the swap or cap may be sold
to Plan investors only if they are "qualified plan investors" that satisfy
several requirements relating to their ability to understand the terms of the
swap or cap and the effects of the swap or cap on the risks associated with an
investment in the security.
The rating of a security may change. If a class of securities no longer
satisfies the applicable rating requirement of the Exemption, securities of that
class will no longer be eligible for relief under the Exemption (although a Plan
that had purchased the security when it had an appropriate rating would not be
required by the Exemption to dispose of it). However, PTCE 95- 60, which is
applicable to Plan investors that are insurance company general accounts, may be
available in such circumstances.
The prospectus supplement for each series of securities will indicate
the classes of securities, if any, offered thereby as to which it is expected
that the Exemption will apply.
In the case of certain types of securities, transfer of the securities
will not be registered unless the transferee represents that it is not, and is
not purchasing on behalf of, or with assets of, a Plan, or provides an opinion
of counsel or a certification, which opinion of counsel or certification will
not be at the expense of the trustee or depositor, satisfactory to the trustee
and the depositor that the purchase of the securities by or on behalf of, or
with assets of, a Plan, is permissible under applicable law, will not give rise
to a non-exempt prohibited transaction under ERISA or Section 4975 of the Code
and will not subject the trustee, the master servicer or the depositor to any
obligation or liability in addition to those undertaken in the operative
agreements.
Any Plan fiduciary which proposes to cause a Plan to purchase
securities is encouraged to consult with their counsel concerning the impact of
ERISA and the Code, the applicability of the Exemption or any other available
exemption, and the potential consequences in their specific circumstances, prior
to making such investment. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment prudence and
diversification an investment in the securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
The prospectus supplement for each series of certificates will specify
which, if any, of those classes of certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended (SMMEA). Classes of certificates that qualify as "mortgage
related securities" 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
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any of these entities with respect to "mortgage related
securities," certificates will constitute legal investments for entities subject
to the legislation only to the extent provided therein. Approximately twenty-one
states adopted the legislation prior to the October 4, 1991 deadline. 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
certificates, or require the sale or other disposition of certificates, so long
as such contractual commitment was made or such certificates were 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 in
certificates without limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase certificates 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 authority may prescribe. In this connection, federal
credit unions should review the National Credit Union Administration (NCUA)
Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No. 108,
which includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities, and the NCUA's regulation "Investment
and Deposit Activities" (12 C.F.R. Part 703), which sets forth certain
restrictions on investment by federal credit unions in mortgage related
securities.
All depository institutions considering an investment in the
certificates (whether or not the class of certificates under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators),
setting forth, in relevant part, certain securities trading and sales practices
deemed unsuitable for an institution's investment portfolio, and guidelines for
(and restrictions on) investing in mortgage derivative products, including
"mortgage related securities," which are "high-risk mortgage securities" as
defined in the Policy Statement. According to the Policy Statement, "high-risk
mortgage securities" include securities such as certificates not entitled to
distributions allocated to principal or interest, or subordinated certificates.
Under the Policy Statement, it is the responsibility of each depository
institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a "high-risk
mortgage security," and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
The Office of Thrift Supervision, or OTS, has issued Thrift Bulletin
73a, entitled "Investing in Complex Securities" ("TB 73a"), which applies to
savings associations regulated by the OTS, and Thrift Bulletin 13a, entitled
"Management of Interest Rate Risk, Investment Securities, and Derivatives
Activities" ("TB 13a"), which applies to thrift institutions regulated by the
OTS.
One of the primary purposes of TB 73a is to require savings
associations, prior to taking any investment position, to determine that the
investment position meets applicable regulatory and policy requirements
(including those set forth TB 13a (see below)) and internal guidelines, is
suitable for the institution, and is safe and sound. OTS recommends, with
respect to purchases of specific securities, additional analyses, including,
among others, analysis of repayment terms, legal structure, expected performance
of the issuer and any underlying assets as well as analysis of the effects of
payment priority, with respect to security which is divided into separate
tranches with unequal payments, and collateral investment parameters, with
respect to a security that is prefunded or involves a revolving period. TB 73a
reiterates the due diligence requirements of the OTS for investing in all
securities and warns that if a savings association makes an investment that does
not meet the applicable regulatory requirements, the savings association's
investment practices will be subject to criticism, and OTS any require
divestiture of such securities. OTS also recommends, with respect to an
investment in any "complex securities," that savings associations should take
into account quality and suitability, interest rate risk and classification
factors. For the purpose of each of TB 73a and TB 13a, the term "complex
security" includes among other things any collateralized mortgage obligation or
real estate mortgage investment conduit security, other than any "plain vanilla"
mortgage pass-through security (I.E., securities that are part of a single class
of securities in the related pool that are non-callable and do not have any
special features). Accordingly, all Classes of the Offered Certificates would
likely be viewed as "complex securities." With respect to quality and
suitability factors, TB 73a warns (i) that a savings association's sole reliance
on outside ratings for material purchases of complex securities is an unsafe and
unsound practice, (ii) that a savings association should only use ratings and
analyses from nationally recognized rating agencies in conjunction with, and in
validation of, its own underwriting processes, and (iii) that it should not use
ratings as a substitute for its own thorough underwriting analyses. With respect
the interest rate risk factor, TB 73a recommends that savings associations
should follow the guidance set forth in TB 13a. With respect to collateralized
loan or bond obligations, TB 73a also requires that the savings associations
meet similar requirements with respect to the underlying collateral, and warns
that investments that are not fully rated as to both principal and interest do
not meet OTS regulatory requirements.
One of the primary purposes of TB 13a is to require thrift
institutions, prior to taking any investment position, to (i) conduct a
pre-purchase portfolio sensitivity analysis for any "significant transaction"
involving securities or financial derivatives, and (ii) conduct a pre-purchase
price sensitivity analysis of any "complex security" or financial derivative.
The OTS recommends that a thrift institution should conduct its own in-house pre
acquisition analysis, although it may rely on an analysis conducted by an
independent third-party as long as management understands the analysis and its
key assumptions. Further, TB 13a recommends that the use of "complex securities
with high price sensitivity" be limited to transactions and strategies that
lower a thrift institution's portfolio interest rate risk. TB 13a warns that
investment in complex securities by thrift institutions that do not have
adequate risk measurement, monitoring and control systems may be viewed by OTS
examiners as an unsafe and unsound practice.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase certificates or to
purchase certificates representing more than a specified percentage of the
investor's assets. Investors are encouraged to consult their own legal advisors
in determining whether and to what extent the certificates constitute legal
investments for them.
METHOD OF DISTRIBUTION
The certificates offered by this prospectus and by the related
prospectus supplement will be offered in series. The distribution of the
certificates may be effected from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. If so specified in the related prospectus supplement and subject to
the receipt of any required approvals from the Board of Governors of the Federal
Reserve System, the certificates will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting agreement,
by Greenwich Capital Markets, Inc. (GCM) acting as underwriter with other
underwriters, if any, named in the prospectus supplement. In such event, the
related prospectus supplement may also specify that the underwriters will not be
obligated to pay for any certificates agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the depositor. In connection with
the sale of the certificates, underwriters may receive compensation from the
depositor or from purchasers of the certificates in the form of discounts,
concessions or commissions. The related prospectus supplement will describe any
compensation paid by the depositor.
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 securites may be effected through
one or more resecuritization transactions, in accordance with Rule 190.
Alternatively, the related prospectus supplement may specify that the
certificates will be distributed by GCM acting as agent or in some cases as
principal with respect to certificates that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of certificates, GCM will
receive a selling commission with respect to each series of certificates,
depending on market conditions, expressed as a percentage of the aggregate
principal balance of the related mortgage assets as of the cut-off date. The
exact percentage for each series of certificates will be disclosed in the
related prospectus supplement. To the extent that GCM elects to purchase
certificates as principal, GCM may realize losses or profits based upon the
difference between its purchase price and the sales price. The prospectus
supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the depositor and purchasers of
certificates of that series.
The depositor will indemnify GCM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments GCM and any underwriters may be required to make in
respect of those liabilities.
In the ordinary course of business, GCM and the depositor may engage in
various securities and financing transactions, including repurchase agreements
to provide interim financing of the depositor's mortgage loans pending the sale
of the mortgage loans or interests in the loans, including the certificates.
The depositor anticipates that the certificates will be sold primarily
to institutional investors. Purchasers of certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, in connection
with reoffers and sales of certificates by them. Holders of certificates are
encouraged to consult with their legal advisors in this regard prior to any such
reoffer or sale.
LEGAL MATTERS
The legality of the certificates of each series, including certain
material federal income tax consequences with respect to the certificates, will
be passed upon for the depositor by Sidley Austin LLP, 787 Seventh Avenue, New
York, New York 10019, or by Thacher Proffitt & Wood LLP, Two World Financial
Center, New York, New York 10281, or by McKee Nelson LLP, 1919 M Street, NW,
Washington, DC 20036, as specified in the related prospectus supplement.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this Prospectus or in the related prospectus
supplement.
AVAILABLE INFORMATION
The depositor has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the certificates. This
prospectus, which forms a part of the Registration Statement, and the prospectus
supplement relating to each series of certificates contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement pursuant
to the Rules and Regulations of the SEC. For further information, reference is
made to the Registration Statement and the exhibits thereto. The Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the SEC at its Public Reference
Section, 100 F Street, N. E., Washington, D.C. 20549. In addition, the SEC
maintains a website at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the depositor, that file electronically with the SEC. 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 provide 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 they have been electronically filed with, or furnished to, the
Commission. The address of the website is: __________________.
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."
As to each issuing entity that is no longer required to file reports
under the Exchange Act, 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 related securities upon request free of
charge. See "Operative Agreements -- Evidence as to Compliance" and "Description
of the Securities -- Reports to Securityholders."
RATINGS
It is a condition to the issuance of the certificates of each series
offered by this prospectus and the accompanying prospectus supplement that they
shall have been rated in one of the four highest rating categories by the
nationally recognized statistical rating agency or agencies specified in the
related prospectus supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped pass-through certificates in certain cases might fail to
recoup their underlying 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. Each security rating should be evaluated
independently of any other security rating.
GLOSSARY OF TERMS
Agency Securities: Mortgage pass-through securities issued or
guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Home Equity Loans: Closed end and/or revolving home equity loans
generally secured by junior liens on one- to four-family residential properties.
Home Improvement Contracts: Home improvement installment sales
contracts and loan agreements that are either unsecured or secured by senior or
junior liens on one- to four-family residential or mixed-use properties or by
purchase money security interests in the related home improvements.
Insurance Proceeds: All proceeds of the related hazard insurance
policies and any primary mortgage insurance policies to the extent the proceeds
are not applied to property restoration or released to mortgagors in accordance
with the master servicer's normal servicing procedures, net of insured expenses
including unreimbursed payments of property taxes, insurance premiums and other
items incurred by any related sub-servicer and net of reimbursed advances made
by the sub-servicer.
Liquidation Proceeds: All cash amounts (other than Insurance Proceeds)
received and retained in connection with the liquidation of defaulted mortgage
loans, by foreclosure or otherwise, net of unreimbursed liquidation and
foreclosure expenses incurred by any related sub-servicer and net of
unreimbursed advances made by the sub-servicer.
Manufactured Housing Contracts: Conditional sales contracts and
installment sales or loan agreements secured by manufactured housing.
Multifamily Loans: First lien mortgage loans, secured by residential
properties consisting of five or more residential units, including cooperative
apartment buildings.
Private Label Securities: Mortgage-backed or asset-backed securities
that are not Agency Securities.
REMIC Regulations: Regulations promulgated by the Department of the
Treasury on December 23, 1992 and generally effective for REMICs with start-up
dates on or after November 12, 1991.
Single Family Loans: First lien mortgage loans, secured by one- to
four-family residential properties.
U.S. Person: Any of the following:
o a citizen or resident of the United States;
o a corporation or a partnership (including an entity treated as
a corporation or partnership for U.S. federal income tax
purposes) organized in or under the laws of the United States,
or any State thereof or the District of Columbia (unless in
the case of a partnership Treasury regulations are adopted
that provide otherwise);
o an estate whose income is includible in gross income for
federal income tax purposes regardless of its source; or
o a trust if a court within the United States is able to
exercise primary supervision of the administration of the
trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust.
In addition, certain trusts which would not qualify as U.S. Persons
under the above definition but which are eligible to and make an election to be
treated as U.S. Persons will also be treated as U.S. Persons.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MARCH 31, 2006
PROSPECTUS SUPPLEMENT dated [_________, 200_]
(to Prospectus dated [_________, 200_])
$[______] (APPROXIMATE)
[_______________] [200_-___]
ASSET-BACKED NOTES, SERIES [200_-___]
[_______________] TRUST [200_-___]
ISSUING ENTITY
[FINANCIAL ASSET SECURITIES CORP.]
[GREENWICH CAPITAL ACCEPTANCE INC.]
DEPOSITOR
[______________]
SERVICER
[______________]
SPONSOR
THE INFORMATION 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 IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
The notes represent obligations of the issuing entity only and do not represent
an interest in or obligation of the sponsor, [Financial Asset Securities Corp.],
[Greenwich Capital Acceptance Inc.], [________] or any of their affiliates. This
prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
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 [__]
- --------------------------------------------------------------------------------
Only the [____] classes of notes identified below are being offered by this
prospectus supplement and the accompanying prospectus.
THE OFFERED NOTES
o Represent obligations of a trust, the assets of which consist of a pool
of first and second lien, adjustable-rate home equity lines of credit
and closed-end second lien mortgage loans. The home equity lines of
credit and mortgage loans will be segregated into two groups, one
consisting of home equity lines of credit and mortgage loans with
principal balances that conform to Fannie Mae and Freddie Mac loan
limits and one consisting of home equity lines of credit and mortgage
loans with principal balances that may or may not conform to Fannie Mae
and Freddie Mac loan limits
o The offered notes will accrue interest at a rate equal to one-month
LIBOR plus the related fixed margin, subject to certain limitations
described in this prospectus supplement.
CREDIT ENHANCEMENT
o Subordination as described in this prospectus supplement under
"Description of the Notes--Subordination."
o Overcollateralization as described in this prospectus supplement under
"Description of the Notes--Overcollateralization Provisions."
o Excess Interest as described in this prospectus supplement under
"Description of the Notes--Overcollateralization Provisions."
Class Original Note Balance(1) Note Rate(2)
- --------------------------------------------------------------------------------
Class [__] $[_______] Variable
Class [__] $[_______] Variable
Class [__] $[_______] Variable
Class [__] $[_______] Variable
Class [__] $[_______] Variable
________________
(1) Subject to a variance of + 5%.
(2) Calculated at the per annum rate of one-month LIBOR plus the related margin
as set forth in "Summary of Terms--Payment on the Notes--Interest Payments" and
as described under "Description of the Notes--Note Rates" in this prospectus
supplement and subject to limitation or increase under certain circumstances.
[____________] (the "Underwriter") will offer the offered notes from time to
time to the public in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The proceeds to the Depositor from the sale
of the offered notes, before deducting expenses and underwriting fees, will be
approximately $[______]. The Underwriter's commission will be any positive
difference between the price they pay to the Depositor for the offered notes and
the amount they receive from the sale of such notes to the public. See "Method
of Payment" in this prospectus supplement.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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.
Delivery of the offered notes will be made in book-entry form through the
facilities of The Depository Trust Company, and upon request through the
facilities of Clearstream Banking Luxembourg and the Euroclear System on or
about [________, 200_].
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS
RISK FACTORS
THE LOAN POOL
STATIC POOL INFORMATION
THE ORIGINATORS
THE SPONSOR
[_______________] TRUST [200_-___]
THE OWNER TRUSTEE
ASSIGNMENT OF THE MORTGAGE LOANS
THE SALE AND SERVICING AGREEMENT
THE INDENTURE
DESCRIPTION OF THE NOTES
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
USE OF PROCEEDS
FEDERAL INCOME TAX CONSEQUENCES
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
LEGAL INVESTMENT CONSIDERATIONS
METHOD OF DISTRIBUTION
LEGAL MATTERS
RATINGS
INDEX OF DEFINED TERMS
ANNEX I
EUROPEAN ECONOMIC AREA
In relation to each Member State of the European Economic Area which has
implemented the Prospectus Directive (each, a RELEVANT MEMBER STATE), each
Underwriter has represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that Relevant Member
State (the RELEVANT IMPLEMENTATION DATE) it has not made and will not make an
offer of certificates to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the certificates which has been
approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and including the
Relevant Implementation Date, make an offer of certificates to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorised or regulated to operate in the
financial markets or, if not so authorised or regulated, whose
corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least
250 employees during the last financial year; (2) a total balance sheet
of more than (euro)43,000,000 and (3) an annual net turnover of more
than (euro)50,000,000, as shown in its last annual or consolidated
accounts; or
(c) in any other circumstances which do not require the publication by
[__________] Trust [200_-___] of a prospectus pursuant to Article 3 of
the Prospectus Directive.
For the purposes of this provision, the expression an "offer of certificates to
the public" in relation to any certificates in any Relevant Member State means
the communication in any form and by any means of sufficient information on the
terms of the offer and the certificates to be offered so as to enable an
investor to decide to purchase or subscribe the certificates, as the same may be
varied in that Member State by any measure implementing the Prospectus Directive
in that Member State and the expression PROSPECTUS DIRECTIVE means Directive
2003/71/EC and includes any relevant implementing measure in each Relevant
Member State.
UNITED KINGDOM
Each Underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement to
engage in investment activity (within the meaning of Section 21 of the
Financial Services and Markets Act) received by it in connection with
the issue or sale of the certificates in circumstances in which Section
21(1) of the Financial Services and Markets Act does not apply to
[__________] Trust [200_-___]; and
(b) it has complied and will comply with all applicable provisions of the
Financial Services and Markets Act with respect to anything done by it
in relation to the certificates in, from or otherwise involving the
United Kingdom.
SUMMARY OF TERMS
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN
MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE
OFFERING OF THE NOTES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS.
o THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOW
PRIORITIES AND OTHER INFORMATION TO AID YOUR UNDERSTANDING AND IS
QUALIFIED BY THE FULL DESCRIPTION OF THESE CALCULATIONS, CASH FLOW
PRIORITIES AND OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. SOME OF THE INFORMATION CONSISTS OF
FORWARD-LOOKING STATEMENTS RELATING TO FUTURE ECONOMIC PERFORMANCE OR
PROJECTIONS AND OTHER FINANCIAL ITEMS. FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER FROM THE PROJECTED RESULTS. THOSE RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS
CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL
REGULATIONS, AND VARIOUS OTHER MATTERS, ALL OF WHICH ARE BEYOND OUR
CONTROL. ACCORDINGLY, WHAT ACTUALLY HAPPENS MAY BE VERY DIFFERENT FROM
WHAT WE PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
OFFERED NOTES
On the Closing Date, [__________] Funding Trust [200_-___] will issue [__]
classes of notes which are being offered by this prospectus supplement and the
accompanying prospectus. The assets of the trust that will support the notes
will consist of a pool of adjustable-rate, first and second lien home equity
lines of credit and closed-end second lien mortgage loans having the
characteristics described in this prospectus supplement. The Class [__] Notes,
the Class [__] Notes, the Class [__] Notes, the Class [__] Notes and the Class
[__] Notes are the only classes of offered notes.
The offered notes will be book-entry securities clearing through The Depository
Trust Company (in the United States) or upon request through Clearstream Banking
Luxembourg and the Euroclear System (in Europe) in minimum denominations of
$25,000; provided that offered notes must be purchased in minimum total
investments of $100,000 per class.
OTHER NOTES
The trust will issue four additional classes of notes. These notes will be
designated as the Class [__] Notes, the Class [__] Notes, the Class [__] Notes
and the Class [__] Notes and are not being offered to the public by this
prospectus supplement and the prospectus.
The Class [__] Notes, the Class [__] Notes, the Class [__] Notes and the Class
[__] Notes are subordinate to the Offered Notes. The Class [__] Notes will have
an initial note balance of $[___]. The Class [__] Notes will have an initial
note balance of $[___]. The Class [__] Notes will have an initial note balance
of $[___]. The Class [__] Notes will have an initial note balance of $[___]. The
Class [__] Notes, the Class [__] Notes and each of the Class [__] Notes will be
sold to [____________] on the closing date.
CERTIFICATES
In addition to the notes, the trust will also issue the Class [__], Class [__],
Class [__] and Class [__] Certificates (the "Certificates"). None of the
Certificates are being offered by this prospectus supplement and the prospectus.
Information provided on the Certificates is provided for informational purposes
only.
WE REFER YOU TO "DESCRIPTION OF THE NOTES-- GENERAL," "--BOOK-ENTRY NOTES" AND
"THE LOAN POOL" IN THIS PROSPECTUS SUPPLEMENT.
CUT-OFF DATE
The close of business on [__________, 200_].
CLOSING DATE
On or about [__________, 200_].
THE ISSUING ENTITY
[__________] Trust [200_-___]. WE REFER YOU TO "[__________] TRUST [200_-___]"
IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
THE DEPOSITOR
[Greenwich Capital Acceptance Inc.] [Financial Asset Securities Corp.], a
Delaware corporation and an affiliate of Greenwich Capital Markets, Inc. WE
REFER YOU TO "THE DEPOSITOR" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
ORIGINATORS
[______, or certain of its correspondents originated the mortgage loans to be
included in the trust fund.] Approximately [__]% of the mortgage loans were
originated by [______] [and approximately [__]% of the mortgage loans were
originated by [______]]. [To be expanded to include all originators of 10% or
more of the asset pool]. 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. We refer
you to "The Originators" in this prospectus supplement for additional
information.
SERVICERS
[__________, a __________][To be expanded to include all servicers of 10% or
more of the asset pool]. Any obligation specified to be performed by the master
servicer in the prospectus is an obligation to be performed by the Servicer[s]
with respect to the mortgage loans. WE REFER YOU TO "THE SALE AND SERVICING
AGREEMENT--THE SERVICERS" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.[
SPONSOR
[__________, a __________ corporation.] WE REFER YOU TO "THE SPONSOR" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
INDENTURE TRUSTEE
[__________, a __________]. WE REFER YOU TO "THE INDENTURE TRUSTEE" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
OWNER TRUSTEE
[__________, a __________] acting not in its individual capacity, but solely as
owner trustee under the trust agreement. WE REFER YOU TO "THE OWNER TRUSTEE" IN
THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CREDIT RISK MANAGER
[__________, a __________] WE REFER YOU TO "THE SALE AND SERVICING
AGREEMENT--THE CREDIT RISK MANAGER" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
DESIGNATIONS
Each class of notes will have different characteristics, some of which are
reflected in the following general designations.
o OFFERED NOTES
Class [__] Notes and Mezzanine Notes (other than Class [__] Notes and
Class [__] Notes).
o CLASS A NOTES
Class [__] Notes and Class [__] Notes.
o MEZZANINE NOTES
Class [__] Notes and Class [__] Notes.
o CLASS B NOTES
Class [__] Notes.
o FLOATING RATE NOTES
Class A Notes, Mezzanine Notes and Class B Notes.
o GROUP I NOTES
Class [__] Notes. Except under the circumstances described under
"Description of the Certificates--Allocation of Available Funds," the
Group I Notes receive their payments from Loan Group I.
o GROUP II NOTES
Class [__] Notes. Except under the circumstances described under
"Description of the Certificates--Allocation of Available Funds," the
Group II Notes receive their payments from Loan Group II.
o CERTIFICATES
Class [__] Certificates, Class [__] Certificates, Class [__] and Class
[__] Certificates.
MORTGAGE LOANS
On the Closing Date [__________] Trust [200_-___] will acquire a pool of first
and second lien, fixed-rate and adjustable-rate home equity lines of credit and
closed-end second lien mortgage loans that will be divided into two loan groups,
Loan Group I and Loan Group II (each, a "Loan Group"). Loan Group I will consist
of fixed-rate and adjustable-rate home equity lines of credit and mortgage loans
with principal balances that conform to Fannie Mae and Freddie Mac loan limits
and Loan Group II will consist of fixed-rate and adjustable-rate home equity
lines of credit and mortgage loans with principal balances that may or may not
conform to Fannie Mae and Freddie Mac loan limits. In addition, certain of the
conforming balance home equity lines of credit and mortgage loans included in
loan group II might otherwise have been included in loan group I, but were
excluded from loan group I because they did not meet Fannie Mae and Freddie Mac
criteria (including published guidelines) for factors other than principal
balance.
The mortgage loans in the trust as of the Closing Date will consist of
approximately [___] home equity lines of credit (the "HELOCs" or the "Initial
HELOCs," as the context requires) and approximately [__] closed-end second lien
mortgage loans described in this prospectus supplement with an aggregate
principal balance as of the Cut-off Date of approximately $[_____] (the "Initial
Mortgage Loans").
The "Group I Mortgage Loans" will consist of approximately [___] Initial
Mortgage Loans described in this prospectus supplement with an aggregate
principal balance as of the Cut-off Date of approximately $[____] (the "Initial
Group I Mortgage Loans") and any subsequent Mortgage Loans that will be included
in Loan Group I after the Closing Date (the "Subsequent Group I Mortgage
Loans").
The "Group II Mortgage Loans" will consist of approximately [___] Initial
Mortgage Loans described in this prospectus supplement with an aggregate
principal balance as of the Cut-off Date of approximately $[_____] (the "Initial
Group II Mortgage Loans") and any subsequent Mortgage Loans that will be
included in Loan Group II after the Closing Date (the "Subsequent Group II
Mortgage Loans").
The "Mortgage Loans" will consist of the Group I Mortgage Loans and the Group II
Mortgage Loans.
The statistical information in this prospectus supplement reflects the
characteristics of the Initial Mortgage Loans as of the Cut-off Date, as
adjusted for scheduled principal payments due on or before the Cut-off Date
whether or not received. The Depositor believes that the information set forth
in this prospectus supplement is representative of the characteristics of the
loan pool as it will be constituted at the Closing Date, although certain
characteristics of the Initial Mortgage Loans may vary.
The Initial Mortgage Loans have the following characteristics (with all figures
being approximate and all percentages and weighted averages being based on
scheduled principal balances as of the Cut-off Date):
HELOCs
Closed-end second lien Mortgage
Loans:
Interest Only:
Second lien:
Range of Current Principal Balances:
Average Current Principal Balance:
Range of Credit Limits of the
HELOCs:
Average Credit Limit of the HELOCs:
Range of Credit Limit Utilization
Rates of the HELOCs:
Weighted Average Credit Limit
Utilization Rate of the HELOCs:
Range of Current Loan Rates:
Weighted Average Current Loan Rate:
Weighted Average Gross Margin:
Weighted Average Maximum Loan Rate:
Weighted Average Minimum Loan Rate:
Range of Original Draw Periods of
the HELOCs:
Weighted Average Original Draw
Period of the HELOCs:
Range of Remaining Draw Periods of
the HELOCs:
Weighted Average Remaining Draw
Period of the HELOCs:
Range of Remaining Term
to Stated Maturities:
Weighted Average Remaining Term to
Stated Maturity:
Geographic Concentration in Excess
of 3%:
California
The Initial Group I Mortgage Loans have the following characteristics (with all
figures being approximate and all percentages and weighted averages being based
on scheduled principal balances as of the Cut-off Date):
HELOCs
Closed-end second lien Mortgage
Loans:
Interest Only:
Second lien:
Range of Current Principal Balances:
Average Current Principal Balance:
Range of Credit Limits of the
HELOCs:
Average Credit Limit of the HELOCs:
Range of Credit Limit Utilization
Rates of the HELOCs:
Weighted Average Credit Limit
Utilization Rate of the HELOCs:
Range of Current Loan Rates:
Weighted Average Current Loan Rate:
Weighted Average Gross Margin:
Weighted Average Maximum Loan Rate:
Weighted Average Minimum Loan Rate:
Range of Original Draw Periods of
the HELOCs:
Weighted Average Original Draw
Period of the HELOCs:
Range of Remaining Draw Periods of
the HELOCs:
Weighted Average Remaining Draw
Period of the HELOCs:
Range of Remaining Term
to Stated Maturities:
Weighted Average Remaining Term to
Stated Maturity:
Geographic Concentration in Excess
of 3%:
California
Arizona
Florida
Washington
Nevada
Colorado
The Initial Group II Mortgage Loans have the following characteristics (with all
figures being approximate and all percentages and weighted averages being based
on scheduled principal balances as of the Cut-off Date):
HELOCs
Closed-end second lien Mortgage
Loans:
Interest Only:
Second lien:
Range of Current Principal Balances:
Average Current Principal Balance:
Range of Credit Limits of the
HELOCs:
Average Credit Limit of the HELOCs:
Range of Credit Limit Utilization
Rates of the HELOCs:
Weighted Average Credit Limit
Utilization Rate of the HELOCs:
Range of Current Loan Rates:
Weighted Average Current Loan Rate:
Weighted Average Gross Margin:
Weighted Average Maximum Loan Rate:
Weighted Average Minimum Loan Rate:
Range of Original Draw Periods of
the HELOCs:
Average Original Draw Period of the
HELOCs:
Range of Remaining Draw Periods of
the HELOCs:
Weighted Average Remaining Draw
Period of the HELOCs:
Range of Remaining Term
to Stated Maturities:
Weighted Average Remaining Term to
Stated Maturity:
Geographic Concentration in Excess
of 3%:
California
REMOVAL AND SUBSTITUTION OF A MORTGAGE LOAN
The Indenture Trustee will acknowledge the sale, transfer, assignment and
receipt of the Mortgage Loans to it by the Depositor, subject to further review
and any exceptions. 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 Originator of such defect. The Originator 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 Originator 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 Originator
will, in accordance with the terms of the Sale and Servicing Agreement, within
90 days of the date of notice, provide the Indenture Trustee with a substitute
Mortgage Loan (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) or repurchase the Mortgage Loan.
PAYMENT DATES
The Indenture Trustee will make payments on the notes on the 25th day of each
calendar month beginning in [________ 200_] (each, a "Payment Date") (i) to the
holder of record of the notes as of the business day preceding such Payment
Date, in the case of any notes held in book-entry form or (ii) to the holder of
record of the notes as of the last day of the calendar month preceding the month
in which the Payment Date occurs, in the case of any notes not held in
book-entry form. If the 25th day of a month is not a business day, then the
Payment Date will be on the next business day. The final scheduled distribution
date for distributions on the notes is [_______ __, 20__].
PAYMENTS ON THE NOTES
INTEREST PAYMENTS
The note rate for the Floating Rate Notes will be calculated at the per annum
rate of One-Month LIBOR plus the related margin as set forth below (the "Base
Rate"), subject to the limitations set forth below and in this prospectus
supplement.
Margin
Class (1) (2)
[--] [----]% [----]%
[--] [----]% [----]%
[--] [----]% [----]%
[--] [----]% [----]%
[--] [----]% [----]%
- ----------
(1) For each Payment Date up to and including the Optional Redemption Date, as
defined in this prospectus supplement under "The Indenture--Optional
Redemption."
(2) On each Payment Date after the Optional Redemption Date.
The note rate on any Payment Date with respect to the Floating Rate Notes will
equal the lesser of (a) the related Formula Rate and (b) the Net WAC Rate for
such Payment Date. The "Formula Rate" for the Floating Rate Notes is the lesser
of (a) the Base Rate for such class or (b) the Maximum Cap Rate. The "Maximum
Cap Rate" for any Payment Date will be a per annum rate (subject to adjustment
based on the actual number of days elapsed in the related Accrual Period) equal
to the weighted average of the Adjusted Net Maximum Loan Rates of the Mortgage
Loans.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--NOTE RATES" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
Interest payable on the notes will accrue during an accrual period. The accrual
period for the Floating Rate Notes for any Payment Date will be the period from
the previous Payment Date (or, in the case of the first accrual period from the
Closing Date) to the day prior to the current Payment Date. Interest will be
calculated for the Floating Rate Notes on the basis of the actual number of days
in the accrual period, based on a 360-day year.
The Offered Notes will accrue interest on their note balance outstanding
immediately prior to each Payment Date.
WE REFER YOU TO "DESCRIPTION OF THE NOTES" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
PRINCIPAL PAYMENTS
Principal will be paid to the holders of each class of Floating Rate Notes on
each Payment Date in the amounts described herein under "Description of the
Notes--Allocation of Available Funds."
The amount of principal payable with respect to the Offered Notes will be
determined in accordance with a formula that takes into account the principal
collections received on the Mortgage Loans in the pool each month less the
portion thereof used to fund additional draws made by borrowers on the HELOCs
for such month plus the amount needed to create or maintain the required level
of overcollateralization for the notes and minus the amount by which the actual
level of overcollateralization exceeds the required level of
overcollateralization.
The HELOCs may be drawn upon generally for a period of five or fifteen years.
All draws that occur on the HELOCs during any collection period (the "Additional
Balances") will be funded by principal collections on the HELOCs during such
collection period and such principal collections will not be payable to the
holders of the Notes. In the event that draws during a particular collection
period are greater than principal collections for such collection period, the
Servicer will fund the difference (such difference, an "Additional Balance
Advance Amount") and amounts distributable to the Class [__] Certificates will
be remitted by the holder thereof to the Servicer in reimbursement of such
Additional Balance Advance Amounts.
PAYMENT PRIORITIES
Group I Notes
In general, on any Payment Date, funds available for payment from payments and
other amounts received on the Group I Mortgage Loans will be paid as follows:
INTEREST PAYMENTS
to pay interest on the Group I Notes; and
PRINCIPAL PAYMENTS
to pay principal on the Class [__] Certificates; and
to pay principal on the Group I Notes, but only in the amounts and to the extent
described under "Description of the Notes--Allocation of Available Funds" in
this prospectus supplement.
Group II Notes
In general, on any Payment Date, funds available for payment from payments and
other amounts received on the Group II Mortgage Loans will be paid as follows:
INTEREST PAYMENTS
to pay interest on the Group II Notes, on a PRO RATA basis based on the
entitlement of each such class; and
PRINCIPAL PAYMENTS
to pay principal on the Class [__] Certificates; and
to pay principal on the Group II Notes, but only in the amounts and to the
extent described under "Description of the Notes--Allocation of Available Funds"
in this prospectus supplement.
Mezzanine Notes and Class B Notes
In general, on any Payment Date, funds available for payment from payments and
other amounts received on the Group I Mortgage Loans and the Group II Mortgage
Loans, after the payments on the Class A Notes and the Class [__] Certificates
described above, will be paid as follows:
INTEREST PAYMENTS
to pay interest on the Mezzanine Notes and the Class B Notes, but only in the
order of priority, amounts and to the extent described under "Description of the
Notes-Allocation of Available Funds" in this prospectus supplement; and
PRINCIPAL PAYMENTS
to pay principal on the Mezzanine Notes and the Class B Notes, but only in the
order of priority, amounts and to the extent described under "Description of the
Notes--Allocation of Available Funds" in this prospectus supplement.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--ALLOCATION OF AVAILABLE FUNDS" IN
THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
PRE-FUNDING ACCOUNTS
On the closing date, the Depositor will deposit in an account, referred to in
this prospectus supplement as the pre-funding account held by the Indenture
Trustee in a pre-funding account (the "Group I Pre-Funding Account"), an amount
equal to approximately $[____], representing approximately [__]% of the asset
pool. On the closing date, the Depositor will deposit in an account, referred to
in this prospectus supplement as the pre-funding account held by the Indenture
Trustee in a pre-funding account (the "Group II Pre-Funding Account"; together
with the Group I Pre-Funding Account, the "Pre-Funding Accounts"), an amount
equal to approximately $[____], representing approximately [__]% of the asset
pool. The amounts on deposit in the Pre-Funding Accounts will be reduced by the
amount thereof used to purchase Subsequent Group I Mortgage Loans and Subsequent
Group II Mortgage Loans during the period from the Closing Date up to and
including [_______, 200_]. Any amounts remaining in the Pre-Funding Accounts
after [_______, 200_] will be pledged to the Indenture Trustee and paid by the
Indenture Trustee as principal on the next Payment Date to the holders of the
related class or classes of Class A Notes.
WE REFER YOU TO "THE LOAN POOL--CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND THE
PRE-FUNDING ACCOUNT" AND "DESCRIPTION OF THE NOTES--MANDATORY PRINCIPAL PAYMENT
ON CLASS A NOTES" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
INTEREST COVERAGE ACCOUNTS
On the Closing Date, funds may be deposited into one or more interest coverage
accounts. Funds on deposit in the interest coverage accounts, if any, will be
applied by the Indenture Trustee to cover a portion of certain shortfalls in the
amount of interest generated by the assets of the Trust Estate attributable to
the pre-funding feature during the funding period. SEE "DESCRIPTION OF THE
NOTES--INTEREST COVERAGE ACCOUNT" IN THIS PROSPECTUS SUPPLEMENT.
SERVICING FEE
With respect to each Mortgage Loan, the amount of the servicing fee that shall
be paid to the 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 servicing fee is
limited to, and the servicing fee is payable from the Monthly Payments
collected.
OPTIONAL REDEMPTION
The party designated in the sale and servicing agreement may redeem the Notes,
in whole but not in part, after the excess of (a) the aggregate principal
balance of the Mortgage Loans remaining in the loan pool over (b) the
certificate principal balance of the Class [__] Certificates has been reduced to
less than [____]% of the sum of (i) the aggregate principal balance of the
Initial Mortgage Loans as of the Cut-off Date and (ii) the aggregate amount on
deposit in the Pre-Funding Accounts on the Closing Date.
WE REFER YOU TO "THE INDENTURE--OPTIONAL REDEMPTION" AND "DESCRIPTION OF THE
NOTES--NOTE RATES" IN THIS PROSPECTUS SUPPLEMENT AND "THE
AGREEMENTS--TERMINATION; OPTIONAL TERMINATION" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
CREDIT ENHANCEMENT
1. SUBORDINATION
The rights of the holders of the Mezzanine Notes and the Class B Notes 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.
In addition, the rights of the holders of Mezzanine Notes with higher numerical
class designations to receive payments will be subordinated to the rights of the
holders of the Mezzanine Notes with lower numerical class designations, and the
rights of the holders of the Class B Notes and the Certificates to receive
payments will be subordinated to the rights of the holders of the Mezzanine
Notes, in each case to the extent described in this prospectus supplement.
Subordination is intended to enhance the likelihood of regular payments on the
more senior notes in respect of interest and principal and to afford such notes
protection against realized losses on the Mortgage Loans.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--SUBORDINATION" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
2. OVERCOLLATERALIZATION
As of the Closing Date, the aggregate principal balance of the Initial Mortgage
Loans as of the Cut-off Date and the amount on deposit in the Pre-Funding
Accounts will exceed the aggregate note balance of the Floating Rate Notes by
approximately $[____], which is approximately equal to the initial certificate
principal balance of the Class [__] Certificates. Such amount represents
approximately [____]% of the sum of (i) the aggregate principal balance of the
Initial Mortgage Loans as of the Cut-off Date and (ii) the amount on deposit in
the Pre-Funding Accounts as of the Closing Date, and is the approximate amount
of initial overcollateralization required to be provided under the indenture. We
cannot assure you that sufficient interest will be generated by the Mortgage
Loans to maintain the required level of overcollateralization.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--OVERCOLLATERALIZATION PROVISIONS" IN
THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
3. EXCESS INTEREST
The Mortgage Loans will bear interest each month that in the aggregate is
expected to exceed the amount needed to pay monthly interest on the Floating
Rate Notes and to pay certain fees and expenses of the trust. Such excess
interest will be available to absorb realized losses on the Mortgage Loans and
to maintain overcollateralization at required levels as described in the
indenture.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--ALLOCATION OF AVAILABLE FUNDS" AND
"--OVERCOLLATERALIZATION" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
4. ALLOCATION OF LOSSES
If, on any Payment Date, there is not sufficient excess interest to absorb
realized losses on the Mortgage Loans as described under "Description of the
Notes--Overcollateralization Provisions" in this prospectus supplement, then
realized losses on the Mortgage Loans in excess of such amounts will be
allocated to overcollateralization, the Class B Notes, the Mezzanine Notes and
the Class [__] Certificates as set forth herein. The sale and servicing
agreement will not permit the allocation of realized losses on the Mortgage
Loans to the Class A Notes; however investors in the Class A Notes should
realize that under certain loss scenarios there will not be enough interest and
principal on the Mortgage Loans to pay to the Class A Notes all interest and
principal amounts to which such notes are then entitled.
Once realized losses are allocated to the Class B Notes, the Mezzanine Notes or
the Class [__] Certificates, such realized losses will not be reinstated
thereafter (except in the case of subsequent recoveries). However, the amount of
any realized losses allocated to the Class B Notes, the Mezzanine Notes or the
Class [__] Certificates may be paid to the holders of these notes according to
the priorities set forth under "Description of the Notes-- Overcollateralization
Provisions" in this prospectus supplement.
WE REFER YOU TO "DESCRIPTION OF THE NOTES --ALLOCATION OF LOSSES" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
RATINGS
It is a condition of the issuance of the Offered Notes that they be assigned the
following ratings by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), Fitch Ratings
("Fitch") and Dominion Bond Ratings Service, Inc. ("DBRS"):
Moody's S&P Fitch DBRS
------- --- ----- ----
[__].......
[--].......
[--].......
[--].......
[--].......
A security rating is not a recommendation to buy, sell or hold securities. These
ratings may be lowered or withdrawn at any time by any of the rating agencies.
WE REFER YOU TO "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "RATING" IN THE
PROSPECTUS FOR ADDITIONAL INFORMATION.
TAX STATUS
[One or more elections will be made to treat designated portions of the trust
(exclusive of the Pre-Funding Accounts, the Interest Coverage Accounts, if any,
the Net WAC Rate Carryover Reserve Account, any Subsequent Mortgage Loan
Interest and the Reserve Account as described more fully herein or in the Sale
and Servicing Agreement) as real estate mortgage investment conduits for federal
income tax purposes.]
[For federal income tax purposes, the Notes will be treated as indebtedness to a
Noteholder and not as an equity interest in the issuer.]
WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT
AND "CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS" IN THE PROSPECTUS FOR
ADDITIONAL INFORMATION.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
[It is expected that the Offered Notes may be purchased by a pension or other
employee benefit plan subject to the Employee Retirement Income Security Act of
1974 ("ERISA") or Section 4975 of the Internal Revenue Code of 1986, as amended
(the "Code") so long as certain conditions are met. A fiduciary of an employee
benefit plan must determine that the purchase of an Offered Note is consistent
with its fiduciary duties under applicable law and does not result in a
nonexempt prohibited transaction under applicable law.][The Offered Notes will
not be eligible for purchase by a pension or other employee benefit plan subject
to the Employee Retirement Income Security Act of 1974 ("ERISA") or Section 4975
of the Internal Revenue Code of 1986, as amended (the "Code").]
WE REFER YOU TO "CONSIDERATIONS FOR BENEFIT PLAN INVESTORS" IN THIS PROSPECTUS
SUPPLEMENT AND "ERISA CONSIDERATIONS" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
LEGAL INVESTMENT
The Offered Notes will [not] constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
WE REFER YOU TO "LEGAL INVESTMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT
AND "LEGAL INVESTMENT" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
TRANSACTION STRUCTURE
[GRAPHIC OMITTED]
FLOW OF FUNDS
[GRAPHIC OMITTED]
SUBORDINATE/CREDIT ENHANCEMENT
[GRAPHIC OMITTED]
RISK FACTORS
The following information, which you should carefully consider,
identifies certain significant sources of risk associated with an investment in
the notes. You should also carefully consider the information set forth under
"Risk Factors" in the prospectus.
JUNIOR LIEN MORTGAGE LOANS
Substantially all of the Mortgage Loans are secured by second liens on
the related mortgaged properties. The proceeds from any liquidation, insurance
or condemnation proceedings will be available to satisfy the outstanding balance
of such Mortgage Loans only to the extent that the claims of the related senior
mortgages have been satisfied in full, including any related foreclosure costs.
In circumstances when it has been determined to be uneconomical to foreclose on
the mortgaged property, the Servicer may write off the entire balance of such
Mortgage Loan as a bad debt. The foregoing considerations will be particularly
applicable to Mortgage Loans secured by second liens that have high combined
loan-to-value ratios because it is comparatively more likely that the Servicer
would determine foreclosure to be uneconomical in the case of such Mortgage
Loans. The rate of default of second Mortgage Loans may be greater than that of
Mortgage Loans secured by first liens on comparable properties.
Information is provided under "Description of the Mortgage Loans" in
this prospectus supplement with respect to the combined loan-to-value ratios of
the Mortgage Loans as of the date of origination. However, the value of the
properties underlying such Mortgage Loans could be adversely affected by a
number of factors. In addition, in accordance with the terms of the sale and
servicing agreement, the Servicer may consent under certain circumstances to the
placing of a subsequent senior lien in respect of a Mortgage Loan. As a result,
despite the amortization of the junior and senior loans on such properties,
there can be no assurance that the combined loan-to-value ratios of such loans,
determined as of a date subsequent to the origination date, will be the same or
lower than the combined loan-to-value ratios for such loans, determined as of
the origination date.
INTEREST ONLY MORTGAGE LOANS
Substantially all of the Initial Mortgage Loans require the borrowers
to make monthly payments only of accrued interest for the first 5 or 15 years
following origination. After such interest-only period, the borrower's monthly
payment will be recalculated to cover both interest and principal so that the
Mortgage Loan will amortize fully prior to its final payment date. If the
monthly payment increases, the related borrower may not be able to pay the
increased amount and may default or may refinance the related Mortgage Loan to
avoid the higher payment. Because no principal payments may be made on such
Mortgage Loan for 5 or 15 years following origination, the noteholders will
receive smaller principal payments during such period than they would have
received if the related borrowers were required to make monthly payments of
interest and principal for the entire lives of such Mortgage Loans. This slower
rate of principal payments may reduce the return on an investment in the
Floating Rate Notes that are purchased at a discount.
INITIAL INTEREST ONLY PERIOD MORTGAGE LOANS ARE RELATIVELY NEW IN THE MORTGAGE
MARKETPLACE AND MAY PRESENT HIGHER OR LOWER PREPAYMENT SPEEDS AND DELINQUENCY
THAN FULLY AMORTIZING LOANS.
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 mortgagors 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.
UNPREDICTABILITY OF PREPAYMENTS AND EFFECT ON YIELDS
Mortgagors may prepay their Mortgage Loans in whole or in part at any
time. We cannot predict the rate at which mortgagors will repay their Mortgage
Loans. A prepayment of a Mortgage Loan generally will result in a prepayment on
the notes. The Depositor is not aware of any publicly available studies or
statistics on the rate of prepayment of home equity lines of credit. Home equity
lines of credit usually are not viewed by borrowers as permanent financing and
may experience a higher rate of prepayment than traditional mortgage loans.
o If you purchase your notes at a discount and principal is repaid slower
than you anticipate, then your yield may be lower than you anticipate.
o If you purchase your notes at a premium and principal is repaid faster
than you anticipate, then your yield may be lower than you anticipate.
o The rate of prepayments on the Mortgage Loans will be sensitive to
prevailing interest rates. Generally, if prevailing interest rates
decline significantly below the loan rates on the Mortgage Loans, the
Mortgage Loans are more likely to prepay than if prevailing rates
remain above the loan rates on the Mortgage Loans. In addition, if
interest rates decline, adjustable-rate loan prepayments may increase
due to the availability of other adjustable-rate loans at lower
interest rates. Conversely, if prevailing interest rates rise
significantly, the prepayments on the Mortgage Loans may decrease.
o Substantially all of the HELOCs have a draw period that lasts for the
first 5 or 15 years and substantially all have a repayment term for the
last 10 years of the term (as more fully described in this prospectus
supplement). No principal or a minimal amount of principal is due
during the draw period although a borrower may voluntarily make a
principal payment. Monthly principal payments during the repayment
period are required in amounts that will evenly amortize the amount
outstanding at the commencements of the repayment period over the
remaining term of the Mortgage Loan. Collections on the Mortgage Loans
may also vary due to seasonal purchasing and payment habits of
borrowers. As a result there may be limited collections available to
make payments and holders of the Offered Notes may receive payments of
principal more slowly than anticipated.
o Substantially all of the Initial Mortgage Loans require the mortgagor
to pay a termination fee for three years after the Mortgage Loan was
originated. A termination fee may or may not discourage a mortgagor
from prepaying the Mortgage Loan during the applicable period.
o The Originator may be required to purchase Mortgage Loans from the
trust in the event certain breaches of representations and warranties
occur and have not been cured. Any such purchase will have the same
effect on the holders of the Offered Notes as a prepayment of the
Mortgage Loans.
o The party designated in the sale and servicing agreement may redeem the
Offered Notes, in whole but not in part, after the excess of (a) the
aggregate principal balance of the Mortgage Loans remaining in the loan
pool over (b) the certificate principal balance of the Class [__]
Certificates has been reduced to less than 10% of the sum of (i) the
aggregate principal balance of the Initial Mortgage Loans as of the
Cut-off Date and (ii) the amount on deposit in the Pre-Funding Accounts
on the Closing Date.
o If the rate of default and the amount of losses on the Mortgage Loans
is higher than you expect, then your yield may be lower than you
expect.
o As a result of the absorption of realized losses on the Mortgage Loans
by excess interest and overcollateralization as described herein,
liquidations of defaulted Mortgage Loans, whether or not realized
losses are incurred upon such liquidations, will result in an earlier
return of the principal of the Floating Rate Notes and will influence
the yield on the Floating Rate Notes in a manner similar to the manner
in which principal prepayments on the Mortgage Loans will influence the
yield on the Floating Rate Notes.
o The overcollateralization provisions are intended to result in an
accelerated rate of principal payments to holders of the Floating Rate
Notes then entitled to principal payments at any time that the
overcollateralization provided by the loan pool falls below the
required level. In addition, if the Class A Notes are entitled to
payments of principal at any time that overcollateralization is
required to be restored to the required level, then the amounts
available for such purpose will be allocated between the Group I Notes
and the Group II Notes on a PRO RATA basis based on the amount of
principal actually received on the Mortgage Loans in the related Loan
Group for the related Payment Date. This, as well as the relative sizes
of the Loan Groups, may magnify the prepayment effect on the Group I
Notes or Group II Notes, as applicable, caused by the relative rates of
prepayments and defaults experienced by the Loan Groups
SEE "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT FOR A DESCRIPTION OF FACTORS THAT MAY INFLUENCE THE RATE AND TIMING
OF PREPAYMENTS ON THE MORTGAGE LOANS.
SHORTER AMORTIZATION PERIOD FOR HELOCS
Substantially all of the HELOCs require no principal payments or
minimal principal payments during the first 5 or 15 years following origination,
and all of the HELOCs require repayment of the principal amount outstanding at
the commencement of the repayment period over the remaining term in equal
monthly installments. Home equity lines of credit with terms like these pose a
special payment risk because the borrower must start making substantially higher
monthly payments at the start of the repayment period. If the borrower is unable
to make such increased payments, the borrower may default. You may suffer a loss
if the collateral for such HELOC, and the other forms of credit enhancement, are
insufficient or unavailable to cover the loss.
GEOGRAPHIC CONCENTRATION
The chart presented under "Summary of Terms--Mortgage Loans" lists the
states with the highest concentrations of Mortgage Loans. Approximately [____]%
of the Initial Group I Mortgage Loans and approximately [____]% of the Initial
Group II Mortgage Loans (in each case, by aggregate principal balance of the
related Loan Group as of the Cut-off Date) and approximately [____]% of the
Initial Mortgage Loans (by aggregate principal balance of the Initial Mortgage
Loans as of the Cut-off Date) are secured by properties that are located in the
State of California. [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.]
The conditions below will have a disproportionate impact on the
Mortgage Loans in general:
o Economic conditions in states with high concentrations of Mortgage
Loans may affect the ability of mortgagors to repay their loans on time
even if such conditions do not affect real property values.
o Declines in the residential real estate markets in the states with high
concentrations of Mortgage Loans may reduce the values of properties
located in those states, which would result in an increase in
loan-to-value ratios.
o Any increase in the market value of properties located in the states
with high concentrations of Mortgage Loans would reduce loan-to-value
ratios and could, therefore, make alternative sources of financing
available to mortgagors at lower interest rates, which could result in
an increased rate of prepayment of the Mortgage Loans.
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 SERVICER HAS LIMITED ABILITY TO CHANGE THE TERMS OF THE MORTGAGE LOANS
The Servicer may agree to changes in the terms of a mortgage loan if
the changes do not materially and adversely affect the interest of the
noteholders (including the tax status of any REMIC created by the indenture);
and are consistent with prudent business practice.
In addition, the Servicer, within certain limitations, may increase the
credit limit and reduce the loan rate related to a HELOC, provided that such
increase or reduction does not violate the tax status of any REMIC created by
the indenture. Any increase in the credit limit related to a HELOC could
increase the combined loan-to-value ratio of that HELOC and, accordingly, may
increase the likelihood and could increase the severity of loss in the event of
a default under that HELOC. In addition, any reduction in the loan rate of a
Mortgage Loan could reduce the excess cashflow available to absorb losses.
PAYMENT STATUS OF THE MORTGAGE LOANS
Approximately [____]% of the Initial Group I Mortgage Loans and
approximately [____]% of the Initial Group II Mortgage Loans (in each case, by
aggregate principal balance of the related Loan Group as of the Cut-off Date)
and approximately [____]% of the Initial Mortgage Loans (by aggregate principal
balance of the Initial Mortgage Loans as of the Cut-off Date), were 30 days or
more but less than 59 days delinquent in their monthly payments as of [_______,
200_]. As a result, the loan pool may bear more risk than a pool of mortgage
loans without any delinquencies but with otherwise comparable characteristics.
It is possible that a delinquent Mortgage Loan will not ever become current or,
if it does become current, that the mortgagor may become delinquent again.
POTENTIAL INADEQUACY OF CREDIT ENHANCEMENT FOR THE OFFERED NOTES
The credit enhancement features described in the summary of this
prospectus supplement are intended to enhance the likelihood that holders of the
Class A Notes, and to a limited extent, the holders of the Mezzanine Notes and
the Class B Notes, will receive regular payments of interest and principal.
However, we cannot assure you that the applicable credit enhancement will
adequately cover any shortfalls in cash available to pay your notes as a result
of delinquencies or defaults on the Mortgage Loans. If delinquencies or defaults
occur on the Mortgage Loans, neither the Servicer nor any other entity will
advance scheduled monthly payments of interest and principal on delinquent or
defaulted Mortgage Loans.
If substantial losses occur as a result of defaults and delinquent
payments on the Mortgage Loans, you may suffer losses.
INTEREST GENERATED BY THE MORTGAGE LOANS MAY BE INSUFFICIENT TO MAINTAIN
OVERCOLLATERALIZATION
The Mortgage Loans are expected to generate more interest than is
needed to pay interest owed on the Floating Rate Notes and to pay certain fees
and expenses of the trust. Any remaining interest generated by the Mortgage
Loans will then be used to absorb losses that occur on the Mortgage Loans. After
these financial obligations of the trust are covered, the available excess
interest generated by the Mortgage Loans will be used to maintain
overcollateralization. We cannot assure you, however, that enough excess
interest will be generated to absorb losses that occur on the Mortgage Loans or
maintain the required level of overcollateralization. The factors described
below will affect the amount of excess interest that the Mortgage Loans will
generate:
o Every time a Mortgage Loan is prepaid in full, liquidated or written
off, excess interest may be reduced because the Mortgage Loan will no
longer be outstanding and generating interest or, in the case of a
partial prepayment, will be generating less interest.
o If the rates of delinquencies, defaults or losses on the Mortgage Loans
turn out to be higher than expected, excess interest will be reduced by
the amount necessary to compensate for any shortfalls in cash available
to make required payments on the Floating Rate Notes.
o The Mortgage Loans have loan rates that adjust based on an index that
is different from the index used to determine the note rates on the
Floating Rate Notes. As a result, the note rates on the Floating Rate
Notes may increase relative to the loan rates on the Mortgage Loans, or
may remain constant as the loan rates on the Mortgage Loans decline or
remain constant. In either case, increases in the note rates on such
notes would require that more of the interest generated by the Mortgage
Loans be applied to cover interest on the Floating Rate Notes.
o If prepayments, defaults and liquidations occur more rapidly on the
Mortgage Loans with relatively higher loan rates than on the Mortgage
Loans with relatively lower loan rates, the amount of excess interest
generated by the Mortgage Loans will be less than would otherwise be
the case.
EFFECT OF LOAN RATES ON THE OFFERED NOTES
The Floating Rate Notes accrue interest at note rates based on the
one-month LIBOR index plus specified margins, but are subject to a limit. The
limit on the note rates on the Floating Rate Notes is based on the weighted
average of the loan rates on the Mortgage Loans net of certain fees and expenses
of the trust.
The HELOCs have loan rates that adjust based on a the prime rate plus a
designated margin, subject to maximum limitations on adjustments to their loan
rates. As a result of the limit on the note rates on the Floating Rate Notes,
such notes may accrue less interest than they would accrue if their note rates
were based solely on the one-month LIBOR index plus the specified margin.
A variety of factors could limit the note rates on the Floating Rate
Notes. Some of these factors are described below:
o The note rates for the Floating Rate Notes adjust monthly while the
loan rates on the Mortgage Loans adjust less frequently. Consequently,
the limit on the note rates on the Floating Rate Notes may prevent any
increases in the note rates on such notes for extended periods in a
rising interest rate environment.
o If prepayments, defaults and liquidations occur more rapidly on the
Mortgage Loans with relatively higher loan rates than on the Mortgage
Loans with relatively lower loan rates, the note rates on the Floating
Rate Notes are more likely to be limited.
o With respect to the Floating Rate Notes, the index used to determine
the loan rates on the Mortgage Loans may respond to different economic
and market factors than does one-month LIBOR. It is possible that the
loan rates on certain of the Mortgage Loans may decline while the note
rates on such notes are stable or rising. It is also possible that the
loan rates on the Mortgage Loans and the note rates on the Floating
Rate Notes may both decline or increase during the same period, but
that the note rates on such notes may decline more slowly or increase
more rapidly.
If the note rates on any of the Floating Rate Notes are limited for any
Payment Date, the resulting basis risk shortfalls may be recovered by the
holders of such notes on such Payment Date or future Payment Dates to the extent
that on such Payment Date or future Payment Dates there are available funds
remaining after certain other payments on the Floating Rate Notes and the
payment of certain fees and expenses of the trust.
RISKS ASSOCIATED WITH THE MEZZANINE NOTES
The weighted average lives of, and the yields to maturity on, the
Mezzanine 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 such notes, the actual yield to maturity of such notes may be lower
than the yield anticipated by such holder based on such 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 Loans in both Loan Groups 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. Realized losses on the Mortgage Loans, to the
extent they exceed the amount of excess interest and overcollateralization
following payments of principal on the related Payment Date, will reduce the
note balance of the class of Class B Notes then outstanding with the highest
numerical class designation and then will reduce the note balance of the class
of Mezzanine Note then outstanding with the highest numerical class designation.
As a result of such reductions, less interest will accrue on such class of
Mezzanine Notes than would otherwise be the case. Once a realized loss is
allocated to a Mezzanine Note, no principal or interest will be payable with
respect to such written down amount (except in the case of subsequent
recoveries). However, the amount of any realized losses allocated to the
Mezzanine Notes may be paid to the holders of the Mezzanine Notes according to
the priorities set forth under "Description of the Notes--Overcollateralization
Provisions" in this prospectus supplement.
Unless the aggregate note balance of the Class A Notes has been reduced
to zero, the Mezzanine Notes and the Class B Notes will not be entitled to any
principal payments until at least October 2008 or a later date as provided in
this prospectus supplement or during any period in which delinquencies or
realized losses on the Mortgage Loans exceed certain levels. As a result, the
weighted average lives of the Mezzanine 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 the
Mezzanine Notes, the holders of such notes have a greater risk of suffering a
loss on their investments. Further, because such notes might not receive any
principal if certain delinquency levels occur, it is possible for such notes to
receive no principal payments even if no losses have occurred on the Mortgage
Loans.
In addition, the multiple class structure of the Mezzanine Notes causes
the yield of such classes to be particularly sensitive to changes in the rates
of prepayment of the Mortgage Loans. Because payments of principal will be made
to the holders of such notes according to the priorities described in this
prospectus supplement, the yield to maturity on such classes of notes will be
sensitive to the rates of prepayment on the Mortgage Loans experienced both
before and after the commencement of principal payments on such classes. The
yield to maturity on such classes of notes will also be extremely sensitive to
losses due to defaults on the Mortgage Loans (and the timing thereof), to the
extent such losses are not covered by excess interest, overcollateralization or
a class of Mezzanine Notes with a higher numerical class designation.
Furthermore, as described in this prospectus supplement, the timing of receipt
of principal and interest by the Mezzanine Notes may be adversely affected by
losses even if such classes of notes do not ultimately bear such loss.
PREPAYMENT INTEREST SHORTFALLS AND RELIEF ACT SHORTFALLS
When a Mortgage Loan is prepaid, the mortgagor is charged interest on
the amount prepaid only up to the date on which the prepayment is made, rather
than for an entire month. This may result in a shortfall in interest collections
available for payment on the next Payment Date. The Servicer is not required to
cover the shortfall in interest collections that are attributable to
prepayments. In addition, shortfalls in interest collections arising from the
application of the Relief Act or similar state laws will not be covered by the
Servicer.
On any Payment Date, any shortfalls resulting from the application of
the Relief Act and any Prepayment Interest Shortfalls will be allocated, first,
to the interest payment amount with respect to the Class [__] Certificates, and
thereafter, to the Monthly Interest Payable Amounts with respect to the Floating
Rate Notes on a PRO RATA basis based on the respective amounts of interest
accrued on such notes for such Payment Date. THE HOLDERS OF THE FLOATING RATE
NOTES WILL NOT BE ENTITLED TO REIMBURSEMENT FOR ANY SUCH INTEREST SHORTFALLS. IF
THESE SHORTFALLS ARE ALLOCATED TO THE FLOATING RATE NOTES THE AMOUNT OF INTEREST
PAID TO THOSE NOTES WILL BE REDUCED, ADVERSELY AFFECTING THE YIELD ON YOUR
INVESTMENT.
REIMBURSEMENT OF CLASS [__] CERTIFICATES
The HELOCs will be funded by principal collections during each
collection period and such principal collections will not be payable to the
holders of the Notes. In the event that draws during a particular collection
period are greater than principal collections for such collection period, the
Servicer will fund the Additional Balance Advance Amount and amounts
distributable to the Class [__] Certificates will be remitted by the holder
thereof to the Servicer in reimbursement of such Additional Balance Advance
Amounts. As a result, a high rate of draws on the HELOCs during any collection
period could result in substantially reduced funds available to make payments to
the holders of the Offered Notes.
TERRORIST ATTACKS AND MILITARY ACTION COULD ADVERSELY AFFECT THE YIELD ON THE
OFFERED NOTES
The terrorist attacks in the United States on September 11, 2001
suggest that there is an increased likelihood of future terrorist activity in
the United States. In addition, the military conflict with Iraq has resulted in
a significant deployment of United States military personnel in the region.
Investors should consider the possible effects of past and possible future
terrorist attacks and any resulting military response by the United States on
the delinquency, default and prepayment experience of the Mortgage Loans. In
accordance with the servicing standard set forth in the sale and servicing
agreement, the Servicer may defer, reduce or forgive payments and delay
foreclosure proceedings in respect of Mortgage Loans to borrowers affected in
some way by past and possible future events.
In addition, the current deployment of United States military personnel
in the Middle East and the activation of a substantial number of United States
military reservists and members of the National Guard may significantly increase
the proportion of Mortgage Loans whose loan rates are reduced by the application
of the Servicemembers Civil Relief Act (the "Relief Act") or state laws
providing for similar relief. See "Certain Legal Aspects of Mortgage
Loans--Servicemembers Civil Relief Act" in the prospectus. Shortfalls in
interest collections arising from the application of the Relief Act or any state
law providing for similar relief will not be covered by the Servicer or any
sub-servicer.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS THAN
PRINCIPAL BALANCE OF MORTGAGE LOANS
Substantial delays could be encountered in connection with the
liquidation of delinquent Mortgage Loans. Further, reimbursement of advances
made on a Mortgage Loan, liquidation expenses such as legal fees, real estate
taxes, hazard insurance and maintenance and preservation expenses may reduce the
portion of liquidation proceeds payable to you. If a mortgaged property fails to
provide adequate security for the Mortgage Loan, you will incur a loss on your
investment if the credit enhancements are insufficient to cover the loss.
Liquidation expenses with respect to defaulted home equity lines of
credit do not vary directly with the outstanding principal balance of the loan
at the time of default. Therefore, assuming that the Servicer took the same
steps in realizing upon a defaulted Mortgage Loan having a small remaining
principal balance as it would in the case of a defaulted Mortgage Loan having a
larger principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the outstanding principal balance of the
smaller Mortgage Loan than would be the case with a larger loan. Because the
average outstanding principal balances of the Mortgage Loans are small relative
to the size of the loans in a typical pool of purchase money first lien
residential mortgages, recoveries after the satisfaction of liquidation expenses
on defaulted mortgage loans may also be smaller as a percentage of the principal
amount of the Mortgage Loans than would be the case if such loans were a typical
pool of purchase money first lien residential mortgages.
HIGH COMBINED LOAN-TO-VALUE RATIOS INCREASE RISK OF LOSS
Mortgage Loans with higher combined original loan-to-value ratios may
present a greater risk of loss than mortgage loans with combined original
loan-to-value ratios of 80.00% or below. Approximately [__]% of the Initial
Group I Mortgage Loans and approximately [__]% of the Initial Group II Mortgage
Loans (in each case, by aggregate principal balance of the related Loan Group as
of the Cut-off Date) and approximately [__]% of the Initial Mortgage Loans (by
aggregate principal balance of the Initial Mortgage Loans as of the Cut-off
Date) had combined original loan-to-value ratios in excess of 80.00%, but not in
excess of 100.00% at origination. Additionally, the Originator's determination
of the value of a mortgaged property used in the calculation of the combined
original loan-to-value ratios of the Mortgage Loans may differ from the
appraised value of such mortgaged properties. See "The Originators--Underwriting
Standards" herein.
VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS
Applicable state laws generally regulate interest rates and other
charges, require certain disclosure, and require licensing of the Originator. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the 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 certain disclosures to the mortgagors
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.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans and in addition could subject the trust to damages and
administrative enforcement and could result in the borrowers rescinding such
Mortgage Loans against either the trust or subsequent holders of the Mortgage
Loans.
The Originator will represent that as of the Closing Date, each
Mortgage Loan originated by the Originator is in compliance with applicable
federal, state and local laws and regulations. In the event of a breach of such
representation, the Originator will be obligated to cure such breach or
repurchase or replace the affected Mortgage Loan in the manner described under
"Assignment of the Mortgage Loans" in this prospectus supplement.
HIGH COST LOANS
None of the Initial Mortgage Loans are, and none of the Subsequent
Mortgage Loans will be, "High Cost Loans" within the meaning of the Home
Ownership and Equity Protection Act of 1994 (the "Homeownership Act"). See
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders; Federal Laws Limiting Collections on Mortgage
Loans" in the prospectus.
In addition to the Homeownership Act, however, a number of legislative
proposals have been introduced at both the federal and state 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 loan rates or origination costs in excess of prescribed
levels, and require that borrowers be given certain disclosures prior to the
consummation of such mortgage loans. In some cases, state law may impose
requirements and restrictions greater than those in the Homeownership Act. The
Originator's 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 such 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. 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 a Mortgage Loan does not meet the
test will result in a violation of the state anti-predatory lending law, in
which case the Sponsor will be required to purchase such Mortgage Loan from the
Trust.
See "Material Legal Aspects of the Loans--Anti-Deficiency Legislation
and Other Limitations on Lenders" in the prospectus.
TRANSFER OF SERVICING MAY RESULT IN HIGHER DELINQUENCIES AND DEFAULTS
[__________] will be the Servicer under the sale and servicing
agreement. However, the Originator serviced the Mortgage Loans prior to the
Cut-off Date and will continue to service the Mortgage Loans as a sub-servicer
for [__________]. The transfer of primary servicing with respect to all of the
Mortgage Loans is scheduled to occur prior to the close of business on [_______,
200_]. All transfers of servicing involve the risk of disruption in collections
due to data input errors, misapplied or misdirected payments, system
incompatibilities and other reasons. As a result, the rate of delinquencies and
defaults are likely to increase at least for a period of time. There can be no
assurance as to the extent or duration of any disruptions associated with the
transfer of servicing or as to the resulting effects on the yield on the Offered
Notes.
THE OFFERED NOTES ARE OBLIGATIONS OF THE TRUST ONLY
The Offered Notes will not represent an interest in or obligation of
the Depositor, the Servicer, the Originator, the Sponsor, the Indenture Trustee,
the Underwriter or any of their respective affiliates. Neither the Offered Notes
nor the underlying Mortgage Loans will be guaranteed or insured by any
governmental agency or instrumentality, or by the Depositor, the Servicer, the
Originator, the Sponsor, the Indenture Trustee, the Underwriter or any of their
respective affiliates. Proceeds of the assets included in the trust and proceeds
from the Net WAC Rate Carryover Account will be the sole source of payments on
the Offered Notes, and there will be no recourse to the Depositor, the Servicer,
the Originator, the Sponsor, the Indenture Trustee, the Underwriters or any
other entity in the event that such proceeds are insufficient or otherwise
unavailable to make all payments provided for under the Offered Notes.
LACK OF LIQUIDITY
[____________] (the "Underwriter") intends to make a secondary market
in the Offered Notes, but has no obligation to do so. There is no assurance that
such a secondary market will develop or, if it develops, that it will continue.
Consequently, you may not be able to sell your notes readily or at prices that
will enable you to realize your desired yield. The market values of the notes
are likely to fluctuate; these fluctuations may be significant and could result
in significant losses to you.
The secondary markets for asset-backed securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of securities that are
especially sensitive to prepayment, credit, or interest rate risk, or that have
been structured to meet the investment requirements of limited categories of
investors.
REDUCTION OR WITHDRAWAL OF RATINGS
Each rating agency rating the Offered Notes may change or withdraw its
initial ratings at any time in the future if, in its judgment, circumstances
warrant a change. No rating agency is obligated to maintain the ratings at their
initial levels. If a rating agency reduces or withdraws its rating on one or
more classes of the Offered Notes, the liquidity and market value of the
affected notes is likely to be reduced.
SUITABILITY OF THE OFFERED NOTES AS INVESTMENTS
The Offered Notes are not suitable investments for any investor that
requires a regular or predictable schedule of monthly payments or payment on any
specific date. The Offered Notes are complex investments that should be
considered only by investors who, either alone or with their financial, tax and
legal advisors, have the expertise to analyze the prepayment, reinvestment,
default and market risk, the tax consequences of an investment and the
interaction of these factors.
MANDATORY PRINCIPAL PAYMENT
To the extent that the amounts on deposit in the Pre-Funding Accounts
have not been fully applied to the purchase of Subsequent Group I Mortgage Loans
and Subsequent Group II Mortgage Loans on or before [_______, 200_], the holders
of the related class or classes of Class A Notes will receive on the Payment
Date in [_______, 200_] the amounts in the related Pre-Funding Account after
giving effect to any purchase of Subsequent Group I Mortgage Loans and
Subsequent Group II Mortgage Loans. Although no assurance can be given, the
Depositor intends that the principal amount of Subsequent Group I Mortgage Loans
and Subsequent Group II Mortgage Loans pledged to the Indenture Trustee will
require the application of substantially all amounts on deposit in the Group I
Pre-Funding Account and the Group II Pre-Funding Account and that there will be
no material principal payment to the holders of any Class A Notes on such
Payment Date resulting from unused pre-funding amount.
THE LOAN POOL
The information set forth in the following paragraphs is based on
servicing records and representations about the Mortgage Loans that were made by
[________] at the time it sold the Mortgage Loans to the Sponsor.
The statistical information presented in this prospectus supplement
relates to the Initial Mortgage Loans and related Mortgaged Properties in the
aggregate and in each Loan Group as of the Cut-off Date, as adjusted for
scheduled principal payments due on or before the Cut-off Date whether or not
received. Prior to the issuance of the Notes, Mortgage Loans may be removed from
the Loan Pool as a result of incomplete documentation or otherwise if the
Depositor deems such removal necessary or desirable, and may be prepaid at any
time. A limited number of other Mortgage Loans may be included in the Loan Pool
prior to the issuance of the Notes unless including such Mortgage Loans would
materially alter the characteristics of the Mortgage Loans as described in this
prospectus supplement. The Depositor believes that the information set forth in
this prospectus supplement with respect to the Mortgage Loans in the aggregate
and in each Loan Group will be representative of the characteristics of the Loan
Pool and each such Loan Group as it will be constituted at the time the Notes
are issued, although the range of Loan Rates and maturities and certain other
characteristics of the Initial Mortgage Loans in the Loan Pool or in a Loan
Group may vary.
Unless otherwise noted, all statistical percentages or weighted
averages set forth in this prospectus supplement are measured as a percentage of
the aggregate Principal Balance of the Initial Mortgage Loans in the related
Loan Group or in the aggregate as of the Cut-off Date (the "Cut-off Date
Principal Balance"). The "Principal Balance" of a Mortgage Loan as of any date
is equal to the principal balance of such Mortgage Loan at its origination, plus
(i) any Additional Balances transferred to the trust in respect of the Mortgage
Loan, minus (ii) all collections credited against the principal balance of the
Mortgage Loan in accordance with the related Credit Line Agreement prior to that
day. The "Pool Balance" as of any date is equal to the aggregate of the
Principal Balances of the Mortgage Loans in both Loan Groups.
GENERAL
[__________] Trust [200_-___] (the "Trust") will consist of a pool of
first and second lien, adjustable-rate home equity lines of credit (the "HELOCs"
or the "Initial HELOCs," as the context requires) and closed-end second lien
mortgage loans (the "Mortgage Loans" or the "Loan Pool") which will consist of a
group of first and second lien, adjustable-rate Mortgage Loans with Principal
Balances that conform to Fannie Mae and Freddie Mac loan limits (the "Group I
Mortgage Loans") and a group of first and second lien, adjustable-rate Mortgage
Loans with Principal Balances that may or may not conform to Fannie Mae and
Freddie Mac loan limits (the "Group II Mortgage Loans"). In addition, certain of
the conforming balance Mortgage Loans included in Loan Group II might otherwise
have been included in Loan Group I, but were excluded from Loan Group I because
they did not meet Fannie Mae and Freddie Mac criteria (including published
guidelines) for factors other than Principal Balance.
The Group I Mortgage Loans will include initial Mortgage Loans
described in this prospectus supplement (the "Initial Group I Mortgage Loans" or
"Initial Group I HELOCs," as the context requires) and subsequent Mortgage Loans
delivered after the Closing Date (the "Subsequent Group I Mortgage Loans"). The
Group II Mortgage Loans will include initial Mortgage Loans described in this
prospectus supplement (the "Initial Group II Mortgage Loans" or "Initial Group
II HELOCs," as the context requires; and together with the Initial Group I
Mortgage Loans, the "Initial Mortgage Loans") and subsequent Mortgage Loans
delivered after the Closing Date (the "Subsequent Group II Mortgage Loans"; and
together with the Subsequent Group I Mortgage Loans, the "Subsequent Mortgage
Loans"). The Initial Mortgage Loans consist of approximately [____] Mortgage
Loans with a Cut-off Date Principal Balance of approximately $[____]. The
Initial Group I Mortgage Loans consist of approximately 8,135 Mortgage Loans
with a Cut-off Date Principal Balance of approximately $[____]. The Initial
Group II Mortgage Loans consist of approximately [____] Mortgage Loans with a
Cut-off Date Principal Balance of approximately $[____].
All of the Mortgage Loans included in the Loan Pool will have been
originated under loan agreements and disclosure statements (the "Credit Line
Agreements") and will be secured by first or second mortgages or deeds of trust
or other similar security instruments (each, a "Mortgage"). The Mortgages will
create first or second liens on one- to four-family residential properties
consisting of attached or detached one- to four-family dwelling units and
individual condominium units (each, a "Mortgaged Property").
[As of the cut-off date, not more than [ ]% of the mortgage loans were
more than 30 days delinquent in payments of principal and interest. No more than
approximately [___]% of the mortgage loans have been 30 to 59 days delinquent
one time during the twelve months preceding the cut-off date. No more than
approximately [___]% of the mortgage loans have been 30 to 59 days delinquent
two times during the twelve months preceding the cut-off date. No more than
approximately [___]% of the mortgage loans have been more than 60 days
delinquent one time during the twelve months preceding the cut-off date. No more
than approximately [___]% of the mortgage loans have been more than 60 days
delinquent two times during the twelve months preceding the cut-off date.][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.
For a further description of the underwriting or selection criteria
used to purchase the mortgage pool assets, please see "Loan Program --
Underwriting Standards" and "The Sponsor" in the prospectus.
The Depositor will purchase the Mortgage Loans from the Sponsor
pursuant to the Sale and Servicing Agreement, dated as of [_______, 200_] (the
"Sale and Servicing Agreement"), among the Sponsor, the Depositor, [__________]
Trust [200_-___], the Originator and Servicer and the Indenture Trustee.
Pursuant to the Trust Agreement, dated as of [_______, 200_] (the "Trust
Agreement"), among the Depositor, the Owner Trustee and [__________], the
Depositor will cause the Mortgage Loans and the Depositor's rights under the
Sale and Servicing Agreement to be assigned to [__________] Trust [200_-___].
Pursuant to the Indenture, dated as of [_______, 200_] (the "Indenture"),
[__________] Trust [200_-___] will pledge the Mortgage Loans to the Indenture
Trustee to secure payment on the Notes. See "Assignment of the Mortgage Loans"
herein.
Subsequent Mortgage Loans are intended to be purchased by [__________]
Trust [200_-___] and pledged to the Indenture Trustee from time to time on or
before [_______, 200_] from funds on deposit in the Group I Pre-Funding Account
and the Group II Pre-Funding Account. The Sale and Servicing Agreement will
provide that each Subsequent Mortgage Loan must conform to certain specified
characteristics and, following the conveyance of the Subsequent Mortgage Loans,
the Loan Pool must conform to certain specified characteristics as described
below under "--Conveyance of Subsequent Mortgage Loans and the Pre-Funding
Accounts."
Each of the Mortgage Loans to be included in the Loan Pool was selected
from the Originator's portfolio of home equity lines of credit and mortgage
loans. Such Mortgage Loans were originated by the Originator or acquired by the
Originator in the secondary market in the ordinary course of its business and
were underwritten or re-underwritten by the Originator in accordance with its
underwriting standards as described under "The Originators--Underwriting
Standards" in this prospectus supplement. The Sponsor acquired such Mortgage
Loans from the Originator.
Under the Sale and Servicing Agreement, the Originator will make
certain representations and warranties to the Depositor and the Indenture
Trustee for the benefit of the Noteholders relating to, among other things, the
due execution and enforceability of the Sale and Servicing Agreement and certain
characteristics of the Mortgage Loans. Subject to certain limitations, the
Originator will be obligated to repurchase or substitute a similar mortgage loan
for any Mortgage Loan as to which there exists deficient documentation or an
uncured breach of any such representation or warranty, if such breach of any
such representation or warranty materially and adversely affects the
Noteholders' interests in such Mortgage Loan. The Sponsor will sell the Mortgage
Loans to the Depositor without recourse and will have no obligation with respect
to the Notes in its capacity as Sponsor. The Originator will have no obligation
with respect to the Notes in its capacity as Originator, other than the
repurchase or substitution obligations described above.
Each Mortgage Loan will be subject to the "due-on-sale" provisions
included therein.
Each Mortgage Loan will accrue interest at the adjustable-rate
calculated as specified under the terms of the related mortgage note (each such
rate, a "Loan Rate") plus a margin (the "Margin"). Each Loan Rate on each
Mortgage Loan will not exceed a specified maximum Loan Rate over the life of
such Mortgage Loan (the "Maximum Loan Rate") or be less than a specified minimum
Loan Rate over the life of such Mortgage Loan (the "Minimum Loan Rate"). As to
each mortgage loan, the related servicer will be responsible for calculating and
implementing interest rate adjustments.
The HELOCs will consist of loans originated under the following loan
term options: a 15-year HELOC or a 25-year HELOC. Substantially all of the
HELOCs will have either an initial 5-year or 15-year period (each, a "Draw
Period"), during which the related borrower may make cash withdrawals against
the related equity line. The HELOCs that have a 5-year draw period will have
either a 10-year or 20-year repayment period, during which the balance of the
HELOC as of the end of the draw period is repaid. The HELOCs that have a 15-year
draw period will have a 10-year repayment period, during which the balance of
the HELOC as of the end of the draw period is repaid. Generally, the HELOC
borrowers are subject to a $500 termination fee for loans paid within three
years of origination. A borrower may access a HELOC credit line at any time
during the draw period by writing a check.
The HELOCs will have an average account balance of $[____].
The HELOCs will generally require monthly minimum payments during the
draw period equal to (i) late charges and any other charges authorized by the
mortgage note, including, without limitation, any expenses or advances incurred
by the Servicer under any security instrument, (ii) accrued but unpaid interest
for current and prior billing cycles, (iii) premiums for any optional credit
life insurance obtained through the Servicer and (iv) an amount equal to the
amount by which the Principal Balance exceeds the Credit Limit. During the
repayment period for such HELOCs, the minimum payment amount will be an amount
generally equal to the accrued and unpaid finance charges, late charges, and
other charges authorized by the mortgage note, including, without limitation,
any expenses or advances incurred by the Servicer under any security instrument,
plus, with respect to the HELOCs with a 10-year or 20-year repayment period,
approximately [____]% or [____]%, respectively, of the related Principal Balance
outstanding at the end of the draw period. If paying only the minimum payment
will neither reduce nor fully repay the loan account balance, the entire balance
must be paid in a single balloon payment on the maturity date of the mortgage
note. Approximately [___]% of the HELOCs have received monthly minimum payments
during the draw period. No HELOC has received an entire balance payment.
Average finance charges, late charges, and other charges authorized by
the mortgage note, including, without limitation, any expenses or advances
incurred by the Servicer under any security instrument, are equal to
approximately $[____], $[____] and $[____] respectively.
Subject to applicable law, the Servicer will be permitted to change the
terms of a Credit Line Agreement for any HELOCs at any time provided that such
changes (i) do not adversely affect the interest of the Noteholders (including,
without limitation, any adverse affect to the tax status of any REMIC created by
the Indenture) and (ii) are consistent with prudent business practice. In
addition, the Servicer, within certain limitations described in the Sale and
Servicing Agreement, may increase the credit limit of the HELOC serviced by the
Servicer.
THE INDEX. The HELOCs will bear interest at a variable rate which
changes monthly with changes in the applicable "Index Rate" which is a variable
per annum rate based on the Prime Rate or Base Rate published in the Money Rates
table of the WALL STREET JOURNAL.
LOAN STATISTICS FOR ALL INITIAL MORTGAGE LOANS
The following statistical information, unless otherwise specified, is
based upon percentages of the Principal Balances of the Initial Mortgage Loans
as of the Cut-off Date.
Approximately [____]% of the Initial Mortgage Loans had loan-to-value
ratios (or combined loan-to-value ratios in the case of any second lien Initial
Mortgage Loans) at origination in excess of [____]%. No Initial Mortgage Loan
had a loan-to-value ratio (or combined loan-to-value ratios in the case of any
second lien Initial Mortgage Loans) at origination in excess of 100.00%. The
weighted average loan-to-value ratio (or combined loan-to-value ratios in the
case of any second lien Initial Mortgage Loans) of the Initial Mortgage Loans at
origination was approximately [____]%. The combined loan-to-value ratio with
respect to each Mortgage Loan is the ratio (expressed as a percentage) of (A)
the sum of (i) the Credit Limit of such Mortgage Loan and (ii) any outstanding
principal balances of mortgage loans senior to such Mortgage Loan (calculated as
of the date of execution of the related Credit Line Agreement) to (B) (i) the
appraised value of the related Mortgaged Property as set forth in he loan files
at such date of origination or (ii) in the case of a Mortgaged Property
purchased within one year of the origination of the related Mortgage Loan, the
lesser of (x) the appraised value of the related Mortgaged Property as set forth
in the loan files at such date of origination and (y) the purchase price of such
Mortgaged Property. See "Risk Factors--High Loan-to-Value Ratios Increase Risk
of Loss."
The Initial Mortgage Loans have scheduled payments due throughout each
month (each, a "Due Date").
As of the Cut-off Date, the average Principal Balance of the Initial
Mortgage Loans was $[____]. The minimum Principal Balance of any Initial
Mortgage Loan as of the Cut-off Date was $[____] and the maximum Principal
Balance of any Initial Mortgage Loan as of the Cut-off Date was $[____].
Approximately [____]% of the Initial Mortgage Loans do not have a Principal
Balance as of the Cut-off Date.
As of the Cut-off Date, the Initial Mortgage Loans had Loan Rates
ranging from approximately [____]% to [____]% per annum and the weighted average
Loan Rate was approximately [____]% per annum. As of the Cut-off Date, the
Initial Mortgage Loans had Margins ranging from [____]% per annum to [____]% per
annum, Maximum Loan Rates ranging from [____]% per annum to [____]% per annum
and Minimum Loan Rates ranging from [____]% per annum to [____]% per annum. As
of the Cut-off Date, the weighted average Margin was approximately [____]% per
annum, the weighted average Maximum Loan Rate was approximately [____]% per
annum and the weighted average Minimum Loan Rate was approximately [____]% per
annum.
As of the Cut-off Date, the Initial Mortgage Loans consisting of HELOCs
had Credit Limit Utilization Rates ranging from [____]% to [____]% and the
weighted average Credit Limit Utilization Rate of the Initial Mortgage Loans was
approximately [____]%. The "Credit Limit Utilization Rate" is determined by
dividing the Principal Balance of a HELOC as of the Cut-off Date by the Credit
Limit of the related HELOC. The "Credit Limit" with respect to a HELOC is the
maximum dollar amount of draws permitted to be made thereunder at any one time
by the related mortgagor.
As of the Cut-off Date, the Initial Mortgage Loans consisting of HELOCs
had Draw Periods ranging from approximately 60 months to approximately 180
months and the weighted average Draw Period was approximately [____] months. The
weighted average remaining term to maturity of the Initial Mortgage Loans
consisting of HELOCs was approximately [____] months as of the Cut-off Date.
None of the Initial Mortgage Loans had a remaining term to maturity of less than
[____] months or greater than [____] months as of the Cut-off Date.
The weighted average Second Mortgage Ratio for the Initial Mortgage
Loans consisting of HELOCs was approximately [____]%. With respect to each
HELOC, the "Second Mortgage Ratio" is the Credit Limit of such HELOC divided by
the lesser of (i) the appraised value and (ii) the sale price, in each case,
with respect to any loan senior to such HELOC.
The Initial 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):
SERVICER CONCENTRATIONS IN THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SERVICER MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
-------- -------------- ---------------------- ----------------------
[____________]
[____________]
[____________]
Total.........................
ORIGINATOR CONCENTRATIONS IN THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINATOR MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------- -------------- ---------------------- ----------------------
[____________]
[____________]
[____________]
Total.........................
TYPE OF INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---- -------------- ---------------------- ----------------------
Balloon1 5/30 Second Lien................
Fixed Rate Second Lien...................
Heloc 1st 5 YR/10YR IO...................
Heloc 2nd 5YR/10YR.......................
Heloc 2nd 5YR/10YR1MO/1MOIO..............
Heloc 2nd 5YR/10YR3MO/1MO................
Heloc 2nd 5YR/10YR3MO/1MOIO..............
Heloc 2nd 5YR/10YRIO.....................
Heloc 2nd 10YR/15YR......................
Heloc 2nd 15YR/10YR1MO/1MOIO.............
Heloc 2nd 15YR/10YR3MO/1MO...............
Heloc 2nd 15YR/10YR3MO/1MOIO.............
Total.........................
CUT-OFF DATE PRINCIPAL BALANCES OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PRINCIPAL BALANCE ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
Less than 0...........................
1 - 100,000......................
100,001 - 200,000......................
200,001 - 300,000......................
300,001 - 400,000......................
400,001 - 500,000......................
Total.........................
- -------------------
(1) The average Principal Balance of the Initial Mortgage Loans as of the
Cut-off Date was approximately $[____].
CREDIT SCORES FOR THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT SCORE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------ -------------- ---------------------- ----------------------
620 - 620...............................
621 - 640...............................
641 - 660...............................
661 - 680...............................
681 - 700...............................
701 - 720...............................
721 - 740...............................
741 - 760...............................
761 - 780...............................
781 - 800...............................
801 - 820...............................
821 - 822...............................
Total.........................
- -------------------
(1) The weighted average credit score of the Initial Mortgage Loans that had
credit scores as of the Cut-off Date was approximately
[----].
ORIGINAL TERMS TO MATURITY OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------------- -------------- ---------------------- ----------------------
120......................................
180......................................
300......................................
Total.........................
- -------------------
(1) The weighted average original term to maturity of the Initial Mortgage Loans
as of the Cut-off Date was approximately 202 months.
REMAINING TERMS TO MATURITY OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
----------------------- -------------- ---------------------- ----------------------
108 - 110...............................
121 - 130...............................
131 - 140...............................
141 - 150...............................
151 - 160...............................
161 - 170...............................
171 - 180...............................
231 - 240...............................
271 - 280...............................
281 - 290...............................
291 - 298...............................
Total.........................
- -------------------
(1) The weighted average remaining term to maturity of the Initial Mortgage
Loans as of the Cut-off Date was approximately [____] months.
PROPERTY TYPES OF THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PROPERTY TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------- -------------- ---------------------- ----------------------
Single Family Detached...................
PUD......................................
Condo Low-Rise...........................
Duplex...................................
Fourplex.................................
Triplex..................................
Single Family Attached...................
Condo High-Rise..........................
Condo Mid-Rise...........................
Condo Site...............................
Manufactured Housing.....................
Total.........................
OCCUPANCY STATUS OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
OCCUPANCY STATUS MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
Primary..................................
Non-owner................................
Second Home..............................
Total.........................
- -------------------
(1) Occupancy as represented by the mortgagor at the time of origination.
PURPOSE OF THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PURPOSE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------- -------------- ---------------------- ----------------------
Cash Out Refinance.......................
Purchase.................................
Rate/Term Refinance......................
Total.........................
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS OF THE INITIAL MORTGAGE LOANS(1)(2)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL COMBINED LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ----------------------------------------- -------------- ---------------------- ----------------------
11.21 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.........................
- -------------------
(1) The weighted average combined original loan-to-value ratio of the Initial
Mortgage Loans as of the Cut-off Date was approximately
[____]%.
(2) References to loan-to-value ratios are references to combined loan-to-value
ratios with respect to second lien Mortgage Loans.
GEOGRAPHIC PAYMENT OF THE MORTGAGED PROPERTIES RELATED TO THE INITIAL MORTGAGE
LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
LOCATION MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------- -------------- ---------------------- ----------------------
California...............................
New York.................................
Florida..................................
Nevada...................................
Washington...............................
Virginia.................................
Arizona..................................
Colorado.................................
Maryland.................................
Massachusetts............................
Illinois.................................
Oregon...................................
Georgia..................................
New Jersey...............................
Minnesota................................
Michigan.................................
Utah.....................................
Ohio.....................................
Pennsylvania.............................
North Carolina...........................
Connecticut..............................
Idaho....................................
District of Columbia.....................
Montana..................................
South Carolina...........................
New Hampshire............................
Rhode Island.............................
Tennessee................................
Indiana..................................
Missouri.................................
New Mexico...............................
Kansas...................................
Delaware.................................
Wisconsin................................
Texas....................................
Kentucky.................................
Oklahoma.................................
Iowa.....................................
Arkansas.................................
Nebraska.................................
Alabama..................................
West Virginia............................
South Dakota.............................
Maine....................................
Wyoming..................................
North Dakota.............................
Louisiana................................
Total.........................
- -------------------
(1) The greatest ZIP Code geographic concentration of Initial Mortgage Loans was
approximately [____]% in the [____] ZIP Code.
DOCUMENTATION LEVELS OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
DOCUMENTATION LEVEL MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------- -------------- ---------------------- ----------------------
Stated Income............................
Full Documentation.......................
Stated Documentation.....................
No Income Verification...................
NID/NED/NAD..............................
Total.........................
- -------------------
(1) For a description of each Documentation Level, see "The
Originators--Underwriting Standards" herein.
CURRENT LOAN RATES OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CURRENT LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
6.250 - 6.250...........................
6.251 - 6.500...........................
6.501 - 6.750...........................
6.751 - 7.000...........................
7.001 - 7.250...........................
7.251 - 7.500...........................
7.501 - 7.750...........................
7.751 - 8.000...........................
8.001 - 8.250...........................
8.251 - 8.500...........................
8.501 - 8.750...........................
8.751 - 9.000...........................
9.001 - 9.250...........................
9.251 - 9.500...........................
9.501 - 9.750...........................
9.751 -10.000...........................
10.001 -10.250...........................
10.251 -10.500...........................
10.501 -10.750...........................
10.751 -11.000...........................
11.001 -11.250...........................
11.251 -11.500...........................
11.501 -11.750...........................
11.751 -12.000...........................
12.001 -12.250...........................
13.001 -13.250...........................
Total.........................
- -------------------
(1) The weighted average current Loan Rate of the Initial Mortgage Loans as of
the Cut-off Date was approximately [____]% per annum.
MARGINS OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
GROSS MARGIN (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
0.000 - 0.000...........................
0.001 - 1.000...........................
1.001 - 2.000...........................
2.001 - 3.000...........................
3.001 - 4.000...........................
4.001 - 5.000...........................
5.001 - 6.000...........................
Total.........................
- -------------------
(1) The weighted average Margin of the Initial HELOCs as of the Cut-off Date was
approximately [____]% per annum.
MAXIMUM LOAN RATES OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MAXIMUM LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
11.000 -11.000...........................
11.001 -12.000...........................
17.001 -18.000...........................
Total.........................
- -------------------
(1) The weighted average Maximum Loan Rate of the Initial HELOCs as of the
Cut-off Date was approximately [____]% per annum.
MINIMUM LOAN RATES OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MINIMUM LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
Less than or equal to 0.000..............
0.001 - 1.000...........................
1.001 - 2.000...........................
2.001 - 3.000...........................
3.001 - 4.000...........................
4.001 - 5.000...........................
5.001 - 6.000...........................
Total.........................
- -------------------
(1) The weighted average Minimum Loan Rate of the Initial HELOCs as of the
Cut-off Date was approximately [____]% per annum.
CREDIT LIMITS OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT LIMIT ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
8,300 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 300,000......................
300,001 - 350,000......................
350,001 - 400,000......................
400,001 - 450,000......................
450,001 - 500,000......................
Total.........................
- -------------------
(1) The average Credit Limit of the Initial HELOCs as of the Cut-off Date was
approximately $[____].
CREDIT LIMIT UTILIZATION RATES OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT LIMIT UTILIZATION RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------------------- -------------- ---------------------- ----------------------
Less than or equal to 0.00...............
0.01 - 5.00...........................
5.01 - 10.00...........................
10.01 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.........................
- -------------------
(1) The average credit utilization rate of the Initial HELOCs as of the Cut-off
Date was approximately [____]%.
ORIGINAL DRAW PERIODS OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL DRAW PERIOD (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
----------------------------- -------------- ---------------------- ----------------------
60 - 60...............................
111 - 120...............................
171 - 180...............................
Total.........................
- -------------------
(1) The weighted average original Draw Period of the Initial HELOCs as of the
Cut-off Date was approximately [____] months.
REMAINING DRAW PERIODS OF THE INITIAL HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING DRAW PERIOD (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
Less than or equal to 0..................
11 - 20...............................
21 - 30...............................
31 - 40...............................
41 - 50...............................
51 - 60...............................
101 - 110...............................
111 - 120...............................
151 - 160...............................
161 - 170...............................
171 - 178...............................
Total.........................
- -------------------
(1) The weighted average remaining Draw Period of the Initial HELOCs as of the
Cut-off Date was approximately [____] months.
SECOND LIEN MORTGAGE RATIOS OF THE INITIAL HELOCS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SECOND LIEN MORTGAGE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
Less than or equal to 0.00...............
0.01 - 5.00...........................
5.01 - 10.00...........................
10.01 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 79.24...........................
Total.........................
- -------------------
(1) The weighted average Second Lien Mortgage Ratio of the Initial HELOCs as of
the Cut-off Date was approximately [____]%.
LOAN STATISTICS FOR INITIAL GROUP I MORTGAGE LOANS
The following statistical information, unless otherwise specified, is
based upon percentages of the Principal Balances of the Initial Group I Mortgage
Loans as of the Cut-off Date.
Approximately [____]% of the Initial Group I Mortgage Loans had
loan-to-value ratios (or combined loan-to-value ratios in the case of any second
lien Initial Group I Mortgage Loans) at origination in excess of [____]%. No
Initial Group I Mortgage Loan had a loan-to-value ratio (or combined
loan-to-value ratios in the case of any second lien Initial Group I Mortgage
Loans) at origination in excess of [____]%. The weighted average loan-to-value
ratio (or combined loan-to-value ratios in the case of any second lien Initial
Group I Mortgage Loans) of the Initial Group I Mortgage Loans at origination was
approximately [____]%.
The Initial Group I Mortgage Loans have Due Dates throughout each
month.
As of the Cut-off Date, the average Principal Balance of the Initial
Group I Mortgage Loans was $[____]. The minimum Principal Balance of any Initial
Group I Mortgage Loan as of the Cut-off Date was $[____] and the maximum
Principal Balance of any Initial Group I Mortgage Loan as of the Cut-off Date
was $[____]. Approximately [____]% of the Initial Group I Mortgage Loans do not
have a Principal Balance as of the Cut-off Date.
As of the Cut-off Date, the Initial Group I Mortgage Loans had Loan
Rates ranging from approximately [____]% to [____]% per annum and the weighted
average Loan Rate was approximately [____]% per annum. As of the Cut-off Date,
the Initial Group I Mortgage Loans had Margins ranging from [____]% per annum to
[____]% per annum, Maximum Loan Rates ranging from [____]% per annum to [____]%
per annum and Minimum Loan Rates ranging from [____]% per annum to [____]% per
annum. As of the Cut-off Date, the weighted average Margin was approximately
[____]% per annum, the weighted average Maximum Loan Rate was approximately
[____]% per annum and the weighted average Minimum Loan Rate was approximately
[____]% per annum.
As of the Cut-off Date, the Initial Group I Mortgage Loans consisting
of HELOCs had Credit Limit Utilization Rates ranging from [____]% to [____]% and
the weighted average Credit Limit Utilization Rate of the Initial Group I
Mortgage Loans consisting of HELOCs was approximately [____]%.
As of the Cut-off Date, the Initial Group I Mortgage Loans consisting
of HELOCs had Draw Periods ranging from approximately [____] months to
approximately [____] months and the weighted average Draw Period was
approximately [____] months. The weighted average remaining term to maturity of
the Initial Group I Mortgage Loans was approximately [____] months as of the
Cut-off Date. None of the Initial Group I Mortgage Loans had a remaining term to
maturity of less than [____] months or greater than [____] months as of the
Cut-off Date.
The weighted average Second Mortgage Ratio for the Initial Group I
Mortgage Loans consisting of HELOCs was approximately
[----]%.
The Initial Group I 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):
SERVICER CONCENTRATIONS IN THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SERVICER MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
-------- -------------- ---------------------- ----------------------
[____________]
[____________]
[____________]
Total.........................
ORIGINATOR CONCENTRATIONS IN THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINATOR MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------- -------------- ---------------------- ----------------------
[____________]
[____________]
[____________]
Total.........................
TYPE OF INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---- -------------- ---------------------- ----------------------
Balloon1 5/30 Second Lien................
Fixed Rate Second Lien...................
Heloc 1st 5 YR/10 YR IO................
Heloc 2nd 5 YR/10 YR.....................
Heloc 2nd 5 YR/10 YR 1 MO/1 MO IO........
Heloc 2nd 5 YR/10 YR 3 MO/1 MO IO........
Heloc 2nd 5 YR/10 YRIO...................
Heloc 2nd 15 YR/10 YR 1 MO/1 MO IO.......
Heloc 2nd 15 YR/10 YR 3 MO/1 MO IO.......
Total.........................
CUT-OFF DATE PRINCIPAL BALANCES OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PRINCIPAL BALANCE ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
Less than 0.............................
1 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
250,001 - 263,841......................
Total.........................
- -------------------
(1) The average Principal Balance of the Initial Group I Mortgage Loans as of
the Cut-off Date was approximately $[____].
CREDIT SCORES FOR THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT SCORE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------ -------------- ---------------------- ----------------------
620 - 625...............................
626 - 650...............................
651 - 675...............................
676 - 700...............................
701 - 725...............................
726 - 750...............................
751 - 775...............................
776 - 800...............................
801 - 820...............................
Total.........................
- -------------------
(1) The weighted average credit score of the Initial Group I Mortgage Loans
that had credit scores as of the Cut-off Date was approximately [____].
ORIGINAL TERMS TO MATURITY OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------------- -------------- ---------------------- ----------------------
180 - 180...............................
291 - 300...............................
Total.........................
- -------------------
(1) The weighted average combined original term to maturity of the Initial
Group I Mortgage Loans as of the Cut-off Date was approximately [____]
months.
REMAINING TERMS TO MATURITY OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
----------------------- -------------- ---------------------- ----------------------
108 - 110...............................
121 - 130...............................
141 - 150...............................
151 - 160...............................
161 - 170...............................
171 - 180...............................
281 - 290...............................
291 - 298...............................
Total.........................
- -------------------
(1) The weighted average remaining term to maturity of the Initial Group I
Mortgage Loans as of the Cut-off Date was approximately [____] months.
PROPERTY TYPES OF THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PROPERTY TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------- -------------- ---------------------- ----------------------
Single Family Detached...................
PUD......................................
Condo Low-Rise...........................
Duplex...................................
Fourplex.................................
Triplex..................................
Single Family Attached...................
Condo High-Rise..........................
Condo Mid-Rise...........................
Condo Site...............................
Manufactured Housing.....................
Total.........................
OCCUPANCY STATUS OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
OCCUPANCY STATUS MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
Primary..................................
Non-owner................................
Second Home..............................
Total.........................
- -------------------
(1) Occupancy as represented by the mortgagor at the time of origination.
PURPOSE OF THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PURPOSE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------- -------------- ---------------------- ----------------------
Purchase.................................
Cash Out Refinance.......................
Rate/Term Refinance......................
Total.........................
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS OF THE INITIAL GROUP I MORTGAGE
LOANS(1)(2)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL COMBINED LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ----------------------------------------- -------------- ---------------------- ----------------------
11.21 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.........................
- -------------------
(1) The weighted average original loan-to-value ratio of the Initial Group I
Mortgage Loans as of the Cut-off Date was approximately
[____]%.
(2) References to loan-to-value ratios are references to combined loan-to-value
ratios with respect to second lien Mortgage Loans.
GEOGRAPHIC PAYMENT OF THE MORTGAGED PROPERTIES RELATED TO THE INITIAL GROUP I
MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
LOCATION MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
-------- -------------- ---------------------- ----------------------
California...............................
Arizona..................................
Florida..................................
Washington...............................
Nevada...................................
Colorado.................................
New York.................................
Illinois.................................
Virginia.................................
Oregon...................................
Georgia..................................
Massachusetts............................
Maryland.................................
Ohio.....................................
Michigan.................................
Minnesota................................
New Jersey...............................
Utah.....................................
Pennsylvania.............................
North Carolina...........................
Idaho....................................
Connecticut..............................
Montana..................................
District of Columbia.....................
South Carolina...........................
Tennessee................................
Rhode Island.............................
Missouri.................................
New Hampshire............................
Indiana..................................
Delaware.................................
Wisconsin................................
Kansas...................................
New Mexico...............................
Texas....................................
Kentucky.................................
Oklahoma.................................
Iowa.....................................
Nebraska.................................
Alabama..................................
South Dakota.............................
Maine....................................
Wyoming..................................
West Virginia............................
North Dakota.............................
Louisiana................................
Total.........................
- -------------------
(1) The greatest ZIP Code geographic concentration of Initial Group I Mortgage
Loans was approximately [____]% in the [____] ZIP Code.
DOCUMENTATION LEVELS OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
DOCUMENTATION LEVEL MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------- -------------- ---------------------- ----------------------
Stated Income............................
Full Documentation.......................
Stated Documentation.....................
No Income Verification...................
NID/NED/NAD..............................
Total.........................
- -------------------
(1) For a description of each Documentation Level, see "The
Originators--Underwriting Standards" herein.
CURRENT LOAN RATES OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CURRENT LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
6.250 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 -10.000...........................
10.001 -11.000...........................
11.001 -12.000...........................
12.001 -13.000...........................
13.001 -13.250...........................
Total.........................
- -------------------
(1) The weighted average current Loan Rate of the Initial Group I Mortgage
Loans as of the Cut-off Date was approximately [____]% per annum.
MARGINS OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
GROSS MARGIN (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
0.000 - 0.000...........................
0.001 - 1.000...........................
1.001 - 2.000...........................
2.001 - 3.000...........................
3.001 - 4.000...........................
4.001 - 5.000...........................
5.001 - 6.000...........................
Total.........................
- -------------------
(1) The weighted average Margin of the Initial Group I HELOCs as of the Cut-off
Date was approximately [____]% per annum.
MAXIMUM LOAN RATES OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MAXIMUM LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
12.000 -12.000...........................
17.001 -18.000...........................
Total.........................
- -------------------
(1) The weighted average Maximum Loan Rate of the Initial Group I HELOCs as of
the Cut-off Date was approximately [____]% per annum.
MINIMUM LOAN RATES OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MINIMUM LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
Less than or equal to 0.000..............
0.001 - 1.000...........................
1.001 - 2.000...........................
2.001 - 3.000...........................
3.001 - 4.000...........................
4.001 - 5.000...........................
5.001 - 6.000...........................
Total.........................
- -------------------
(1) The weighted average Minimum Loan Rate of the Initial Group I HELOCs as of
the Cut-off Date was approximately [____]% per annum.
CREDIT LIMITS OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT LIMIT ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
8,300 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 265,000......................
Total.........................
- -------------------
(1) The average Credit Limit of the Initial Group I HELOCs as of the Cut-off
Date was approximately $[____].
CREDIT LIMIT UTILIZATION RATES OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT LIMIT UTILIZATION RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------------------- -------------- ---------------------- ----------------------
Less than or equal to 0.00...............
0.01 - 5.00...........................
5.01 - 10.00...........................
10.01 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.........................
- -------------------
(1) The weighted average credit utilization rate of the Initial Group I HELOCs
as of the Cut-off Date was approximately [____]%.
ORIGINAL DRAW PERIODS OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL DRAW PERIOD (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
60 - 60...............................
171 - 180...............................
Total.........................
- -------------------
(1) The weighted average original Draw Period of the Initial Group I HELOCs as
of the Cut-off Date was approximately [____] months.
REMAINING DRAW PERIODS OF THE INITIAL GROUP I HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING DRAW PERIOD (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
Less than or equal to 0..................
21 - 30...............................
31 - 40...............................
41 - 50...............................
51 - 60...............................
161 - 170...............................
171 - 178...............................
Total.........................
- -------------------
(1) The weighted average remaining Draw Period of the Initial Group I HELOCs as
of the Cut-off Date was approximately [____] months.
SECOND LIEN MORTGAGE RATIOS OF THE INITIAL GROUP I HELOCS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SECOND LIEN MORTGAGE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
Less than or equal to 0.00...............
0.01 - 5.00...........................
5.01 - 10.00...........................
10.01 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 79.24...........................
Total.........................
- -------------------
(1) The weighted average Second Lien Mortgage Ratio of the Initial Group I
HELOCs as of the Cut-off Date was approximately [____]%.
LOAN STATISTICS FOR INITIAL GROUP II MORTGAGE LOANS
The following statistical information, unless otherwise specified, is
based upon percentages of the Principal Balances of the Initial Group II
Mortgage Loans as of the Cut-off Date.
Approximately [____]% of the Initial Group II Mortgage Loans had
loan-to-value ratios (or combined loan-to-value ratios in the case of any second
lien Initial Group II Mortgage Loans) at origination in excess of [____]%. No
Initial Group II Mortgage Loan had a loan-to-value ratio (or combined
loan-to-value ratios in the case of any second lien Initial Group II Mortgage
Loans) at origination in excess of [____]%. The weighted average loan-to-value
ratio (or combined loan-to-value ratios in the case of any second lien Initial
Group II Mortgage Loans) of the Initial Group II Mortgage Loans at origination
was approximately [____]%.
The Initial Group II Mortgage Loans have Due Dates throughout each
month.
As of the Cut-off Date, the average Principal Balance of the Initial
Group II Mortgage Loans was $[____]. The minimum Principal Balance of any
Initial Group II Mortgage Loan as of the Cut-off Date was $[____] and the
maximum Principal Balance of any Initial Group II Mortgage Loan as of the
Cut-off Date was $[____]. Approximately [____]% of the Initial Group II Mortgage
Loans do not have a Principal Balance as of the Cut-off Date.
As of the Cut-off Date, the Initial Group II Mortgage Loans had Loan
Rates ranging from approximately [____]% to [____]% per annum and the weighted
average Loan Rate was approximately [____]% per annum. As of the Cut-off Date,
the Initial Group II Mortgage Loans had Margins ranging from [____]% per annum
to [____]% per annum, Maximum Loan Rates ranging from [____]% per annum to
[____]% per annum and Minimum Loan Rates ranging from [____]% per annum to
[____]% per annum. As of the Cut-off Date, the weighted average Margin was
approximately [____]% per annum, the weighted average Maximum Loan Rate was
approximately [____]% per annum and the weighted average Minimum Loan Rate was
approximately [____]% per annum.
As of the Cut-off Date, the Initial Group II Mortgage Loans consisting
of HELOCs had Credit Limit Utilization Rates ranging from [____]% to [____]% and
the weighted average Credit Limit Utilization Rate of the Initial Group II
Mortgage Loans consisting of HELOCs was approximately [____]%.
As of the Cut-off Date, the Initial Group II Mortgage Loans consisting
of HELOCs had Draw Periods ranging from approximately [____] months to
approximately [____] months and the weighted average Draw Period was
approximately [____] months. The weighted average remaining term to maturity of
the Initial Group II Mortgage Loans consisting of HELOCs was approximately
[____] months as of the Cut-off Date. None of the Initial Group II Mortgage
Loans had a remaining term to maturity of less than [____] months or greater
than [____] months as of the Cut-off Date.
The weighted average Second Mortgage Ratio for the Initial Group II
Mortgage Loans consisting of HELOCs was approximately
[----]%.
The Initial Group II 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):
SERVICER CONCENTRATIONS IN THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SERVICER MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
-------- -------------- ---------------------- ----------------------
[____________]
[____________]
[____________]
Total.........................
ORIGINATOR CONCENTRATIONS IN THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINATOR MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------- -------------- ---------------------- ----------------------
[____________]
[____________]
[____________]
Total.........................
TYPE OF INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---- -------------- ---------------------- ----------------------
Balloon 15/30 Second Lien................
Fixed Rate Second Lien...................
Heloc 1st 5 YR/10 YR IO..................
Heloc 2nd 5 YR/10 YR.....................
Heloc 2nd 5 YR/10 YR 1 MO/1 MO IO........
Heloc 2nd 5 YR/10 YR 3 MO/1 MO...........
Heloc 2nd 5 YR/10 YR 3 MO/1 MO IO........
Heloc 2nd 5 YR/10 YR IO..................
Heloc 2nd 10 YR/15 YR....................
Heloc 2nd 15 YR/10 YR 1 MO/1 MO IO.......
Heloc 2nd 15 YR/10 YR 3 MO/1 MO..........
Heloc 2nd 15 YR/10 YR 3 MO/1 MO IO.......
Total.........................
CUT-OFF DATE PRINCIPAL BALANCES OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PRINCIPAL BALANCE ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
Less than 0..............................
1 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 300,000......................
300,001 - 350,000......................
350,001 - 400,000......................
400,001 - 450,000......................
450,001 - 500,000......................
Total.........................
- -------------------
(1) The average Principal Balance of the Initial Group II Mortgage Loans as of
the Cut-off Date was approximately $[____].
CREDIT SCORES FOR THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT SCORE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------ -------------- ---------------------- ----------------------
620 - 625...............................
626 - 650...............................
651 - 675...............................
676 - 700...............................
701 - 725...............................
726 - 750...............................
751 - 775...............................
776 - 800...............................
801 - 822...............................
Total.........................
- -------------------
(1) The weighted average credit score of the Initial Group II Mortgage Loans
that had credit scores as of the Cut-off Date was approximately [____].
ORIGINAL TERMS TO MATURITY OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------------- -------------- ---------------------- ----------------------
120 - 120...............................
171 - 180...............................
291 - 300...............................
Total.........................
- -------------------
(1) The weighted average combined original term to maturity of the Initial
Group II Mortgage Loans as of the Cut-off Date was approximately [____]
months.
REMAINING TERMS TO MATURITY OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
----------------------- -------------- ---------------------- ----------------------
110 - 110...............................
131 - 140...............................
141 - 150...............................
151 - 160...............................
161 - 170...............................
171 - 180...............................
231 - 240...............................
271 - 280...............................
281 - 290...............................
291 - 298...............................
Total.........................
- -------------------
(1) The weighted average remaining term to maturity of the Initial Group II
Mortgage Loans as of the Cut-off Date was approximately [____] months.
PROPERTY TYPES OF THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PROPERTY TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------- -------------- ---------------------- ----------------------
Single Family Detached...................
PUD......................................
Condo Low-Rise...........................
Duplex...................................
Fourplex.................................
Single Family Attached...................
Triplex..................................
Condo High-Rise..........................
Condo Mid-Rise...........................
Condo Site...............................
Total.........................
OCCUPANCY STATUS OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
OCCUPANCY STATUS MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
Primary..................................
Non-owner................................
Second Home..............................
Total.........................
- -------------------
(1) Occupancy as represented by the mortgagor at the time of origination.
PURPOSE OF THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PURPOSE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------- -------------- ---------------------- ----------------------
Cash Out Refinance.......................
Purchase.................................
Rate/Term Refinance......................
Total.........................
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS OF THE INITIAL GROUP II MORTGAGE
LOANS(1)(2)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL COMBINED LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ----------------------------------------- -------------- ---------------------- ----------------------
21.88 - 25.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.........................
- -------------------
(1) The weighted average original loan-to-value ratio of the Initial Group II
Mortgage Loans as of the Cut-off Date was approximately
[____]%.
(2) References to loan-to-value ratios are references to combined loan-to-value
ratios with respect to second lien Mortgage Loans.
GEOGRAPHIC PAYMENT OF THE MORTGAGED PROPERTIES RELATED TO THE INITIAL GROUP II
MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
LOCATION MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
-------- -------------- ---------------------- ----------------------
California...............................
New York.................................
Virginia.................................
Florida..................................
Nevada...................................
Maryland.................................
Washington...............................
Massachusetts............................
Arizona..................................
Colorado.................................
New Jersey...............................
Illinois.................................
Oregon...................................
Georgia..................................
Minnesota................................
Connecticut..............................
Pennsylvania.............................
Utah.....................................
North Carolina...........................
Michigan.................................
District of Columbia.....................
Idaho....................................
New Hampshire............................
Ohio.....................................
Montana..................................
Rhode Island.............................
South Carolina...........................
New Mexico...............................
Indiana..................................
Kansas...................................
Missouri.................................
Tennessee................................
Arkansas.................................
Wisconsin................................
Texas....................................
West Virginia............................
Delaware.................................
Total.........................
- -------------------
(1) The greatest ZIP Code geographic concentration of Initial Group II Mortgage
Loans was approximately [____]% in the [____] ZIP Code.
DOCUMENTATION LEVELS OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
DOCUMENTATION LEVEL MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------- -------------- ---------------------- ----------------------
Stated Income............................
Full Documentation.......................
Stated Documentation.....................
No Income Verification...................
NID/NED/NAD..............................
Total.........................
- -------------------
(1) For a description of each Documentation Level, see "The
Originators--Underwriting Standards" herein.
CURRENT LOAN RATES OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CURRENT LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
6.250 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 -10.000...........................
10.001 -11.000...........................
11.001 -12.000...........................
Total.........................
- -------------------
(1) The weighted average current Loan Rate of the Initial Group II Mortgage
Loans as of the Cut-off Date was approximately [____]% per annum.
MARGINS OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
GROSS MARGIN (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
0.000 - 0.000...........................
0.001 - 1.000...........................
1.001 - 2.000...........................
2.001 - 3.000...........................
3.001 - 4.000...........................
4.001 - 5.000...........................
5.001 - 5.750...........................
Total.........................
- -------------------
(1) The weighted average Margin of the Initial Group II HELOCs as of the Cut-off
Date was approximately [____]% per annum.
MAXIMUM LOAN RATES OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MAXIMUM LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
11.000 -11.000...........................
11.001 -12.000...........................
17.001 -18.000...........................
Total.........................
- -------------------
(1) The weighted average Maximum Loan Rate of the Initial Group II HELOCs as of
the Cut-off Date was approximately [____]% per annum.
MINIMUM LOAN RATES OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MINIMUM LOAN RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------- -------------- ---------------------- ----------------------
Less than 0.000..........................
0.001 - 1.000...........................
1.001 - 2.000...........................
2.001 - 3.000...........................
3.001 - 4.000...........................
4.001 - 5.000...........................
5.001 - 5.750...........................
Total.........................
- -------------------
(1) The weighted average Minimum Loan Rate of the Initial Group II HELOCs as of
the Cut-off Date was approximately [____]% per annum.
CREDIT LIMITS OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT LIMIT ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
---------------- -------------- ---------------------- ----------------------
10,000 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 300,000......................
300,001 - 350,000......................
350,001 - 400,000......................
400,001 - 450,000......................
450,001 - 500,000......................
Total.........................
- -------------------
(1) The average Credit Limit of the Initial Group II HELOCs as of the Cut-off
Date was approximately $[____].
CREDIT LIMIT UTILIZATION RATES OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT LIMIT UTILIZATION RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
--------------------------------- -------------- ---------------------- ----------------------
Less than or equal to 0.00...............
0.01 - 5.00...........................
5.01 - 10.00...........................
10.01 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.........................
- -------------------
(1) The weighted average credit utilization rate of the Initial Group II HELOCs
as of the Cut-off Date was approximately [____]%.
ORIGINAL DRAW PERIODS OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL DRAW PERIOD (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
60 - 60...............................
111 - 120...............................
171 - 180...............................
Total.........................
- -------------------
(1) The weighted average original Draw Period of the Initial Group II HELOCs as
of the Cut-off Date was approximately [____] months.
REMAINING DRAW PERIODS OF THE INITIAL GROUP II HELOCS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING DRAW PERIOD (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
15 - 20...............................
21 - 30...............................
31 - 40...............................
41 - 50...............................
51 - 60...............................
101 - 110...............................
111 - 120...............................
151 - 160...............................
161 - 170...............................
171 - 178...............................
Total.........................
- -------------------
(1) The weighted average remaining Draw Period of the Initial Group II HELOCs as
of the Cut-off Date was approximately [____] months.
SECOND LIEN MORTGAGE RATIOS OF THE INITIAL GROUP II HELOCS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SECOND LIEN MORTGAGE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
------------------------------ -------------- ---------------------- ----------------------
Less than or equal to 0.00...............
0.01 - 5.00...........................
5.01 - 10.00...........................
10.01 - 15.00...........................
15.01 - 20.00...........................
20.01 - 25.00...........................
25.01 - 30.00...........................
30.01 - 35.00...........................
35.01 - 40.00...........................
40.01 - 45.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
75.01 - 76.05...........................
Total.........................
- -------------------
(1) The weighted average Second Lien Mortgage Ratio of the Initial Group II
HELOCs as of the Cut-off Date was approximately [____]%.
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNTS
Under and to the extent provided in the Sale and Servicing Agreement,
the Depositor will purchase and sell to [__________] Trust [200_-___] during the
Funding Period (as defined herein), subject to the availability thereof,
Subsequent Mortgage Loans in consideration of the Indenture Trustee's delivery
on the date of transfer (a "Subsequent Transfer Date") amounts on deposit in the
Group I Pre-Funding Account or the Group II Pre-Funding Account, as applicable,
equal to 100% of the aggregate Principal Balance of such Subsequent Mortgage
Loans. Each Subsequent Mortgage Loan will have been underwritten in accordance
with the criteria set forth under "The Originators--Underwriting Standards"
herein. The Subsequent Mortgage Loans will be transferred to [__________] Trust
[200_-___], pursuant to subsequent transfer instruments (the "Subsequent
Transfer Instruments") among the Sponsor, the Depositor, [__________] Trust
[200_-___] and the Indenture Trustee. The Depositor will designate the later of
(i) the first day of the month in which the related Subsequent Transfer Date
occurs and (ii) the origination date of such Mortgage Loan as the cut-off date
with respect to the related Subsequent Mortgage Loans (the "Subsequent Cut-off
Date"). The amount paid from the Group I Pre-Funding Account and the Group II
Pre-Funding Account on each Subsequent Transfer Date will not include accrued
interest on the related Subsequent Mortgage Loans. Following each Subsequent
Transfer Date, the aggregate Principal Balance of the Group I Mortgage Loans and
the Group II Mortgage Loans will increase by an amount equal to the aggregate
Principal Balance of the Subsequent Group I Mortgage Loans and Subsequent Group
II Mortgage Loans so purchased and pledged and the amount in the Group I
Pre-Funding Account and Group II Pre-Funding Account will decrease accordingly.
Investors should note the Depositor will not deposit any amounts (other than any
amounts which may be deposited in the Interest Coverage Accounts) with the
Indenture Trustee in respect of interest on the Original Pre-Funded Amounts (as
defined below). If the Depositor fails to deliver the Subsequent Mortgage Loans
before the Funding Period, such failure will result in less Available Funds on
the first Payment Date following the Funding Period.
An account (the "Group I Pre-Funding Account") will be established with
the Indenture Trustee and funded on the Closing Date by the Depositor with an
amount equal to approximately $[____] (the "Original Group I Pre-Funded
Amount"). During the period (the "Funding Period") from the Closing Date until
the earliest of (i) the date on which the amount on deposit in the Group I
Pre-Funding Account and the Group II Pre-Funding Account is less than $10,000,
exclusive of investment income, or (ii) [_______, 200_], the Original Group I
Pre-Funded Amount will be reduced by the amount used to purchase Subsequent
Group I Mortgage Loans to be pledged to the Indenture Trustee in accordance with
the Indenture. Any investment on funds in the Group I Pre-Funding Account will
be made at the direction of the Depositor and any investment income will be paid
to the Depositor or its designee.
An account (the "Group II Pre-Funding Account"; together with the Group
I Pre-Funding Account, the "Pre-Funding Accounts") will be established with the
Indenture Trustee and funded on the Closing Date by the Depositor with an amount
equal to approximately $[____] (the "Original Group II Pre-Funded Amount";
together with the Original Group I Pre-Funding Amount, the "Original Pre-Funded
Amounts"). During the Funding Period, the Original Group II Pre-Funded Amount
will be reduced by the amount used to purchase Subsequent Group II Mortgage
Loans to be pledged to the Indenture Trustee in accordance with the Indenture.
Any investment on funds in the Group II Pre-Funding Account will be made at the
direction of the Depositor and any investment income will be paid to the
Depositor or its designee.
Any conveyance of Subsequent Mortgage Loans on a Subsequent Transfer
Date is subject to certain conditions including, but not limited to the
following: (a) each such Mortgage Loan must satisfy the representations and
warranties specified in the related Subsequent Transfer Instrument and the Sale
and Servicing Agreement; (b) the Depositor will not select such Mortgage Loans
in a manner that it believes to be adverse to the interests of the Noteholders;
(c) the Depositor will deliver certain opinions of counsel with respect to the
validity of the conveyance of such Mortgage Loans and (d) as of the related
Subsequent Cut-off Date, each such Subsequent Mortgage Loan will satisfy the
following criteria: (i) the Mortgage Loan may not be 30 or more days delinquent
as of the last day of the calendar month preceding the Subsequent Cut-off Date;
(ii) the original term to stated maturity of the Mortgage Loan will not be less
than [____] months and will not exceed [____] months; (iii) the Credit Limit of
the Mortgage Loan (in the case of any HELOC) will not be less than $10,000 and
will not exceed $500,000; (iv) the Mortgage Loan will not have a combined
loan-to-value ratio greater than 100.00%; (v) such Mortgage Loan will have, as
of the Subsequent Cut-off Date, a weighted average term since origination not in
excess of 200 months; (vi) the Mortgage Loan will have a Margin not less than
[____]% per annum and a Maximum Loan Rate not less than [____]% per annum and
(ix) the Mortgage Loan will have been underwritten in accordance with the
criteria set forth under "The Originators--Underwriting Standards" herein.
Following the pledge of Subsequent Group I Mortgage Loans to the Trust
Estate, at the end of the Funding Period all of the Group I Mortgage Loans
(including the Subsequent Group I Mortgage Loans): (i) will have a weighted
average original term to stated maturity of not more than 200 months; (ii) will
have a weighted average combined loan-to-value ratio of not more than [____]%;
(iv) will have an average Principal Balance of not more than $35,000; (v) will
have an average Credit Limit of between $[____] and $[____] and a weighted
average Draw Period of between [____] and [____] months; (vi) will have a
weighted average FICO score of not less than [____] and (viii) will have a
weighted average Margin not less than [____]% per annum. For purposes of the
calculations described in this paragraph, percentages of the Group I Mortgage
Loans will be based on the Principal Balance of the Initial Group I Mortgage
Loans as of the Cut-off Date and the Principal Balance of the Subsequent Group I
Mortgage Loans as of the related Subsequent Cut-off Date.
Following the pledge of Subsequent Group II Mortgage Loans to the Trust
Estate, at the end of the Funding Period all of the Group II Mortgage Loans
(including the Subsequent Group II Mortgage Loans): (i) will have a weighted
average original term to stated maturity of not more than [____] months; (ii)
will have a weighted average combined loan-to-value ratio of not more than
100.00%; (iv) will have an average Principal Balance of not more than $[____];
(v) will have an average Credit Limit of between $[____] and $[____] and a
weighted average Draw Period of between [____] and [____] months; (vi) will have
a weighted average FICO score of not less than [____] and (viii) will have a
weighted average Margin not less than [____]% per annum. For purposes of the
calculations described in this paragraph, percentages of the Group II Mortgage
Loans will be based on the Principal Balance of the Initial Group II Mortgage
Loans as of the Cut-off Date and the Principal Balance of the Subsequent Group
II Mortgage Loans as of the related Subsequent Cut-off Date.
Notwithstanding the foregoing, any Subsequent Mortgage Loan may be
rejected by any of the Rating Agencies if the inclusion of such Subsequent
Mortgage Loan would adversely affect the ratings on any class of Offered Notes.
DELINQUENCY AND LOSS INFORMATION
[[No] Mortgage Loan is currently more than 30 days delinquent and [no]
Mortgage Loan has been 30 or more days delinquent since origination.]
[The following tables set forth the historical delinquency experience of the
Mortgage Loans:
NUMBER OF MORTGAGE LOANS DELINQUENT
AGGREGATE
SCHEDULED
NUMBER PRINCIPAL
MONTH OF LOANS BALANCE 30 DAYS 60 DAYS 90 DAYS 120 DAYS 150 DAYS 180 DAYS (ETC.)
----- -------- ------- ------- ------- ------- -------- -------- -------- ------
[prior month] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[2 months
prior] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[3 months
prior] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[4 months
prior] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[continue
until lesser
of 3 years
or the time
such assets [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
have existed]
AGGREGATE SCHEDULED PRINCIPAL BALANCE OF MORTGAGE LOANS DELINQUENT
AGGREGATE
SCHEDULED
NUMBER PRINCIPAL
MONTH OF LOANS BALANCE 30 DAYS 60 DAYS 90 DAYS 120 DAYS 150 DAYS 180 DAYS (ETC.)
----- -------- ------- ------- ------- ------- -------- -------- -------- ------
[prior month] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[2 months
prior] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[3 months
prior] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[4 months
prior] [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
[continue
until lesser
of 3 years
or the time
such assets [___] $[_____] [__] [__] [__] [__] [__] [__] [__]
have existed]
STATIC POOL INFORMATION
Static pool information material to this offering may be found at
__________________________.
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. SEE "STATIC POOL INFORMATION" IN
THE PROSPECTUS.
THE ORIGINATORS
GENERAL
[_________ ("________")] is the originator of the Mortgage Loans.
[_________ is an indirect wholly owned subsidiary of [_________], a
[_________].[_________]'s other subsidiaries include [_________], a
[_________].[_________] is listed on the New York Stock Exchange under the
symbol "[____."]
[[_________]'s executive offices are located at [_________].]
[_________] is engaged in the mortgage banking business, which consists
of the origination, acquisition, sale and servicing of residential mortgage
loans secured primarily by one- to four-unit family residences, and the purchase
and sale of mortgage servicing rights. [_________] originates loans through a
nationwide network of production branches. Loans are originated primarily
through [_________]'s wholesale division, through a network of independent
mortgage loan brokers approved by [_________], and also through its retail
lending division and correspondent lending division.
[_________] has been an originator of mortgage loans since [______,
_____] and has originated Mortgage Loans of the type backing the notes offered
hereby since 19[__]. [_________] currently has an origination portfolio of
approximately $[__], of which approximately $[__] is secured by one- to
four-family residential real properties.
[The following table describes the size, composition and growth of
[_________]'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 PORTFOLIO TOTAL TOTAL
PORTFOLIO OF PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER LOANS NUMBER OF LOANS NUMBER OF LOANS
- -----------------------------------------------------------------------------------------------------------
Residential Mortgage
Loans................
UNDERWRITING GUIDELINES [To be provided, if material, for all originators of 20%
or more of the asset pool.]
The Mortgage Loans were originated or purchased by [______] (either
directly or through affiliates) from mortgage loan brokers or originated by its
retail division, generally in accordance with the underwriting criteria
described herein. The information set forth in the following paragraphs has been
provided by [______].
[______] believes that the Mortgage Loans were underwritten in
accordance with standards consistent with those utilized by mortgage lenders
generally during the period of origination.
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value and
adequacy of the mortgaged property as collateral. In general, a prospective
borrower applying for a mortgage loan is required to fill out a detailed
application designed to provide to the underwriter pertinent credit information.
As part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities,
employment information and payment information, as well as an authorization to
acquire a credit report which summarizes the borrower's credit history with
merchants and lenders and record of bankruptcy or other public records. In most
cases, an employment verification is obtained from an independent source
(typically the borrower's employer) which verification reports the length of
employment with that organization and whether the employer expects that the
borrower will continue such employment in the future. If a prospective borrower
is self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. Appraisals in accordance with
[______]'s Underwriting Standards may be made on a full or a drive-by basis.
[______] may order discretionary reviews at any time to ensure the value of the
properties. With respect to single-family loans, the appraisal is based on the
market value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the home. With respect to
a loan on a two- to four-unit property, 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 two- to four-unit project's
cash flow, expenses, capitalization and other operational information in
determining the property's value. The market approach suggested in valuing
property focuses its analysis on the prices paid for the purchase of similar
properties in the two- to four-unit project's area, with adjustments made for
variations between these other properties and the multifamily project being
appraised. The cost approach calls for the appraiser to make an estimate of land
value and then determine the current cost of reproducing the building less any
accrued depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance.
In the case of single family loans, once all applicable employment,
credit and property information is received, a determination generally is made
as to whether the prospective borrower has sufficient monthly income available
(a) to meet the borrower's monthly obligations on the proposed mortgage loan
(determined on the basis of the monthly payments due in the year of origination)
and other expenses related to the mortgaged property (such as property taxes and
hazard insurance) and (b) to meet monthly housing expenses and other financial
obligations and monthly living expenses. The underwriting standards applied by
[______] may be varied in appropriate cases where factors such as low
loan-to-value ratios or other favorable credit exist. However, maximum combined
loan-to-value ratios and maximum loan amounts are generally limited by credit
score and total debt-to-income ratios.
[______] requires title insurance or coverage under a standard mortgage
lien guaranty agreement for lenders for all mortgage loans. Fire and extended
hazard insurance and flood insurance, when applicable, are also required.
A lender may originate mortgage loans under a reduced documentation
program. These reduced documentation programs include an "EZ Documentation"
program, where there is no verification of stated income, a "No
Employment/Income Documentation" program, where there is no verification of
employment or income, and a "No Ratio Documentation" program, where there is no
stated income, thus eliminating ratio calculations. A reduced documentation
program is designed to streamline the loan approval process and thereby improve
the lender's competitive position among other loan originators. Under a reduced
documentation program, relatively more emphasis is placed on credit score and
property underwriting than on certain credit underwriting documentation
concerning income and employment verification, which is waived.
In the case of a loan secured by a leasehold interest in a real
property, the title to which is held by a third party lessor, [______] will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is generally at least five years longer than the remaining term
of the mortgage loan.
[ADDITIONAL ORIGINATORS]
[Identification of, and information with respect to additional
originators will be provided in accordance with Item 1110(b) if applicable.]
THE SPONSOR
[The Sponsor of the Mortgage Loans will be Greenwich Capital Financial
Products, Inc. The Sponsor acquired the Mortgage Loans from the Originator. WE
REFER YOU TO "THE SPONSOR" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.]
[The Sponsor will be [__________. The Sponsor was incorporated in the
State of [__________] on [__________, ____] as a [__________]. The Sponsor was
organized for the purpose of [______________].
The sponsor maintains its principal office at [__________].
[Background information on the Sponsor.]
[Background information on the loans.]
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 PORTFOLIO TOTAL TOTAL
PORTFOLIO OF PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER LOANS NUMBER OF LOANS NUMBER OF LOANS
- -----------------------------------------------------------------------------------------------------------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
]
[_______________] TRUST [200_-___]
[_______________] Trust [200_-___] (the "Issuing Entity") will be a
[statutory trust formed under the laws of the State of Delaware] pursuant to the
Trust Agreement, for the transactions described in this prospectus supplement.
The Trust Agreement constitutes the "governing instrument" under the laws of the
State of Delaware relating to statutory trusts. After its formation,
[_______________] Trust [200_-___] 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 Certificates, (iii) making payments on the Notes and
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 Trust
Agreement. These restrictions cannot be amended without the prior written
consent of the Rating Agencies and with the prior written consent of the
Indenture Trustee and the Holders (as defined in the Indenture) of Notes
evidencing more than 662/3% of the outstanding balance of the Notes.
[_______________] Trust [200_-___] is not expected to have any
significant assets other than the Trust Estate pledged as collateral to secure
the Notes. [__________] Trust [200_-___]'s principal offices are in
[__________], in care of [__________], as owner trustee.
[_______________] Trust [200_-___]'s fiscal year end is [December 31].
THE OWNER TRUSTEE
[_______________] will be the Owner Trustee under the Trust Agreement.
The Owner Trustee is a Delaware 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 [_______________] Trust [200_-___]
or the Noteholders under the 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 certain
representations made by the Owner Trustee in the Trust Agreement. The Owner
Trustee has not participated in the preparation of this prospectus supplement
and has assumed no responsibility for its contents. The Owner Trustee's sole
duties and liabilities with respect to the Notes are limited to the express
duties and liabilities of the Owner Trustee as set forth in the Trust Agreement.
All persons into which the Owner Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall be
the successor of the Owner Trustee under the Trust Agreement.
The principal compensation to be paid to the Owner Trustee in respect
of its obligations under the Trust Agreement will be payable by the Sponsor
pursuant to a separate fee agreement between the Sponsor and the Owner Trustee.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Sponsor will transfer to the Depositor and the
Depositor will transfer to [_______________] Trust [200_-___] all of its right,
title and interest in and to each Initial Mortgage Loan (including any
Additional Balances on the HELOCs arising in the future) and the related Credit
Line Agreement, mortgage note, Mortgage, assignment of mortgage (in recordable
form in blank or to the Indenture Trustee) and other related documents
(collectively, the "Related Documents"), including all scheduled payments with
respect to each such Initial Mortgage Loan due after the Cut-off Date.
[__________] Trust [200_-___] will in turn pledge to the Indenture Trustee under
the Indenture all of its right, title and interest in the foregoing property as
collateral for the Notes. The Indenture Trustee will not have any obligation to
make additional funding under the Credit Line Agreements. Concurrently with such
pledge, the Indenture Trustee will deliver the Notes on behalf of [__________]
Trust [200_-___] to the Depositor or its designee. Each Mortgage Loan
transferred to the Trust will be identified on a schedule (the "Mortgage Loan
Schedule") delivered to the Indenture Trustee pursuant to the Sale and Servicing
Agreement. Such schedule will include information as to the Principal Balance of
each Initial Mortgage Loan of the Cut-off Date, as well as information with
respect to the Loan Rate.
The Sale and Servicing Agreement will require that, within the time
period specified therein, the Sponsor deliver or cause to be delivered to the
Indenture Trustee the mortgage notes, endorsed in blank or to the Indenture
Trustee on behalf of the Noteholders, and the Related Documents. In lieu of
delivery of original Mortgages or mortgage notes, if such original is not
available or is lost, the Sponsor may deliver or cause to be delivered true and
correct copies thereof, or, with respect to a lost mortgage note, a lost note
affidavit executed by the Originator.
Pursuant to a Custodial Agreement between the Depositor, the Indenture
Trustee and _______, a_______ (the "Custodian"), the mortgage notes and the
Related Documents (the "Custodial File") will be held by the Custodian on behalf
of the Indenture Trustee. The Custodian shall segregate and maintain continuous
custody of all mortgage documents constituting the Custodial File in secure and
fire resistant facilities in accordance with customary standards for such
custody.
The Sale and Servicing Agreement will additionally require that on or
prior to the Closing Date, the Sponsor deliver to the Indenture Trustee,
executed assignments of mortgages with respect to each related Mortgage Loan,
other than such Mortgage Loans registered with Mortgage Electronic Registration
Systems, Inc. ("MERS"). An assignment of mortgage will only be recorded in those
jurisdictions where recording is required by law. In all other cases, an
assignment of mortgage will be recorded if a recordation event (as defined in
the Indenture) occurs, as provided for in the Sale and Servicing Agreement.
Within 45 days of the Closing Date, the Indenture Trustee will review
the Initial Mortgage Loans and the Related Documents pursuant to the Indenture
and if any Initial Mortgage Loan or Related Document is found not to conform to
the review criteria set forth in the Indenture in any material respect and such
defect is not cured within 90 days following notification thereof to the
Originator by the Indenture Trustee, the Originator will be obligated to either
(i) substitute for such Mortgage Loan a Qualifying Substitute Mortgage Loan;
however, such substitution is permitted only within two years of the Closing
Date and may not be made unless an opinion of counsel is provided to the effect
that such substitution will not disqualify any of the REMICs (as defined in the
Indenture) as a REMIC or result in a prohibited transaction tax under the Code
or (ii) purchase such Mortgage Loan at a price (the "Purchase Price") equal to
the outstanding Principal Balance of such Mortgage Loan as of the date of
purchase, plus all accrued and unpaid interest thereon, computed at the Loan
Rate through the end of the calendar month in which the purchase is effected,
plus the amount of any unreimbursed Servicing Advances (as defined herein) made
by the Servicer, plus any costs and damages incurred by the Trust in connection
with any violation by such loan of any predatory- or abusive-lending law. The
Purchase Price will be required to be remitted to the Servicer for deposit in
the Collection Account (as defined herein) on or prior to the next succeeding
Determination Date (as defined herein) after such obligation arises. The
obligation of the Originator to repurchase or substitute for a Deleted Mortgage
Loan (as defined herein) is the sole remedy regarding any defects in the
Mortgage Loans and Related Documents available to the Indenture Trustee or the
Noteholders.
In connection with the substitution of a Qualifying Substitute Mortgage
Loan, the Originator will be required to remit to the Servicer for deposit in
the Collection Account on or prior to the next succeeding Determination Date
after such obligation arises an amount (the "Substitution Adjustment") equal to
the excess of the Principal Balance of the related Deleted Mortgage Loan over
the Principal Balance of such Qualifying Substitute Mortgage Loan.
A "Qualifying Substitute Mortgage Loan" will be a home equity line of
credit or mortgage loan substituted by the Originator for a Deleted Mortgage
Loan which must, on the date of such substitution, (i) have an outstanding
Principal Balance (or in the case of a substitution of more than one Mortgage
Loan for a Deleted Mortgage Loan, an aggregate Principal Balance), not in excess
of, and not more than 5% less than, the Principal Balance of the Deleted
Mortgage Loan; (ii) have a Loan Rate not less than the Loan Rate of the Deleted
Mortgage Loan and not more than 4% in excess of the Loan Rate of such Deleted
Mortgage Loan; (iii) have a Maximum Loan Rate and Minimum Loan Rate not less
than the respective rate for the Deleted Mortgage Loan, have a Margin equal to
or greater than the Deleted Mortgage Loan and have the same Index and adjustment
date frequency as the Deleted Mortgage Loan, (iv) have the same Due Date as the
Deleted Mortgage Loan; (v) have a remaining term to maturity not more than one
year earlier and not later than the remaining term to maturity of the Deleted
Mortgage Loan; (vi) comply with each representation and warranty as to the
Mortgage Loans set forth in the Sale and Servicing Agreement (deemed to be made
as of the date of substitution); (vii) have been underwritten or re-underwritten
by the Originator in accordance with the same underwriting criteria and
guidelines as the Mortgage Loans being replaced; (viii) be of the same or better
credit quality as the Mortgage Loan being replaced and (ix) satisfy certain
other conditions specified in the Sale and Servicing Agreement.
The Originator will make certain representations and warranties as to
the accuracy in all material respects of certain information furnished to the
Indenture Trustee with respect to each Mortgage Loan (e.g., the Loan Rate). In
addition, the Originator will represent and warrant, on the Closing Date, that,
among other things: (i) 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; (ii) 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 (x) a subsidiary of any of the
foregoing institutions which subsidiary is actually supervised and examined by
applicable regulatory authorities or (y) 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; (iii) immediately prior to the
sale of the mortgage loans, 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; (iv) 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; (v) 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; (vi) the Mortgaged Property and all improvements thereon
comply with all requirements of any applicable zoning and subdivision laws and
ordinances; (vii) 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; (viii) 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; (ix) the
terms of the Mortgage Note and the Mortgage have not been impaired, waived,
altered or modified in any respect, except by written instruments, (a) if
required by law in the jurisdiction where the Mortgaged Property is located, or
(b) to protect the interests of the Trustee on behalf of the Noteholders; and
(x) 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. Upon discovery of a breach of any such representation and warranty which
materially and adversely affects the interests of the Noteholders in the related
Mortgage Loan and Related Documents, the Originator will have a period of 90
days after discovery or notice of the breach to effect a cure. If the breach
cannot be cured within the 90-day period, the Originator will be obligated to
(i) substitute for such Deleted Mortgage Loan a Qualifying Substitute Mortgage
Loan or (ii) repurchase such Deleted Mortgage Loan from the Trust. The same
procedure and limitations that are set forth above for the substitution or
repurchase of Deleted Mortgage Loans as a result of deficient documentation
relating thereto will apply to the substitution or repurchase of a Deleted
Mortgage Loan as a result of a breach of a representation or warranty in the
Sale and Servicing Agreement that materially and adversely affects the interests
of the Noteholders.
Mortgage Loans required to be transferred to the Originator as
described in the preceding paragraphs are referred to as "Deleted Mortgage
Loans."
Pursuant to the Sale and Servicing Agreement, the Servicer will service
and administer the Mortgage Loans as more fully set forth therein.
[RESERVE ACCOUNT
The Indenture Trustee shall establish and maintain a separate,
non-interest bearing trust account (the "Reserve Account") for the benefit of
the Noteholders. The Reserve Account shall be an Eligible Account. The Reserve
Account shall relate solely to the Securities and funds therein shall be held
separate and apart from and shall not be commingled with any other monies
including, without limitation, other monies of the Indenture Trustee held under
the Sale and Servicing Agreement. The Indenture Trustee shall make withdrawals
from the Reserve Account only for the following purposes: to pay such amounts in
respect of additional balance advance amounts; to pay such amounts required
under the trust agreement; and to withdraw amounts deposited in the Reserve
Account in error. The Indenture Trustee may (but is not obligated to) invest, or
cause to be invested, funds held in the Reserve Account in Permitted
Investments. All such investments must be payable on demand or mature no later
than one Business Day prior to the next Payment Date, and shall not be sold or
disposed of prior to their maturity. All such Eligible Investments will be made
in the name of the Indenture Trustee (in its capacity as such) or its nominee.
The amount of any losses incurred in respect of any such investments shall be
paid by the Indenture Trustee for deposit in the Reserve Account out of its own
funds, without any right of reimbursement therefor, immediately as realized. All
income and gain realized from any such investment shall be compensation to the
Indenture Trustee and shall be subject to its withdrawal on order from time to
time.]
[THE CERTIFICATE ACCOUNT
The Indenture Trustee, for the benefit of the Certificateholders, shall
establish and maintain in the name of the Owner Trustee on behalf of the
Certificateholders an account (the "Certificate Account"). On each Payment Date,
the Indenture Trustee shall withdraw from the Payment Account all amounts
required to be deposited in the Certificate Account under the Sale and Servicing
Agreement and remit such amount to the Owner Trustee for deposit into the
Certificate Account. On each Payment Date, the Indenture Trustee shall
distribute all amounts on deposit in the Certificate Account to the
Certificateholders in respect of the Residual Certificates as provided in the
trust agreement. On the Payment Date on which the Note Balance is reduced to
zero, the Indenture Trustee shall distribute all amounts remaining on deposit in
the Certificate Account to the Certificateholders in respect of the Residual
Certificates in order to clear and terminate the Certificate Account. The
Indenture Trustee may (but is under no obligation to) invest, or cause to be
invested, funds held in the Certificate Account in Permitted Investments. All
such investments must be payable on demand or mature no later than one Business
Day prior to the next Payment Date, and shall not be sold or disposed of prior
to their maturity. All such Permitted Investments will be made in the name of
the Indenture Trustee (in its capacity as such) or its nominee. The amount of
any losses incurred in respect of any such investments shall be paid by the
Indenture Trustee for deposit in the Certificate Account out of its own funds,
without any right of reimbursement therefore, immediately as realized. All
income and gain realized from any such investment shall be compensation to the
Indenture Trustee and shall be subject to its withdrawal on order from time to
time.]
[THE MASTER SERVICER COLLECTION ACCOUNT
The Master Servicer shall establish and maintain in the name of the
Indenture Trustee, for the benefit of the Noteholders, an account, referred to
herein as the Master Servicer Collection Account, into which it will deposit
amounts received from each Servicer and advances (to the extent required to make
advances) made from the Master Servicer's own funds (less the Master Servicer's
expenses, as provided in the Sale and Servicing Agreement). Amounts so deposited
may be invested in Permitted Investments (as defined in the Indenture) maturing
no later than one Business Day prior to the date on which the amount on deposit
therein is required to be deposited in the Payment Account. The Indenture
Trustee will establish an account (the "Payment Account") into which will be
deposited amounts withdrawn from the Master Servicer Collection Account for
payment to Noteholders on a Payment Date and payment of certain fees and
expenses of the Trust. The Payment Account will be an Eligible Account. Amounts
on deposit therein may, but are not obligated to be, invested in Permitted
Investments maturing on or before the third Business Day prior to the related
Payment Date. The Master Servicer Collection Account and amounts at any time
credited thereto shall comply with the requirements of the Sale and Servicing
Agreement and shall meet the requirements of the Rating Agencies.]
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND PAYMENT ACCOUNT
The Servicer will establish and maintain or cause to be maintained one
or more separate trust accounts (each, a "Collection Account") for the benefit
of the Noteholders. Each Collection Account will be an Eligible Account (as
defined in the Indenture). Upon receipt by the Servicer of amounts in respect of
the Mortgage Loans (excluding amounts representing the Servicing Fee or other
servicing compensation, reimbursement for Servicing Advances and insurance
proceeds to be applied to the restoration or repair of a Mortgaged Property or
similar items), the Servicer will deposit such amounts in the Collection
Account. Amounts so deposited may be invested in Permitted Investments (as
defined in the Indenture) maturing no later than one Business Day prior to the
date on which the amount on deposit therein is required to be deposited in the
Payment Account. The Indenture Trustee will establish an account (the "Payment
Account") into which will be deposited amounts withdrawn from the Collection
Account for payment to Noteholders on a Payment Date and payment of certain fees
and expenses of the Trust. The Payment Account will be an Eligible Account.
Amounts on deposit therein may, but are not obligated to be, invested in
Permitted Investments maturing on or before the third Business Day prior to the
related Payment Date.
PERMITTED INVESTMENTS
To the extent provided in the Sale and Servicing Agreement, amounts on
deposit in the Payment Account may be invested in Permitted Investments in the
name of the Indenture Trustee and, except as provided in the Indenture, not
commingled with any other funds. Such Permitted Investments shall mature, or
shall be subject to redemption or withdrawal, no later than three business days
before such funds are required to be withdrawn for distribution to the
Noteholders. The income earned from Permitted Investments shall be paid to the
Servicer under the Sale and 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 Sale and Servicing Agreement) shall deposit the amount of any
such loss in the Payment Account, without any right of reimbursement therefor,
immediately as realized.
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) direct obligations of, and obligations fully guaranteed as
to timely payment of principal and interest by, the United States of America or
any agency or instrumentality of the United States of America the obligations of
which are backed by the full faith and credit of the United States of America
("Direct Obligations");
(ii) federal funds, or demand and time deposits in,
certificates of deposits of, or bankers' acceptances issued by, any depository
institution or trust company (including U.S. subsidiaries of foreign
depositories and the Indenture Trustee or any agent of the Indenture Trustee,
acting in its respective commercial capacity) incorporated or organized under
the laws of the United States of America or any state thereof and subject to
supervision and examination by federal or state banking authorities, so long as
at the time of investment or the contractual commitment providing for such
investment the commercial paper or other short-term debt obligations of such
depository institution or trust company (or, in the case of a depository
institution or trust company which is the principal subsidiary of a holding
company, the commercial paper or other short-term debt or deposit obligations of
such holding company or deposit institution, as the case may be) have been rated
by each Rating Agency in its highest short-term rating category or one of its
two highest long-term rating categories;
(iii) repurchase agreements collateralized by Direct
Obligations or securities guaranteed by GNMA, Fannie Mae or FHLMC with any
registered broker/dealer subject to Securities Investors' Protection Corporation
jurisdiction or any commercial bank insured by the FDIC, if such broker/dealer
or bank has an uninsured, unsecured and unguaranteed obligation rated by each
Rating Agency in its highest short-term rating category;
(iv) securities bearing interest or sold at a discount issued
by any corporation incorporated under the laws of the United States of America
or any state thereof which have a credit rating from each Rating Agency, at the
time of investment or the contractual commitment providing for such investment,
at least equal to one of the two highest long-term credit rating categories of
each Rating Agency; PROVIDED, HOWEVER, that securities issued by any particular
corporation will not be Eligible Investments (as defined in the Indenture) to
the extent that investment therein will cause the then outstanding principal
amount of securities issued by such corporation and held as part of the Trust
Estate to exceed 20% of the sum of the Pool Balance and the aggregate principal
amount of all Eligible Investments in the Payment Account; PROVIDED, FURTHER,
that such securities will not be Eligible Investments if they are published as
being under review with negative implications from any Rating Agency;
(v) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on demand or on a
specified date not more than 180 days after the date of issuance thereof) rated
by each Rating Agency in its highest short-term rating category;
(vi) a Qualified GIC;
(vii) certificates or receipts representing direct ownership
interests in future interest or principal payments on obligations of the United
States of America or its agencies or instrumentalities (which obligations are
backed by the full faith and credit of the United States of America) held by a
custodian in safekeeping on behalf of the holders of such receipts; and
(viii) any other demand, money market, common trust fund or
time deposit or obligation, or interest-bearing or other security or investment
(including those managed or advised by the Indenture Trustee or any Affiliate
thereof), (A) rated in the highest rating category by each Rating Agency or (B)
that would not adversely affect the then current rating assigned by each Rating
Agency of any of the Notes. Such investments in this subsection (viii) may
include money market mutual funds or common Trust Estates, including any fund
for which [__________] (the "Bank") in its capacity other than as Indenture
Trustee, the Servicer or an affiliate thereof serves as an investment advisor,
administrator, shareholder servicing agent, and/or custodian or subcustodian,
notwithstanding that (x) the Bank, the Indenture Trustee, the Servicer or any
affiliate thereof charges and collects fees and expenses from such funds for
services rendered, (y) the Bank, the Indenture Trustee, the Servicer or any
affiliate thereof charges and collects fees and expenses for services rendered
pursuant to this Agreement, and (z) services performed for such funds and
pursuant to this Agreement may converge at any time;
PROVIDED, HOWEVER, that no such instrument shall be an Eligible Investment if
such instrument evidences either (i) a right to receive only interest payments
with respect to the obligations underlying such instrument, or (ii) 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 of greater than 120% of the yield to
maturity at par of such underlying obligations, provided that any such
investment will be a "permitted investment" within the meaning of Section
860G(a)(5) of the Code.
THE SALE AND SERVICING AGREEMENT
[THE MASTER SERVICER
[____________] ("[________]") will act as Securities Administrator and
Master Servicer under the Sale and Servicing Agreement. [________] is a
[national banking association and a wholly-owned subsidiary of [________]]. A
diversified financial services company with approximately $[__] billion in
assets, [__] million customers and [__] employees, [________] is among the
leading U.S. bank holding companies, providing banking, insurance, trust,
mortgage and consumer finance services throughout the United States and
internationally. [________] provides retail and commercial banking services and
corporate trust, custody, securities lending, securities transfer, cash
management, investment management and other financial and fiduciary services.
The [Depositor, the Seller and the Servicer] may maintain banking and other
commercial relationships with [________] and its affiliates. [________]'s
principal corporate trust offices are located at [________] and its office for
certificate transfer services is located at [________].
[________] acts as Master Servicer pursuant to the Sale and 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
Trustee] against such defaulting Servicer. As of __________, [________] 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
[________]'s total residential mortgage loan servicing portfolio as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
- -----------------------------------------------------------------------------------------------------------
TOTAL
TOTAL PORTFOLIO TOTAL TOTAL
PORTFOLIO OF PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER LOANS NUMBER OF LOANS NUMBER OF LOANS
- -----------------------------------------------------------------------------------------------------------
Residential Mortgage
Loans................
[Describe any material changes in [________]'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 information required pursuant to Item 1108 of Regulation AB
will be provided if applicable.]
THE SERVICER
The information set forth in the following paragraphs has been provided
by the Servicer.
[__________], a [_________] ("[______]") will be the Servicer with
respect to the Mortgage Loans.
[______] is an indirect wholly-owned subsidiary of [__________] and is
one of the nation's largest mortgage bankers. [______] is engaged in the
mortgage banking business, including origination, purchase, sale and servicing
of residential loans. [______] has been engaged in the servicing of residential
mortgage loans since 1985. As of [______], the company's servicing portfolio of
more than $[__] billion represents nearly [__] million customers throughout the
nation. [______] maintains its executive and principal offices at [__________].
Its telephone number is [__________].
[The following table describes size, composition and growth of
[______]'s total residential mortgage loan servicing portfolio as of the dates
indicated.]
DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2005 [ ] 2006
- -----------------------------------------------------------------------------------------------------------
TOTAL
TOTAL PORTFOLIO TOTAL TOTAL
PORTFOLIO OF PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER LOANS NUMBER OF LOANS NUMBER OF LOANS
- -----------------------------------------------------------------------------------------------------------
Residential Mortgage
Loans................
[Describe any material changes in [______]'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.]
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the Servicer may change the terms of the
Credit Line Agreements relating to the HELOCs at any time provided that such
changes (i) do not adversely affect the interest of the Noteholders, (ii) are
consistent with prudent business practice and (iii) do not adjust the maturity
date of such HELOC past the date that is 6 months before the Final Stated
Maturity Date of the Offered Notes. In addition, the Sale and Servicing
Agreement permits the Servicer, within certain limitations described therein, to
increase the Credit Limit of the related HELOC or reduce the Margin for such
HELOC.
SERVICING ADVANCES
In the course of performing its servicing obligations, the Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
(including reasonable attorneys' fees and disbursements) incurred in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration, inspection and protection of the
Mortgaged Properties, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of Mortgaged Properties
acquired in satisfaction of the related mortgage and (iv) certain insurance
premiums and certain ongoing expenses associated with the Loan Pool and incurred
by the Servicer in connection with its responsibilities under the Sale and
Servicing Agreement. Each such expenditure will constitute a "Servicing
Advance."
Servicing Advances are required to be made on each Mortgage Loan only
to the extent they are deemed by the Servicer to be recoverable from related
late collections, insurance proceeds, condemnation proceeds and liquidation
proceeds on each Mortgage Loan. The Servicer's right to reimbursement for
Servicing Advances is limited to late collections on the related Mortgage Loan,
including liquidation proceeds, condemnation proceeds, released mortgaged
property proceeds, insurance proceeds and such other amounts as may be collected
by the Servicer from the related mortgagor or otherwise relating to the Mortgage
Loan in respect of which such unreimbursed amounts are owed, unless such amounts
are deemed to be nonrecoverable by the Servicer from the proceeds of the related
Mortgage Loan, in which event reimbursement will be made to the Servicer from
general funds in the Collection Account.
LIMITATION ON SERVICER LIABILITY
Neither the Servicer nor any of the directors or officers or employees
or agents of the Servicer shall be under any liability to the Trust or the
Noteholders or Residual Certificateholders for any action taken or for
refraining from the taking of any action by the Servicer in good faith pursuant
to the Sale and Servicing Agreement, or for errors in judgment; PROVIDED,
HOWEVER, that the Servicer or any such person is still liable for any breach of
representations and warranties made, or liable for any specific liability
imposed on the Servicer for a breach of its servicing under the Sale and
Servicing Agreement or for willful misfeasance, bad faith or negligence in the
performance of duties of the Servicer or by reason of reckless disregard of
obligations and duties of the Servicer under the Sale and Servicing Agreement.
The Servicer and any director or officer or employee or agent of the Servicer
may rely in good faith on any document of any kind PRIMA FACIE properly executed
and submitted by any Person respecting any matters arising hereunder. The
Servicer and any director or officer or employee or agent of the Servicer shall
be entitled to be indemnified by [__________] Trust [200_-___] and shall be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Sale and Servicing Agreement or the Notes, other
than any loss, liability or expense related to any specific Mortgage Loan
(except as any such loss, liability or expense shall be otherwise reimbursable)
and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or negligence, breach of representations and warranties
made, or against any specific liability imposed on the Servicer for a breach of
its servicing under the Sale and Servicing Agreement or against in the
performance of duties or by reason of its reckless disregard of obligations and
duties under the Sale and Servicing Agreement.
SERVICING OF DELINQUENT MORTGAGE LOANS
The Servicer will be required to act with respect to delinquent
Mortgage Loans in accordance with procedures set forth in the Sale and Servicing
Agreement. These procedures, as followed with respect to any delinquent Mortgage
Loan, may, among other things, result in (i) foreclosing on such Mortgage Loan,
(ii) accepting the deed to the related Mortgaged Property in lieu of
foreclosure, (iii) granting the borrower under such Mortgage Loan a modification
or forbearance or (iv) accepting payment from the borrower under such Mortgage
Loan of an amount less than the Principal Balance of such Mortgage Loan in final
satisfaction of such Mortgage Loan. These procedures are intended to lead to the
alternative that would result in the recovery by the Trust of the highest net
present value of proceeds on such Mortgage Loan. However, there can be no
assurance that following such procedures will have that result or that following
such procedures will lead to the alternative that is in the best interests of
the Noteholders. If the Servicer extends the payment period or accepts a lesser
amount than stated in the mortgage note in satisfaction of the mortgage note,
your yield may be affected.
MODIFICATIONS
In instances in which a mortgage loan is in default or if default is
reasonably foreseeable, and if determined by the [master servicer][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 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.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Mortgage Loan, the principal compensation to be
paid to the Servicer in respect of its servicing activities (the "Servicing
Fee") for the Mortgage Loans will be at the "Servicing Fee Rate" 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. As additional servicing
compensation, the Servicer is entitled to retain all service-related fees,
including assumption fees, modification fees, extension fees, late payment
charges, non-sufficient fund fees and other ancillary fees, to the extent
collected from mortgagors, together with any interest or other income earned on
funds held in the Collection Account and any servicing accounts. The Servicer is
not required to cover the shortfall in interest collections that are
attributable to prepayments.
With respect to any Determination Date and each Mortgage Loan as to
which a principal prepayment in full was applied during the portion of the
related Prepayment Period (as defined below) occurring in the month preceding
the month of such Determination Date, the "Prepayment Interest Shortfall" is an
amount equal to interest at the applicable Loan Rate (net of the Servicing Fee)
on the amount of such principal prepayment for the number of days commencing on
the date such principal prepayment was applied and ending on the last day of the
month in which the related Prepayment Period began.
SERVICER REMOVAL AND REPLACEMENT; BACK-UP SERVICING
If an Event of Servicing Termination (as defined in the Sale and
Servicing Agreement) occurs and is not remedied by the Servicer, either the
Indenture Trustee or the Noteholders holding a majority of the outstanding Notes
may terminate all of the rights and obligations of the Servicer by written
notice to the Servicer, each Rating Agency and the Class [__]
Certificateholders. Upon receipt by the Servicer of such written notice, all
authority and power of the Servicer under the Sale and Servicing Agreement shall
pass to Indenture Trustee. The Indenture Trustee is thereupon authorized and
empowered to execute and deliver, on behalf of the Servicer and the Seller, 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. All reasonable costs and expenses (including attorneys' fees
and expenses) incurred in connection with amending the Sale and Servicing
Agreement to reflect the successor Servicer will be paid by the predecessor
Servicer or, if such costs and expenses are not paid by the predecessor
Servicer, such costs shall be paid out of the Trust Estate.
On and after the time the Servicer receives a notice of termination,
the Indenture Trustee will be the successor in all respects to the Servicer in
its capacity as servicer and will be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions of the Sale and Servicing Agreement. The Indenture Trustee will use
the same degree of care and skill as is required of the Servicer; provided,
however, that it shall have no responsibility or obligation (i) of repurchase or
substitution with respect to any Mortgage Loan, (ii) with respect to any
representation or warranty of the Servicer, and (iii) for any liabilities, act
or omission of either a predecessor or successor Servicer other than the
Indenture Trustee. As compensation therefor, the Indenture Trustee shall be
entitled to such compensation as the Servicer would have been entitled to if no
such notice of termination had been given.
Notwithstanding the above, (i) if the Indenture Trustee is unwilling to
act as successor Servicer, or (ii) if the Indenture Trustee is legally unable so
to act, the Indenture Trustee may appoint or petition a court of competent
jurisdiction to appoint, any established housing and home finance institution,
bank or other mortgage loan or home equity loan servicer with all licenses and
permits required to perform its obligations under the Sale and Servicing
Agreement and having a net worth of not less than $[______] as the successor to
the Servicer in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer. The appointment of any successor Servicer
may not result in the qualification, reduction or withdrawal of the ratings
assigned to the Notes by the Rating Agencies. Pending appointment of a successor
to the Servicer, unless the Indenture Trustee is prohibited by law from so
acting, the Indenture Trustee will act in such capacity. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Mortgage Loans in an amount equal to not more
than the compensation which the Servicer would otherwise have received pursuant
to the Sale and Servicing Agreement. The Indenture Trustee and such successor
will take such action, consistent with the Sale and Servicing Agreement, as
shall be necessary to effectuate any such succession.
Any successor, including the Indenture Trustee, to the Servicer as
servicer will during the term of its service as servicer (i) continue to service
and administer the Mortgage Loans for the benefit of the Noteholders and the
Residual Certificateholders and (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer and a fidelity bond in respect of its officers, employees and agents to
the same extent as the predecessor Servicer. The appointment of a successor
Servicer will not affect any liability of the predecessor Servicer which may
have arisen under the Sale and Servicing Agreement prior to its termination as
Servicer, nor will any successor Servicer be liable for any acts or omissions of
the predecessor Servicer or for any breach by such Servicer of any of its
representations or warranties contained in the Sale and Servicing 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
Offered 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
---- --- ---------
Servicing Fee(1)(2) ___bp Mortgage Loan Interest Collections(3)
Trustee Fee ___bp Servicing Fee
Trust Expenses(4) N/A Mortgage Loan Collections
Liquidation Expenses(4) N/A Mortgage Loan Collections
(1) Servicing fee including securities administrator, paying agent
and note registrar fees. The Servicer receives a single
combined fee that covers all of these functions. The Servicer
performs these functions.
(2) Servicer pays trustee fees out of its fee.
(3) The servicing fee is paid on a first priority basis from
collections allocable to interest on the mortgage loans, prior
to distributions to noteholders.
(4) Paid on a first priority basis from available funds prior to
distributions to noteholders.
THE CREDIT RISK MANAGER
The [__________], a [_________], as credit risk manager for
[__________] Trust [200_-___] (the "Credit Risk Manager") will monitor the
performance of the Servicer, and make recommendations to the Servicer regarding
certain delinquent and defaulted Mortgage Loans and will report to the Depositor
on the performance of such Mortgage Loans, pursuant to a Credit Risk Management
Agreement to be entered into by the Credit Risk Manager and the Servicer on or
prior to the Closing Date. The Credit Risk Manager will rely upon mortgage loan
data that is provided to it by the Servicer in performing its advisory and
monitoring functions. The Credit Risk Manager will be entitled to receive a
"Credit Risk Manager Fee" until the redemption of the Notes or until its removal
by a vote of at least 66 2/3% of the noteholders. Such fee will be paid by
[__________] Trust [200_-___] and will be equal to a per annum percentage of the
then current aggregate principal balance of the Mortgage Loans.
THE INDENTURE
GENERAL
The Notes will be issued under 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 Offered Notes containing a copy of the Indenture, the Trust
Agreement and the Sale and Servicing Agreement as executed will be filed by the
Depositor with the Commission within fifteen days of the initial issuance of the
Offered Notes. The Trust Estate pledged to the Indenture Trustee pursuant to the
Indenture will consist of (i) all right, title and interest in the Mortgage
Loans and the Related Documents; (ii) all payments on or collections in respect
of the Mortgage Loans due after the Cut-off Date, together with any proceeds of
the Mortgage Loans; (iii) any Mortgaged Properties acquired on behalf of
Noteholders by foreclosure or by deed in lieu of foreclosure, and any revenues
received on such Mortgaged Properties; (iv) the rights of the Indenture Trustee
under all insurance policies required to be maintained under the Sale and
Servicing Agreement, (v) the rights of the Depositor under the Sale and
Servicing Agreement, (vi) the Net WAC Rate Carryover Reserve Account and (vii)
amounts on deposit in the Pre-Funding Accounts and the Interest Coverage
Accounts, if any.
Reference is made to the prospectus for important information in
addition to that set forth in this prospectus supplement regarding the Trust
Estate, the terms and conditions of the Indenture and the Trust Agreement and
the Offered Notes. The Depositor will provide to a prospective or actual
Noteholder without charge, on written request, a copy of the Indenture and Trust
Agreement.
THE INDENTURE TRUSTEE
[_________], a national banking association, will be the Indenture
Trustee under the Indenture. The Depositor and the Servicer and their affiliates
may maintain other banking relationships in the ordinary course of business with
the Indenture Trustee. The Indenture Trustee's corporate trust office is located
at [_________], Attention: [_________] or at such other address as the Indenture
Trustee may designate from time to time.
[Describe the extent of [_________]'s prior experience serving as an
indenture trustee for asset-backed securities transactions involving mortgage
pools of first lien mortgage loans secured by one- to four-family residential
real properties.]
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 as duties of the Indenture 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.
FOR FURTHER DISCUSSION OF THE DUTIES OF THE TRUSTEE, PLEASE SEE
"OPERATIVE AGREEMENTS--THE TRUSTEE--DUTIES OF THE TRUSTEE" IN THE PROSPECTUS.
The Indenture Trustee may resign at any time, in which event
[__________] Trust [200_-___] will be obligated to appoint a successor Indenture
Trustee for the Notes within the period specified in the Indenture. The
Indenture Trustee also may be removed at any time by Noteholders representing
more than 50% of the aggregate Note Balance of the Notes. [__________] Trust
[200_-___] will remove the Indenture Trustee if the Indenture Trustee ceases to
be eligible to continue as such under the Indenture or if the Indenture Trustee
becomes incapable of acting, bankrupt, insolvent or if a receiver or public
officer takes charge of the Indenture Trustee or its property. Any resignation
or removal of the Indenture Trustee and appointment of a successor Indenture
Trustee will not become effective until acceptance of the appointment by the
successor Indenture Trustee.
EVENTS OF DEFAULT
Notwithstanding the prospectus, an Event of Default under the Indenture
with respect to the Notes is as follows: (a) the failure of [__________] Trust
[200_-___] to pay, by the Final Stated Maturity Date, all interest accrued on
the Notes and the Note Balance of the Notes; (b) a default by [__________] Trust
[200_-___] in the observance of certain negative covenants in the Indenture; (c)
a default by [__________] Trust [200_-___] in the observance of any other
covenant of the Indenture, and the continuation of any such default for a period
of 30 days after notice to [__________] Trust [200_-___] by the Indenture
Trustee or by the holders of at least 25% of the aggregate Note Balance of the
Notes, as applicable; (d) any representation or warranty made by [__________]
Trust [200_-___] in the Indenture or in any Note or other writing delivered
pursuant thereto having been incorrect in a material respect as of the time
made, and the circumstance in respect of which such representation or warranty
is incorrect not having been cured within 30 days after notice thereof is given
to [__________] Trust [200_-___] by the Indenture Trustee or by the holders of
at least 25% of the aggregate Note Balance of the Notes, as applicable; (e)
certain events of bankruptcy, insolvency, receivership or reorganization of
[__________] Trust [200_-___]; or (f) the failure by [__________] Trust
[200_-___] on the Final Stated Maturity Date to reduce the Note Balances of any
class of Notes then outstanding to zero.
RIGHTS UPON EVENT OF DEFAULT
In case an Event of Default should occur and be continuing with respect
to the Notes, then (in every such case) the Indenture Trustee, at the written
direction of the Noteholders representing more than 50% of the aggregate Note
Balance of the Notes then outstanding, will declare the principal of the Notes,
together with accrued and unpaid interest thereon through the date of
acceleration, to be due and payable. Such declarations in respect of the Notes
may under certain circumstances be rescinded by the Noteholders representing
more than 50% of the aggregate Note Balance of the Notes.
If, following an Event of Default, any Notes have been declared to be
due and payable, the Indenture Trustee may, if directed by the Noteholders
representing more than 50% of the aggregate Note Balance of the Notes, refrain
from selling such assets and continue to apply all amounts received on such
assets to payments due on the Notes in accordance with their terms,
notwithstanding the acceleration of the maturity of the Notes. The Indenture
Trustee, however, must sell or cause to be sold (in accordance with the
direction of the Noteholders representing more than 50% of the aggregate Note
Balance of the Notes) the assets included in the Trust if collections in respect
of such assets are determined (by an independent appraiser payable by the Trust)
to be insufficient to pay certain expenses payable under the Indenture and to
make all scheduled payments on the Notes. In the event the assets of the Trust
are sold, any collection on, or the proceeds from the sale of, the assets will
be applied in accordance with the provisions of the Indenture.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, in case an Event of Default has occurred and is
continuing, the Indenture Trustee will be under no obligation to exercise any of
the rights and powers under the Indenture at the request or direction of any of
the Noteholders, unless such Noteholders have offered to the Indenture Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the Noteholders representing more than
50% of the aggregate Note Balance of the Notes will have the right to direct the
time, method, and place of conducting any proceeding or any remedy available to
the Indenture Trustee or exercising any trust or power conferred on the
Indenture Trustee with respect to the Notes; and the Noteholders representing
more than 50% of the aggregate Note Balance of the Notes may, in certain cases,
waive any default with respect thereto.
LIMITATION ON SUITS
No Noteholder will have any right to institute any proceedings with
respect to the Indenture unless (1) such Noteholder has previously given written
notice to the Indenture Trustee of a continuing Event of Default; (2) the
Noteholders representing not less than 50% of the aggregate Note Balance of the
Notes have made written request to the Indenture Trustee to institute
proceedings in respect of such Event of Default in its own name as Indenture
Trustee; (3) such Noteholders have offered to the Indenture Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request; (4) for 60 days after its receipt of such notice,
request and offer of indemnity the Indenture Trustee has failed to institute any
such proceedings; and (5) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by the
Noteholders representing more than 50% of the aggregate Note Balance of the
Notes.
VOTING RIGHTS
At all times, 100% of all voting rights will be allocated among the
holders of the Floating Rate Notes in proportion to the then outstanding Note
Balances of their respective notes.
OPTIONAL REDEMPTION
The Servicer (in such capacity, the "Redeemer") will have the right to
redeem the Notes, in whole but not in part, on any Payment Date following the
Collection Period during which the excess of (a) the aggregate Principal Balance
of the Mortgage Loans and any REO properties remaining in the Trust at the time
of purchase over (b) the certificate principal balance of the Class [__]
Certificates has been reduced to less than 10% of the sum of (i) the aggregate
Principal Balance of the Initial Mortgage Loans as of the Cut-off Date and (ii)
the Original Pre-Funded Amounts. In the event the Redeemer exercises the option,
the purchase price payable in connection with the option will be equal to the
greater of (i) the Principal Balance of the Mortgage Loans and the appraised
value of any REO properties and (ii) the fair market value of the Mortgage Loans
and the REO properties, in each case plus accrued and unpaid interest for each
Mortgage Loan at the related Loan Rate to but not including the first day of the
month in which such repurchase price is paid plus unreimbursed Servicing
Advances, any unpaid Servicing Fees allocable to such Mortgage Loans and REO
properties and any accrued and unpaid Net WAC Rate Carryover Amounts (the
"Redemption Price"). In the event the Redeemer exercises this option, the
portion of the purchase price allocable to the Notes will be, to the extent of
available funds:
(i) 100% of the then outstanding Note Balance of the Floating Rate
Notes, plus
(ii) one month's interest on the then outstanding Note Balance of the
Floating Rate Notes at the then applicable Note Rate for the class, plus
(iii) any previously accrued but unpaid interest thereon to which the
holders of the Floating Rate Notes are entitled, together with the amount of any
Net WAC Rate Carryover Amounts, plus
(iv) in the case of the Class B Notes and the Mezzanine Notes, any
previously unpaid Allocated Realized Loss Amount.
SUPPLEMENTAL INDENTURES
Without the consent of the holders of any Notes, [__________] Trust
[200_-___] and the Indenture Trustee, at any time and from time to time, may
enter into one or more supplemental indentures for any of the following
purposes: (a) to correct or amplify the description of any property at any time
subject to the lien of the Indenture, (b) to evidence the succession of another
person to [__________] Trust [200_-___]; (c) to add to the covenants of
[__________] Trust [200_-___]; (d) to convey, transfer, assign, mortgage or
pledge any property to or with the Indenture Trustee; (e) to cure any ambiguity,
to correct or supplement any provision in the Indenture; (f) to make any other
provisions with respect to matters or questions arising under the Indenture; (g)
to evidence and provide for the acceptance of the appointment of a successor
trustee; or (h) to modify, eliminate or add to the provisions of the Indenture;
provided, that such action (as evidenced by either (i) an opinion of counsel
delivered to the Depositor, [__________] Trust [200_-___], the Sponsor and the
Indenture Trustee or (ii) confirmation from the Rating Agencies that such
amendment will not result in the reduction or withdrawal of the rating of any
class of Notes) will not materially and adversely affect the interests of the
holders of the Notes.
[__________] Trust [200_-___] and the Indenture Trustee also may, with
the consent of the holders of not less than a majority of the Note Balance of
each class of Notes affected thereby, enter into a supplemental indenture for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Indenture or of modifying in any
manner the rights of the holders of the Notes under the Indenture; provided that
no such supplemental indenture will, without the consent of the holder of each
Note affected thereby: (a) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount thereof or
the interest rate thereon, change the provisions of the Indenture relating to
the application of collections on, or the proceeds of the sale of, the Trust to
payment of principal of or interest on the Notes, or change any place of payment
where, or the coin or currency in which, any Note or the interest thereon is
payable; (b) reduce the percentage of the Note Balance of the Notes, the consent
of the holders of which is required for any such supplemental indenture; (c)
reduce the percentage of the Note Balance of the Notes required to direct the
Indenture Trustee to direct [__________] Trust [200_-___] to sell or liquidate
the Trust; (d) modify any of the provisions of the Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note; or (e) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any part of the Trust or
terminate the lien of the Indenture.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture. Set forth below are
summaries of the specific terms and provisions pursuant to which the Notes will
be issued. The following summaries do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, the provisions of the
Indenture. When particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
The Trust will issue (i) the Class [__] Notes and the Class [__] Notes
(collectively, the "Class A Notes"), (ii) the Class [__] Notes and the Class
[__] Notes (collectively, the "Mezzanine Notes"), (iii) the Class [__] Notes
(the "Class B Notes"), (iv) the Class [__] Certificates and (v) the Class [__]
Certificates, the Class [__] Certificates and the Class [__] Certificates (the
"Residual Certificates"). The Class A Notes, the Mezzanine Notes and the Class B
Notes are collectively referred to herein as the "Notes." Only the Class A Notes
and the Mezzanine Notes (other than the Class [__] Notes) are offered hereby
(together, the "Offered Notes").
The Offered Notes will have the Original Note Balances specified on the
cover hereof, subject to a permitted variance of plus or minus five percent. The
Class [__] Notes will have an Original Note Balance equal to $[____]. The
Class[__] Notes will have an Original Note Balance equal to $[____].
The Class [__] Certificates will have an original certificate principal
balance equal to the excess of the sum of (i) the aggregate Principal Balance of
the Initial Mortgage Loans as of the Cut-off Date and (ii) the Original
Pre-Funded Amounts over the aggregate Note Balance of the Offered Notes and the
Additional Balance Advance Amount as of such Payment Date, and will bear
interest as set forth in the Indenture. The Class [__] Certificates will have an
original certificate principal balance equal to the amount of any Additional
Balance Advance Amounts but will not bear interest. The Residual Certificates
will not have an original certificate principal balance and will not bear
interest.
The Offered Notes will be issued in book-entry form as described below.
The Offered Notes will be issued in minimum dollar denominations of $25,000 and
integral multiples of $1.00 in excess thereof; provided that offered notes must
be purchased in minimum total investments of $100,000 per class. The Final
Stated Maturity Date for the Offered Notes is the Payment Date in [____ 20__].
Payments on the Offered Notes will be made by the Indenture Trustee on
the 25th day of each month, or if such day is not a Business Day, on the first
Business Day thereafter, commencing in [_______ 200_] (each, a "Payment Date"),
to the persons in whose names such Offered Notes are registered at the close of
business on the Record Date. The "Record Date" (i) for any Offered Note issued
in book-entry form will be the business day immediately preceding such Payment
Date and (ii) for any Certificate or any book-entry Note that becomes a
Definitive Note (as defined herein) will be the last business day of the month
immediately preceding the month in which the related Payment Date occurs.
The HELOCs may be drawn upon generally for a period of five or fifteen
years. All draws that occur on the HELOCs during any collection period (the
"Additional Balances") will be funded by principal collections on the HELOCs
during such collection period and such principal collections will not be payable
to the holders of the Notes. In the event that draws during a particular
collection period are greater than principal collections for such collection
period, the Servicer will fund the Additional Balance Advance Amount and amounts
distributable to the Class [__] Certificates will be remitted by the holder
thereof to the Servicer in reimbursement of such Additional Balance Advance
Amounts.
BOOK-ENTRY NOTES
The Offered Notes will be book-entry Notes (for so long as they are
registered in the name of the applicable Depository or its nominee, the
"Book-Entry Notes"). Persons acquiring beneficial ownership interests in the
Book-Entry Notes ("Note Owners") will hold such Notes through The Depository
Trust Company ("DTC") in the United States, or upon request through Clearstream
Banking Luxembourg, formerly known as Cedelbank SA ("Clearstream"), or the
Euroclear System ("Euroclear") (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Notes will be issued in one or more notes which equal
the aggregate Note Principal Balance of such Notes and will initially be
registered in the name of Cede & Co., 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 such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank will act as depositary for Clearstream and JP Morgan Chase Bank will
act as depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Investors may hold
such beneficial interests in the Book-Entry Notes in minimum denominations of
$25,000. Except as described below, no Note Owner acquiring a Book-Entry Note
(each, a "beneficial owner") will be entitled to receive a physical note
representing such Note (a "Definitive Note"). Unless and until Definitive Notes
are issued, it is anticipated that the only "Noteholder" of the Offered Notes
will be Cede & Co., as nominee of DTC. Note Owners will not be Noteholders as
that term is used in the Indenture. Note Owners are only permitted to exercise
their rights indirectly through DTC and participants of DTC ("DTC
Participants").
The Note Owner's ownership of a Book-Entry Note will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the Note Owner's
account for such purpose. In turn, the Financial Intermediary's ownership of
such Book-Entry Note will be recorded on the records of DTC (or of a
participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC Participant and on the records of
Clearstream or Euroclear, as appropriate).
Note Owners will receive all payments of principal of and interest on
the Book-Entry Notes from the Indenture Trustee through DTC and DTC
Participants. While the Book-Entry Notes are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among DTC Participants on whose behalf it acts with
respect to the Book-Entry Notes and is required to receive and transmit payments
of principal of, and interest on, the Book-Entry Notes. DTC Participants and
indirect participants with whom Note Owners have accounts with respect to
Book-Entry Notes are similarly required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Note Owners.
Accordingly, although Note Owners will not possess notes representing their
respective interests in the Book-Entry Notes, the Rules provide a mechanism by
which Note Owners will receive payments and will be able to transfer their
interest.
Note Owners will not receive or be entitled to receive notes
representing their respective interests in the Book-Entry Notes, except under
the limited circumstances described below. Unless and until Definitive Notes are
issued, Note Owners who are not DTC Participants may transfer ownership of
Book-Entry Notes only through DTC Participants and indirect participants by
instructing such DTC Participants and indirect participants to transfer
Book-Entry Notes, by book-entry transfer, through DTC for the account of the
purchasers of such Book-Entry Notes, which account is maintained with their
respective DTC Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of Book-Entry Notes will be executed through
DTC and the accounts of the respective DTC Participants at DTC will be debited
and credited. Similarly, the DTC Participants and indirect participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Note Owners.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a DTC Participant
will be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear Participants or Clearstream Participants (each as defined
below) on such business day. Cash received in Clearstream or Euroclear as a
result of sales of securities by or through a Clearstream Participant (as
defined below) or Euroclear Participant (as defined below) to a DTC Participant
will be received with value on the DTC settlement date but will be available in
the relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC. For information with respect to tax documentation
procedures relating to the Notes, see "Federal Income Tax
Consequences--REMICS--Backup Withholding With Respect to REMIC Notes" and
"--Foreign Investors in REMIC Notes" in the prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.
Transfers between DTC 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, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to 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.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its DTC Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
Notes, whether held for its own account or as a nominee for another person. In
general, beneficial ownership of Book-Entry Notes will be subject to the Rules,
as in effect from time to time.
Clearstream, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, a
Luxembourg limited liability company, was formed in January 2000 through the
merger of Cedel International and Deutsche Boerse Clearing, the shareholders of
which comprise 93 of the world's major financial institutions.
Clearstream is registered as a bank in Luxembourg, and as such is
subject to regulation by the Institute Monetaire Luxembourgeois, "IML," the
Luxembourg Monetary Authority, which supervises Luxembourg banks.
Clearstream holds securities for its customers ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions by electronic book-entry transfers between their accounts.
Clearstream provides various services, including safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream also deals with domestic securities markets
in several countries through established Depository and custodial relationships.
Clearstream has established an electronic bridge with the Euroclear Operator (as
defined below) in Brussels to facilitate settlement of trades between systems.
Clearstream currently accepts over 70,000 securities issues on its books.
Clearstream's customers are world-wide financial institutions including
Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream's United States customers are limited to
securities brokers and dealers and banks. Currently, Clearstream has
approximately 3,000 customers located in over 60 countries, including all major
European countries, Canada, and the United States. Indirect access to
Clearstream is available to other institutions which clear through or maintain a
custodial relationship with an account holder of Clearstream.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between its
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. The Euroclear
System is owned by Euroclear plc and operated through a license agreement by
Euroclear Bank S.A./N.V., a bank incorporated under the laws of the Kingdom of
Belgium (the "Euroclear Operator"). The Euroclear Operator is regulated and
examined by the Belgian Banking and Finance Commission and the National Bank of
Belgium.
The Euroclear Operator holds securities and book-entry interests in
securities for participating organizations and facilitates the clearance and
settlement of securities transactions between Euroclear Participants, and
between Euroclear Participants and participants of certain other securities
intermediaries through electronic book-entry changes in accounts of such
participants or other securities intermediaries. The Euroclear Operator provides
Euroclear Participants, among other things, with safekeeping, administration,
clearance and settlement, securities lending and borrowing, and related
services.
Non-Participants of Euroclear may hold and transfer book-entry
interests in the Book-Entry Notes through accounts with a Euroclear Participant
or any other securities intermediary that holds a book-entry interest in the
Book-Entry Notes through one or more securities intermediaries standing between
such other securities intermediary and the Euroclear Operator.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System, and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific 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 on the Book-Entry Notes will be made on each Payment Date by
the Indenture Trustee to Cede & Co. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payments to the Note Owners of the Book-Entry
Notes that it represents and to each Financial Intermediary for which it acts as
agent. Each such Financial Intermediary will be responsible for disbursing funds
to the Note Owners of the Book-Entry Notes that it represents.
Under a book-entry format, Note Owners of the Book-Entry Notes may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Indenture Trustee to Cede & Co. 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. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Federal Income Tax
Consequences--REMICS--Backup Withholding WitH Respect to REMIC Notes" and
"--Foreign Investors in REMIC Notes" in the prospectus. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Note Owner to pledge
Book-Entry Notes to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Notes, may be limited due to the lack of physical notes for such Book-Entry
Notes. In addition, issuance of the Book-Entry Notes in book-entry form may
reduce the liquidity of such Notes in the secondary market since certain
potential investors may be unwilling to purchase Notes for which they cannot
obtain physical notes.
Monthly and annual reports on the Trust will be provided to Cede & Co.,
as nominee of DTC, and may be made available by Cede & Co. to Note Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Notes of such Note Owners are credited.
DTC has advised the Indenture Trustee that, unless and until Definitive
Notes are issued, DTC will take any action permitted to be taken by the holders
of the Book-Entry Notes under the Indenture only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Notes are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Notes. Clearstream or the
Euroclear Operator, 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 or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the direction
of the related DTC Participants, with respect to some Book-Entry Notes which
conflict with actions taken with respect to other Book-Entry Notes.
Definitive Notes will be issued to Note Owners of the Book-Entry Notes,
or their nominees, rather than to DTC or its nominee, only if (a) DTC or the
Depositor advises the Indenture Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and Depository with respect to the Book-Entry Notes and the Depositor or the
Indenture Trustee is unable to locate a qualified successor or (b) after the
occurrence of an Event of Default (as defined in the Sale and Servicing
Agreement), Note Owners having percentage interests aggregating not less than
51% of the Book-Entry Notes advise the Indenture Trustee and DTC through the
Financial Intermediaries and the DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interests of Note Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all Note
Owners of the occurrence of such event and the availability through DTC of
Definitive Notes. Upon surrender by DTC of the global notes representing the
Book-Entry Notes and instructions for re-registration, the Indenture Trustee
will issue Definitive Notes, and thereafter the Indenture Trustee will recognize
the holders of such Definitive Notes as Noteholders under the Indenture.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Book-Entry Notes among DTC
Participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of the Depositor, the Servicer, the Sponsor or the Indenture
Trustee will have any responsibility for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Book-Entry
Notes held by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
ALLOCATION OF AVAILABLE FUNDS
Payments to holders of each class of Offered Notes will be made on each
Payment Date from Available Funds. With respect to any Payment Date, "Available
Funds" will be equal to the sum of the following amounts with respect to the
Mortgage Loans, net of amounts reimbursable therefrom to the Servicer, the
Indenture Trustee or the Owner Trustee: (i) the aggregate amount of monthly
payments on the Mortgage Loans due on the related Due Date and received by the
Servicer by the Determination Date, after deduction of the Indenture Trustee Fee
for such Payment Date, the Servicing Fee for such Payment Date and the Credit
Risk Manager Fee for such Payment Date and any accrued and unpaid Indenture
Trustee Fees and Servicing Fees in respect of any prior Payment Dates, (ii)
certain unscheduled payments in respect of the Mortgage Loans, including
prepayments, Insurance Proceeds, Net Liquidation Proceeds, Subsequent Recoveries
and proceeds from repurchases of and substitutions for such Mortgage Loans
occurring during the related Prepayment Period, (iii) at the end of the Funding
Period, any excess amounts transferred from the Pre-Funding Accounts, exclusive
of any investment income thereon and (iv) with respect to each Payment Date
during the Funding Period and on the Payment Date immediately following the end
of the Funding Period, any amounts required to be withdrawn by the Indenture
Trustee from the Interest Coverage Accounts, if any, for payment on the Notes.
The Group I Notes generally represent an interest in the Group I
Mortgage Loans and the Group II Notes generally represent an interest in the
Group II Mortgage Loans.
INTEREST PAYMENTS
I. On each Payment Date the Indenture Trustee will withdraw from the
Payment Account that portion of Available Funds for such Payment Date consisting
of the Group I Interest Remittance Amount for such Payment Date, and make the
following disbursements and transfers in the order of priority described below,
in each case to the extent of the Group I Interest Remittance Amount remaining
for such Payment Date.
(i) to the holders of the Group I Notes, the Monthly Interest Payable
Amount and the Unpaid Interest Shortfall Amount, if any, for such Payment Date
and such class of Notes; and
(ii) concurrently, to the holders of the Group II Notes, on a PRO RATA
basis based on the entitlement of each such class, the excess, if any, of (x)
the amount required to be paid pursuant to clause II(i) below for such Payment
Date over (y) the amount actually paid pursuant to such clause from the Group II
Interest Remittance Amount.
II. On each Payment Date the Indenture Trustee will withdraw from the
Payment Account that portion of Available Funds for such Payment Date consisting
of the Group II Interest Remittance Amount for such Payment Date, and make the
following disbursements and transfers in the order of priority described below,
in each case to the extent of the Group II Interest Remittance Amount remaining
for such Payment Date.
(i) concurrently, to the holders of the Group II Notes, on a PRO RATA
basis based on the entitlement of each such class, the Monthly Interest Payable
Amount and the Unpaid Interest Shortfall Amount, if any, for such Payment Date
and such classes of Notes; and
(ii) to the holders of the Group I Notes, the excess, if any, of (x)
the amount required to be paid pursuant to clause I(i) above for such Payment
Date over (y) the amount actually paid pursuant to such clause from the Group I
Interest Remittance Amount.
III. On each Payment Date, payments to the extent of the sum of the
Group I Interest Remittance Amount and the Group II Interest Remittance Amount
remaining unpaid for such Payment Date will be paid, sequentially to the holders
of the Class [__], Class [__] and Class [__] Notes, in that order, in an amount
equal to the Monthly Interest Payable Amount for such Payment Date and each such
class.
On any Payment Date, any shortfalls resulting from the application of
the Relief Act or similar state laws and any Prepayment Interest Shortfalls will
be allocated, first, to reduce the interest distribution amount with respect to
the Class [__] Certificates, and thereafter, to reduce the Monthly Interest
Payable Amounts with respect to the Floating Rate Notes on a PRO RATA basis
based on the respective amounts of interest accrued on such Notes for such
Payment Date. THE HOLDERS OF THE FLOATING RATE NOTES WILL NOT BE ENTITLED TO
REIMBURSEMENT FOR ANY SUCH INTEREST SHORTFALLS.
PRINCIPAL PAYMENTS
I. On each Payment Date (a) prior to the Stepdown Date or (b) on which
a Trigger Event is in effect, payments in respect of principal to the extent of
the Group I Principal Payment Amount for such Payment Date will be paid in the
following amounts and order of priority:
(i) first, to the holders of the Class [__] Certificates, an amount
equal to any Additional Balance Advance Amount with respect to the Group I
Mortgage Loans for such Payment Date;
(ii) second, to the holders of the Group I Notes, until the Note
Balance thereof has been reduced to zero; and
(iii) third, after taking into account the amount paid to the holders
of the Group II Notes pursuant to clause II(ii) below on such Payment Date, to
the holders of the Group II Notes (allocated among the Group II Notes in the
priority described below), until the Note Balances thereof have been reduced to
zero.
II. On each Payment Date (a) prior to the Stepdown Date or (b) on which
a Trigger Event is in effect, payments in respect of principal to the extent of
the Group II Principal Payment Amount for such Payment Date will be paid in the
following amounts and order of priority:
(i) first, to the holders of the Class [__] Certificates, an amount
equal to any Additional Balance Advance Amount with respect to the Group II
Mortgage Loans for such Payment Date;
(ii) second, to the holders of the Group II Notes (allocated among the
Group II Notes in the priority described below), until the Note Balance thereof
has been reduced to zero; and
(iii) third, after taking into account the amount paid to the holders
of the Group I Notes pursuant to clause I(ii) above on such Payment Date, to the
holders of the Group I Notes, until the Note Balance thereof has been reduced to
zero.
III. On each Payment Date (a) prior to the Stepdown Date or (b) on
which a Trigger Event is in effect, payments in respect of principal to the
extent of the sum of the Group I Principal Payment Amount and the Group II
Principal Payment Amount remaining unpaid for such Payment Date will be paid
sequentially, to the holders of the Class [__], Class [__] and Class [__] Notes,
in that order, the Principal Payment Amount remaining in each case, until the
Note Balance of each such class has been reduced to zero.
IV. On each Payment Date (a) on or after the Stepdown Date and (b) on
which a Trigger Event is not in effect, payments in respect of principal to the
extent of the Group I Principal Payment Amount will be paid in the following
amounts and order of priority:
(i) first, to the holders of the Class [__] Certificates, an amount
equal to any Additional Balance Advance Amount with respect to the Group I
Mortgage Loans for such Payment Date;
(ii) second, to the holders of the Group I Notes, the Group I Senior
Principal Payment Amount until the Note Balance thereof has been reduced to
zero; and
(iii) third, to the holders of the Group II Notes (allocated among the
Group II Notes in the priority described below), an amount equal to the excess,
if any, of (x) the amount required to be paid pursuant to clause V(ii) below for
such Payment Date over (y) the amount actually paid pursuant to clause V(ii)
below from the Group II Principal Payment Amount on such Payment Date.
V. On each Payment Date (a) on or after the Stepdown Date and (b) on
which a Trigger Event is not in effect, payments in respect of principal to the
extent of the Group II Principal Payment Amount will be paid in the following
amounts and order of priority:
(i) first, to the holders of the Class [__] Certificates, an amount
equal to any Additional Balance Advance Amount with respect to the Group II
Mortgage Loans for such Payment Date;
(ii) second, to the holders of the Group II Notes (allocated among the
Group II Notes in the priority described below), the Group II Senior Principal
Payment Amount until the Note Balances thereof have been reduced to zero; and
(iii) third, to the holders of the Group I Notes, an amount equal to
the excess, if any, of (x) the amount required to be paid pursuant to clause
IV(ii) above for such Payment Date over (y) the amount actually paid pursuant to
clause IV(ii) above from the Group I Principal Payment Amount on such Payment
Date.
VI. On each Payment Date (a) on or after the Stepdown Date and (b) on
which a Trigger Event is not in effect, payments in respect of principal to the
extent of the sum of the Group I Principal Payment Amount and the Group II
Principal Payment Amount will be paid in the following amounts and order of
priority:
(i) first, to the holders of the Class [__] Notes, the Class [__]
Principal Payment Amount for such Payment Date until the Note Balance thereof
has been reduced to zero;
(ii) second, to the holders of the Class [__] Notes, the Class [__]
Principal Payment Amount for such Payment Date until the Note Balance thereof
has been reduced to zero; and
(iii) third, to the holders of the Class [__] Notes, the Class [__]
Principal Payment Amount for such Payment Date until the Note Balance thereof
has been reduced to zero.
With respect to the Group II Notes, all principal payments will be paid
concurrently, to the Class [__] Notes, based on the aggregate Note Balance of
such class, until the Note Balance of such class has been reduced to zero.
Principal payments will be paid to the Class [__] Notes until the Note Balance
or component balance of such class has been reduced to zero. For purposes
hereof, the Class [__] Note has an initial balance of $[__________].
The holder of the Class [__] Certificate will fund all Additional
Balance Advance Amounts by making an advance to the Trust. Such amounts will be
reimbursed to or to the order of the holder of the Class [__] Certificate in
accordance with the priorities set forth above.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the
Class A Notes consists of subordination, as described under "--Subordination"
below, allocation of Realized Losses on the Mortgage Loans as described under
"--Allocation of Losses" below, excess interest and overcollateralization, as
described under "--Overcollateralization Provisions" herein and
crosscollateralization as described under "--Allocation of Available Funds"
above.
[Additional information with respect to credit enhancement providers,
required pursuant to Item 1114(b) of Regulation AB, will be provided if
applicable.]
SUBORDINATION
The rights of the holders of the Mezzanine Notes, the Class B Notes and
the Class [__] Certificates to receive payments will be subordinated, to the
extent described herein, 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 their scheduled monthly
payments of interest and principal and to afford such holders protection against
Realized Losses.
The protection afforded to the holders of the Class A Notes by means of
the subordination of the Mezzanine Notes, the Class B Notes and the Class [__]
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
Mezzanine Notes, the Class B Notes and the Class [__] Certificates, payments in
respect of interest and principal, subject to funds available for such payments
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
Mezzanine Notes, the Class B Notes and the Class [__] Certificates.
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 aggregate Principal Balance of the
Mortgage Loans evidenced by the Mezzanine Notes, the Class B Notes and the Class
[__] Certificates. Increasing the respective percentage interest in the Trust of
the Mezzanine Notes, the Class B Notes and the Class [__] Certificates relative
to that of the Class A Notes is intended to preserve the availability of the
subordination provided by the Mezzanine Notes, the Class B Notes and the Class
[__] Certificates.
In addition, the rights of the holders of Mezzanine Notes with lower
numerical class designations will be senior to the rights of holders of
Mezzanine Notes with higher numerical class designations, and the rights of the
holders of the Mezzanine Notes to receive payments in respect of the Mortgage
Loans will be senior to the rights of the holders of the Class B Notes and the
rights of the holders of the Mezzanine Notes and the Class B Notes to receive
payments in respect of the Mortgage Loans will be senior to the rights of the
holders of the Class [__] Certificates, in each case to the extent described
herein. This subordination is intended to enhance the likelihood of regular
receipt by the holders of more senior Notes of payments in respect of interest
and principal and to afford such holders protection against Realized Losses.
ALLOCATION OF LOSSES
Any Realized Losses on the Mortgage Loans on any Payment Date will
first have the effect of reducing the Net Monthly Excess Cashflow. If, on any
Payment Date, as a result of Realized Losses on the Mortgage Loans, the sum of
the aggregate Note Balance of the Notes and the aggregate certificate principal
balance of the Class [__] Certificates and the Class [__] Certificates after
making all required payments on such Payment Date exceed the sum of the Pool
Balance and any amounts on deposit in the Pre-Funding Accounts, such excess will
be allocated concurrently, on a PRO RATA basis (based on (i) the sum of the
certificate principal balance of the Class [__] Certificates and the aggregate
Note Balance of the Class A, Mezzanine and Class B Notes and (ii) the
certificate principal balance of the Class [__] Certificates, respectively), (a)
sequentially, to the Class [__] Certificates, the Class [__], Class [__] and
Class [__] Notes and (b) to the Class [__] Certificates.
The Sale and Servicing Agreement 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 the Class A Notes, under
certain loss scenarios there will not be enough interest and principal on the
Mortgage Loans to pay to the Class A Notes all interest and principal amounts to
which they are then entitled.
Any allocation of a Realized Loss to the Class B Notes, the Mezzanine
Notes or the Class [__] Certificates, will be made by reducing the Note Balance
or certificate principal balance, as applicable, thereof by the amount so
allocated as of the Payment Date in the month following the calendar month in
which such Realized Loss was incurred. Notwithstanding anything to the contrary
described herein, in no event will the Note Balance of any Class B Note or
Mezzanine Note be reduced more than once in respect of any particular amount
both (i) allocable to such Note in respect of Realized Losses and (ii) payable
as principal to the holder of such Note from Net Monthly Excess Cashflow.
Once Realized Losses have been allocated to the Class B Notes, the
Mezzanine Notes or the Class [__] Certificates, such amounts with respect to
such Notes will no longer accrue interest nor will such amounts be reinstated
thereafter (except in the case of Subsequent Recoveries). However, Allocated
Realized Loss Amounts may be paid to the holders of the Class B Notes, the
Mezzanine Notes and the Class [__] Certificates, from Net Monthly Excess
Cashflow, according to the priorities set forth under "--Overcollateralization
Provisions" below.
OVERCOLLATERALIZATION PROVISIONS
The weighted average net Loan Rate for the Mortgage Loans is generally
expected to be higher than the weighted average of the Note Rates on the
Floating Rate Notes and the amount needed to pay certain fees and expenses of
the Trust. As a result, interest collections on the Mortgage Loans are expected
to exceed the amount of interest payable to the holders of the Floating Rate
Notes and the fees and expenses payable by the Trust. On each Payment Date, the
Net Monthly Excess Cashflow, if any, will be paid as follows:
(i) to the holders of the class or classes of Notes then entitled to
receive payments in respect of principal, in an amount equal to any Extra
Principal Payment Amount, payable to such holders as part of the Group I
Principal Payment Amount and/or the Group II Principal Payment Amount as
described under "--Allocation of Available Funds--PRINCIPAL PAYMENTS" above;
(ii) sequentially, to the holders of the Class [__], Class [__] and
Class [__] Notes, in that order, in each case, first up to the Unpaid Interest
Shortfall Amount and second up to the Allocated Realized Loss Amount, for each
such class of Notes for such Payment Date;
(iii) to the holders of the Class [__] Certificates, up to the
Allocated Realized Loss Amount for such class for such Payment Date;
(iv) to the Net WAC Rate Carryover Reserve Account, the amount of any
Net WAC Rate Carryover Amounts for such Payment Date;
(v) sequentially, to the holders of the Class C and Residual
Certificates as provided in the Indenture.
On each Payment Date, after making the payments of the Available Funds
as described above, the Indenture Trustee will withdraw from the Net WAC Rate
Carryover Reserve Account the lesser of (x) the amount on deposit therein (after
taking into account the amount deposited therein pursuant to subclause (iv)
above on such Payment Date) and (y) the aggregate amount of Net WAC Rate
Carryover Amounts for the Floating Rate Notes for such Payment Date, and will
pay the amount withdrawn to the holders of the Floating Rate Notes in the order
and priority set forth under "--Note Rates" herein.
DEFINITIONS
Many of the defined terms listed below may apply to both Loan
Groups/Certificate Groups and are sometimes used in this prospectus supplement
to refer to a particular Loan Group/Certificate Group by the use of the words
"Group I" and "Group II."
The "Additional Balance" with respect to any HELOC and any Payment Date
will be any new advances made pursuant to the related Credit Line Agreement
during the related Collection Period.
The "Accrual Period" for the Floating Rate Notes for a given Payment
Date will be the actual number of days based on a 360-day year included in the
period commencing on the immediately preceding Payment Date (or, in the case of
the first such Accrual Period, commencing on the Closing Date) and ending on the
day immediately preceding such Payment Date.
The "Additional Balance Advance Amount" for any Payment Date will be
the sum of (a) the excess, if any, of (i) the aggregate principal amount of all
Additional Balances for a Payment Date over (ii) the Group I Principal
Remittance Amount or Group II Principal Remittance Amount, as applicable, with
respect to such Payment Date plus (b) any Additional Balance Advance Amount
remaining unpaid from the previous Payment Date.
An "Allocated Realized Loss Amount" with respect to any class of Class
B Notes or Mezzanine Notes or the Class [__] Certificates and any Payment Date
is an amount equal to the sum of any Realized Losses allocated to such class of
Notes on the Payment Date and any Allocated Realized Loss Amounts for such class
remaining unpaid from the previous Payment Date minus any Subsequent Recoveries
applied to that Allocated Realized Loss Amount.
The "Class [__] Principal Payment Amount" is an amount equal to the
excess of (x) the sum of (i) the aggregate Note Balance of the Class A Notes
(after taking into account the payment of the Senior Principal Payment Amount on
such Payment Date), (ii) the aggregate Note Balance of the Class [__] Notes
(after taking into account the payment of the Class [__] Principal Payment
Amount on such Payment Date), (iii) the Note Balance of the Class [__] Notes
(after taking into account the payment of the Class [__] Principal Payment
Amount on such Payment Date) and (iv) the Note Balance of the Class [__] Notes
immediately prior to such Payment Date over (y) the lesser of (A) the product of
(i) [____]% and (ii) the excess of (a) the aggregate Principal Balance of the
Mortgage Loans as of the last day of the related Collection Period over (b) the
certificate principal balance of the Class [__] Certificates (after taking into
any principal payments to the Class [__] Certificates on such Payment Date) and
(B) the excess of (i) the aggregate Principal Balance of the Mortgage Loans as
of the last day of the related Collection Period over (ii) the certificate
principal balance of the Class [__] Certificates (after taking into any
principal payments to the Class [__] Certificates on such Payment Date) minus
approximately $[____].
The "Class [__] Principal Payment Amount" is an amount equal to the
excess of (x) the sum of (i) the aggregate Note Balance of the Class A Notes
(after taking into account the payment of the Senior Principal Payment Amount on
such Payment Date) and (ii) the Note Balance of the Class [__] Notes immediately
prior to such Payment Date over (y) the lesser of (A) the product of (i) [____]%
and (ii) the excess of (a) the aggregate Principal Balance of the Mortgage Loans
as of the last day of the related Collection Period over (b) the certificate
principal balance of the Class [__] Certificates (after taking into any
principal payments to the Class [__] Certificates on such Payment Date) and (B)
the excess of (i) the aggregate Principal Balance of the Mortgage Loans as of
the last day of the related Collection Period over (ii) the certificate
principal balance of the Class [__] Certificates (after taking into any
principal payments to the Class [__] Certificates on such Payment Date) minus
approximately $[____].
The "Class [__] Principal Payment Amount" is an amount equal to the
excess of (x) the sum of (i) the aggregate Note Balance of the Class A Notes
(after taking into account the payment of the Senior Principal Payment Amount on
such Payment Date), (ii) the Note Balance of the Class [__] Notes (after taking
into account the payment of the Class [__] Principal Payment Amount on such
Payment Date) and (iii) the Note Balance of the Class [__] Notes immediately
prior to such Payment Date over (y) the lesser of (A) the product of (i) [____]%
and (ii) the excess of (a) the aggregate Principal Balance of the Mortgage Loans
as of the last day of the related Collection Period over (b) the certificate
principal balance of the Class [__] Certificates (after taking into any
principal payments to the Class [__] Certificates on such Payment Date) and (B)
the excess of (i) the aggregate Principal Balance of the Mortgage Loans as of
the last day of the related Collection Period over (ii) the certificate
principal balance of the Class [__] Certificates (after taking into any
principal payments to the Class [__] Certificates on such Payment Date) minus
approximately $[____].
A "Collection Period" for any Payment Date will be the period
commencing on the 16th day of the month preceding the month in which such
Distribution Date falls and ending on the 15th day of the calendar month in
which such Distribution Date occurs.
The "Credit Enhancement Percentage" for any Payment Date will be the
percentage obtained by dividing (x) the aggregate Note Balance of the Mezzanine
Notes and the Class B Notes and the certificate principal balance of the Class
[__] Certificates by (y) the sum of (i) the aggregate Principal Balance of the
Mortgage Loans less the certificate principal balance of the Class [__]
Certificates and (ii) any remaining funds in the Pre-Funding Accounts (exclusive
of any investment income therein) calculated prior to taking into account
payments of principal on the Mortgage Loans and payment of the Group I Principal
Payment Amount and the Group II Principal Payment Amount to the holders of the
Notes then entitled to payments of principal on such Payment Date.
"Credit Risk Manager Fee" for any Payment Date is the premium payable
to the Credit Risk Manager at the Credit Risk Manager Fee Rate on the then
current aggregate Principal Balance of the Mortgage Loans.
"Credit Risk Manager Fee Rate" for any Payment Date is [__]% per annum.
A Mortgage Loan will be "Delinquent" if any monthly payment due on a
Due Date is not made by the close of business on the next scheduled Due Date for
such Mortgage Loan.
The "Determination Date" with respect to any Payment Date will be the
15th day of the calendar month in which such Payment Date occurs or, if such
15th day is not a Business Day, the Business Day immediately preceding such 15th
day.
The "Extra Principal Payment Amount" for any Payment Date will be the
lesser of (x) the Net Monthly Excess Cashflow for such Payment Date and (y) the
Overcollateralization Deficiency Amount for such Payment Date.
The "Group I Allocation Percentage" for any Payment Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group I
Principal Remittance Amount for such Payment Date, and the denominator of which
is (ii) the Principal Remittance Amount for such Payment Date.
The "Group I Basic Principal Payment Amount" means with respect to any
Payment Date, the Group I Net Principal Collections for such Payment Date.
The "Group I Interest Remittance Amount" with respect to any Payment
Date is that portion of the Available Funds for such Payment Date attributable
to interest received or advanced with respect to the Group I Mortgage Loans or
withdrawn from the related Interest Coverage Account.
The "Group I Net Principal Collections" for any Payment Date will equal
the excess of (x) the Group I Principal Remittance Amount for the Collection
Period over (y) the sum of (A) the aggregate principal amount of all Additional
Balances arising during the Collection Period with respect to the Group I
Mortgage Loans consisting of HELOCs and (B) the Additional Balance Advance
Amount outstanding with respect to the Group I Mortgage Loans consisting of
HELOCs as of the opening of business on such Payment Date.
The "Group I Principal Payment Amount" with respect to any Payment Date
is the sum of (i) the Group I Basic Principal Payment Amount for such Payment
Date and (ii) the Extra Principal Payment Amount for such Payment Date
multiplied by the Group I Allocation Percentage.
The "Group I Principal Remittance Amount" means with respect to any
Payment Date, that portion of Available Funds equal to the sum of (i) all
scheduled payments of principal collected or advanced on the Group I Mortgage
Loans by the Servicer that were due during the related Collection Period, (ii)
the principal portion of all partial and full principal prepayments of the Group
I Mortgage Loans applied by the Servicer during the related Collection Period,
(iii) the principal portion of all related Net Liquidation Proceeds, Insurance
Proceeds and Subsequent Recoveries received during the related Collection Period
with respect to the Group I Mortgage Loans, (iv) that portion of the Purchase
Price, representing principal of any repurchased Group I Mortgage Loan,
deposited to the Collection Account during the related Collection Period, (v)
the principal portion of any related Substitution Adjustments with respect to
the Group I Mortgage Loans deposited in the Collection Account during the
related Collection Period, (vi) on the Payment Date on which an optional
redemption occurs, that portion of the Redemption Price, representing principal
with respect to the Group I Mortgage Loans and (vii) on the Payment Date
immediately following the end of the Funding Period, any amounts remaining in
the Group I Pre-Funding Account (exclusive of any investment income therein)
after giving effect to any purchase of Subsequent Group I Mortgage Loans.
The "Group I Senior Principal Payment Amount" is an amount equal to the
excess of (x) the Note Balance of the Group I Notes immediately prior to such
Payment Date over (y) the lesser of (A) the product of (i) [____]% and (ii) the
excess of (a) the aggregate Principal Balance of the Group I Mortgage Loans as
of the last day of the related Collection Period over (b) a PRO RATA portion,
based on the aggregate Principal Balance of the Group I Mortgage Loans divided
by the aggregate Principal Balance of the Mortgage Loans as of the last day of
the related Collection Period, of the certificate principal balance of the Class
[__] Certificates (after taking into any principal payments to the Class [__]
Certificates on such Payment Date) and (B) the excess of (i) the aggregate
Principal Balance of the Group I Mortgage Loans as of the last day of the
related Collection Period over (ii) the certificate principal balance of the
Class [__] Certificates (after taking into any principal payments to the Class
[__] Certificates on such Payment Date) minus approximately $[____].
The "Group II Allocation Percentage" for any Payment Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group II
Principal Remittance Amount for such Payment Date, and the denominator of which
is (ii) the Principal Remittance Amount for such Payment Date.
The "Group II Basic Principal Payment Amount" means with respect to any
Payment Date, the Group II Net Principal Collections for such Payment Date.
The "Group II Interest Remittance Amount" with respect to any Payment
Date is that portion of the Available Funds for such Payment Date attributable
to interest received or advanced with respect to the Group II Mortgage Loans or
withdrawn from the related Interest Coverage Account.
The "Group II Net Principal Collections" for any Payment Date will
equal the excess of (x) the Group II Principal Remittance Amount for the
Collection Period over (y) the sum of (A) the aggregate principal amount of all
Additional Balances arising during the Collection Period with respect to the
Group II Mortgage Loans consisting of HELOCs and (B) the Additional Balance
Advance Amount outstanding with respect to the Group II Mortgage Loans
consisting of HELOCs as of the opening of business on such Payment Date.
The "Group II Principal Payment Amount" with respect to any Payment
Date is the sum of (i) the Group II Basic Principal Payment Amount for such
Payment Date and (ii) the Extra Principal Payment Amount for such Payment Date
multiplied by the Group II Allocation Percentage.
The "Group II Principal Remittance Amount" means with respect to any
Payment Date, that portion of Available Funds equal to the sum of (i) all
scheduled payments of principal collected or advanced on the Group II Mortgage
Loans by the Servicer that were due during the related Collection Period, (ii)
the principal portion of all partial and full principal prepayments of the Group
II Mortgage Loans applied by the Servicer during the related Collection Period,
(iii) the principal portion of all related Net Liquidation Proceeds, Insurance
Proceeds and Subsequent Recoveries received during the related Collection Period
with respect to the Group II Mortgage Loans, (iv) that portion of the Purchase
Price, representing principal of any repurchased Group II Mortgage Loan,
deposited to the Collection Account during the related Collection Period, (v)
the principal portion of any related Substitution Adjustments with respect to
the Group II Mortgage Loans deposited in the Collection Account during the
related Collection Period, (vi) on the Payment Date on which an optional
redemption occurs, that portion of the Redemption Price, representing principal
with respect to the Group II Mortgage Loans and (vii) on the Payment Date
immediately following the end of the Funding Period, any amounts remaining in
the Group II Pre-Funding Account (exclusive of any investment income therein)
after giving effect to any purchase of Subsequent Group II Mortgage Loans.
The "Group II Senior Principal Payment Amount" is an amount equal to
the excess of (x) the aggregate Note Balance of the Group II Notes immediately
prior to such Payment Date over (y) the lesser of (A) the product of (i) [____]%
and (ii) the excess of (a) the aggregate Principal Balance of the Group II
Mortgage Loans as of the last day of the related Collection Period over (b) a
PRO RATA portion, based on the aggregate Principal Balance of the Group II
Mortgage Loans divided by the aggregate Principal Balance of the Mortgage Loans
as of the last day of the related Collection Period, the certificate principal
balance of the Class [__] Certificates (after taking into any principal payments
to the Class [__] Certificates on such Payment Date) and (B) the excess of (i)
the aggregate Principal Balance of the Group II Mortgage Loans as of the last
day of the related Collection Period over (ii) the certificate principal balance
of the Class [__] Certificates (after taking into any principal payments to the
Class [__] Certificates on such Payment Date) minus approximately $[____].
"Insurance Proceeds" means the proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the mortgagor in accordance with the procedures that the
Servicer would follow in servicing mortgage loans held for its own account,
subject to the terms and conditions of the related mortgage note and Mortgage.
The "Monthly Interest Payable Amount" for any Payment Date and each
class of Floating Rate Notes will equal the amount of interest accrued during
the related Accrual Period at the related Note Rate on the Note Balance of such
class immediately prior to such Payment Date, in each case, reduced by any
Prepayment Interest Shortfalls allocated to such class and shortfalls resulting
from the application of the Relief Act or similar state laws (allocated to each
Offered Note based on its respective entitlements to interest irrespective of
any Prepayment Interest Shortfalls or shortfalls resulting from the application
of the Relief Act or similar state laws for such Payment Date).
The "Net Monthly Excess Cashflow" for any Payment Date will be equal to
the excess of (x) the Available Funds for such Payment Date over (y) the sum for
such Payment Date of (A) the Monthly Interest Payable Amounts for the Floating
Rate Notes, (B) the Unpaid Interest Shortfall Amounts for the Class A Notes, (C)
the Principal Remittance Amount and (D) any Additional Balance Advance Amount
for the Class [__] Certificates.
The "Note Balance" of any Floating Rate Note immediately prior to any
Payment Date will be equal to the Note Balance thereof on the Closing Date (the
"Original Note Balance") reduced by the sum of all amounts actually paid in
respect of principal of such class and, in the case of a Class B Note or
Mezzanine Note, Realized Losses allocated thereto on all prior Payment Dates
(taking into account any increases in the Note Balance thereof by any Subsequent
Recoveries allocated to that class).
An "Overcollateralization Deficiency Amount" with respect to any
Payment Date will equal the amount, if any, by which the Overcollateralization
Target Amount exceeds the Overcollateralized Amount on such Payment Date
(assuming that 100% of the Principal Remittance Amount is applied as a principal
payment on such Payment Date).
The "Overcollateralization Target Amount" means with respect to any
Payment Date, [__]% of the sum of (i) the aggregate Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date less the certificate principal
balance of the Class [__] Certificates and (ii) the Original Pre-Funded Amounts.
Notwithstanding the foregoing, on and after any Payment Date following the
reduction of the aggregate Note Balance of the Notes to zero, the
Overcollateralization Target Amount will be zero.
The "Overcollateralized Amount" for any Payment Date will be an amount
equal to (i) the excess of (x) the sum of the aggregate Principal Balance of the
Mortgage Loans as of the last day of the related Collection Period and any funds
on deposit in the Pre-Funding Accounts over (y) the certificate principal
balance of the Class [__] Certificates (after giving effect to payments to be
made on such Payment Date) minus (ii) the aggregate Note Balance of the Floating
Rate Notes and the certificate principal balance of the Class [__] Certificates
as of such Payment Date (after giving effect to payments to be made on such
Payment Date).
The "Principal Remittance Amount" for any Payment Date is the sum of
the Group I Principal Remittance Amount and the Group II Principal Remittance
Amount.
"Realized Loss" means, with respect to any defaulted Mortgage Loan
that is finally liquidated (a "Liquidated Mortgage Loan"), the amount of loss
realized equal to the portion of the Principal Balance remaining unpaid after
application of all liquidation proceeds, insurance proceeds or condemnation
proceeds net of amounts reimbursable to the Servicer for related Servicing
Advances and Servicing Fees (such amount, the "Net Liquidation Proceeds") in
respect of such Mortgage Loan.
The "Senior Principal Payment Amount" is an amount equal to the sum of
(i) the Group I Senior Principal Payment Amount and (ii) the Group II Senior
Principal Payment Amount.
The "Stepdown Date" means the earlier to occur of (i) the first Payment
Date on which the aggregate Note Balance of the Class A Notes has been reduced
to zero and (ii) the later to occur of (x) the Payment Date occurring in [____
200_] 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 payment of the Group I Principal
Payment Amount and the Group II Principal Payment Amount to the holders of the
Notes then entitled to payments of principal on such Payment Date) is greater
than or equal to [____]%.
"Subsequent Recoveries" are unanticipated amounts received on a
liquidated Mortgage Loan that resulted in a Realized Loss in a prior month. If
Subsequent Recoveries are received, they will be included (net of any amounts
due the Servicer) as part of the Principal Remittance Amount for the following
Payment Date and paid in accordance with the priorities described herein. In
addition, after giving effect to all payments on a Payment Date, if any
Allocated Realized Loss Amounts are outstanding, the Allocated Realized Loss
Amount for the class of Class B Notes or Mezzanine Notes then outstanding with
the highest payment priority will be decreased by the amount of such Subsequent
Recoveries until reduced to zero (with any remaining Subsequent Recoveries
applied to reduce the Allocated Realized Loss Amount of the class with the next
highest payment priority), and the Note Balance of such class or classes of
Mezzanine Notes will be increased by the same amount. Thereafter, such class or
classes of Class B Notes and Mezzanine Notes will accrue interest on the
increased Note Balance.
A "Trigger Event" is in effect with respect to any Payment Date on or
after the Stepdown Date if:
(i) the percentage obtained by dividing (x) the aggregate Principal
Balance of Mortgage Loans that are Delinquent 60 days or more (including
Mortgage Loans that are REO Properties, in foreclosure or bankruptcy and that
are also Delinquent 60 days or more) by (y) the aggregate Principal Balance of
the Mortgage Loans as of the last day of the calendar month exceeds [____]% of
the Credit Enhancement Percentage or
(ii) the aggregate amount of Realized Losses incurred since the Cut-off
Date through the last day of the related Collection Period (reduced by the
aggregate amount of Subsequent Recoveries received since the Cut-off Date
through the last day of the related Collection Period) divided by the sum of (x)
the aggregate Principal Balance of the Initial Mortgage Loans as of the Cut-off
Date and (y) the Original Pre-Funded Amount exceeds the applicable percentages
set forth below with respect to such Payment Date:
PAYMENT DATE OCCURRING IN PERCENTAGE
- --------------------------------------------------------------------------------------------------
[_______ 2007 through _________ 2008] [____]% for the first month plus an additional 1/12th of
[____]% for each month thereafter
[_______ 2008 through _________ 2009] [____]% for the first month plus an additional 1/12th of
[____]% for each month thereafter
[_______ 2009 through _________ 2010] [____]% for the first month plus an additional 1/12th of
[____]% for each month thereafter
[_______ 2010 through _________ 2011] [____]% for the first month plus an additional 1/12th of
[____]% for each month thereafter
[_______ 2011 through _________ 2012] [____]% for the first month plus an additional 1/12th of
[____]% for each month thereafter
[________ 2012 and thereafter] [____]%
The "Unpaid Interest Shortfall Amount" means (i) for each class of
Floating Rate Notes and the first Payment Date, zero, and (ii) with respect to
each class of Floating Rate Notes and any Payment Date after the first Payment
Date, the amount, if any, by which (a) the sum of (1) the Monthly Interest
Payable Amount for such class for the immediately preceding Payment Date and (2)
the outstanding Unpaid Interest Shortfall Amount, if any, for such class for
such preceding Payment Date exceeds (b) the aggregate amount paid on such class
in respect of interest pursuant to clause (a) of this definition on such
preceding Payment Date, plus interest on the amount of interest due but not paid
on the Notes of such class on such preceding Payment Date, to the extent
permitted by law, at the Note Rate for such class for the related Accrual
Period.
NOTE RATES
The "Note Rate" on any Payment Date with respect to the Floating Rate
Notes will equal the lesser of (a) the related Formula Rate and (b) the Net WAC
Rate for such Payment Date. With respect to the Floating Rate Notes, interest in
respect of any Payment Date will accrue during the related Accrual Period on the
basis of a 360-day year and the actual number of days elapsed.
The "Formula Rate" for the Floating Rate Notes is the lesser of (a) the
Base Rate for such class or (b) the Maximum Cap Rate.
The Base Rate for the Offered Notes is the sum of the interbank offered
rate for one-month United States dollar deposits in the London market (the "Note
Index") as of the related LIBOR Determination Date (as defined herein) plus a
related margin (the "Note Margin"). The Note Margin with respect to the each
class of Offered Notes will be the percentages set forth below.
Margin
------
Class (1) (2)
----- --- ---
[__] [____]% [____]%
[__] [____]% [____]%
[__] [____]% [____]%
[__] [____]% [____]%
[__] [____]% [____]%
- ---------
(1) For each Payment Date up to and including the Optional Redemption Date.
(2) On each Payment Date after the Optional Redemption Date.
The "Net WAC Rate" for any Payment Date will be a per annum rate equal
to the product of (a) a fraction, expressed as a percentage, the numerator of
which is (i) the amount of interest which accrued on the Mortgage Loans in the
prior calendar month minus (ii) the Servicing Fee for such Payment Date and the
Credit Risk Manager Fee for such Payment Date and the denominator of which is
the sum of (i) the aggregate Principal Balance of the Mortgage Loans as of the
first day of the calendar month preceding the month of such Payment Date (or as
of the Cut-off Date with respect to the first Payment Date) and (ii) any amounts
on deposit in the Pre-Funding Accounts, and (b) a fraction whose numerator is
360 and whose denominator is the actual number of days in the related Accrual
Period.
The "Adjusted Net Loan Rate" for any Mortgage Loan for any Payment Date
will be a per annum rate equal to the applicable Loan Rate for such Mortgage
Loan as of the first day of the month preceding the month in which such Payment
Date occurs minus the sum of (i) the Servicing Fee Rate and (ii) the Credit Risk
Manager Fee Rate.
The "Maximum Cap Rate" for any Payment Date will be a per annum rate
(subject to adjustment based on the actual number of days elapsed in the related
Accrual Period) equal to the weighted average of the Adjusted Net Maximum Loan
Rates of the Mortgage Loans.
The "Adjusted Net Maximum Loan Rate" for any Mortgage Loan for any
Payment Date will be a per annum rate equal to the applicable Maximum Loan Rate
for such Mortgage Loan as of the first day of the month preceding the month in
which such Payment Date occurs minus the sum of (i) the Servicing Fee Rate and
(ii) the Credit Risk Manager Fee Rate.
If on any Payment Date, the Note Rate for a class of Floating Rate
Notes is the Net WAC Rate, then the "Net WAC Rate Carryover Amount" for such
class of Notes for such Payment Date is an amount equal to the sum of (i) the
excess of (x) the amount of interest such class of Notes would have accrued on
such Payment Date had such Note Rate been the related Formula Rate, over (y) the
amount of interest such class of Notes accrued for such Payment Date at the Net
WAC Rate and (ii) the unpaid portion of any related Net WAC Rate Carryover
Amount from the prior Payment Date together with interest accrued on such unpaid
portion for the most recently ended Accrual Period at the Formula Rate
applicable for such class of Notes for such Accrual Period. Any Net WAC Rate
Carryover Amount on the Floating Rate Notes will be paid on such Payment Date or
future Payment Dates from and to the extent of funds available therefor as
described below.
On the Closing Date, the Indenture Trustee will establish an account
(the "Net WAC Rate Carryover Reserve Account") from which payments in respect of
Net WAC Rate Carryover Amounts on the Floating Rate Notes will be made. The Net
WAC Rate Carryover Reserve Account will be an asset of the Trust but not of any
REMIC. On each Payment Date, to the extent required following the payment of
Available Funds as described under "--Overcollateralization Provisions" above,
the Indenture Trustee will withdraw from amounts in the Net WAC Rate Carryover
Reserve Account to pay to the Floating Rate Notes any Net WAC Rate Carryover
Amounts in the following order of priority:
(i) concurrently, to each class of Class A Notes, the related Net WAC
Rate Carryover Amount, on a PRO RATA basis based on such respective remaining
Net WAC Rate Carryover Amounts; and
(ii) sequentially, to the Class [__], Class [__] and Class [__] Notes,
in that order, the related Net WAC Rate Carryover Amount.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Floating Rate Notes (each such date,
a "LIBOR Determination Date"), the Indenture Trustee will determine the Note
Index for such Accrual Period for the Floating Rate Notes on the basis of the
London interbank offered rate for one-month United States dollar deposits, as
such rates appear on the Telerate Page 3750, as of 11:00 a.m. (London time) on
such LIBOR Determination Date. If such 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 herein) for one-month United States dollar
deposits, as of 11:00 a.m. (London time) on such LIBOR 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 such LIBOR
Determination Date two or more Reference Banks provide such offered quotations,
the Note Index for the related Accrual Period will be the arithmetic mean of
such offered quotations (rounded upwards if necessary to the nearest whole
multiple of [____]%). If on such LIBOR Determination Date fewer than two
Reference Banks provide such offered quotations, the Note Index for the related
Accrual Period will be the higher of (x) the Note Index as determined on the
previous LIBOR Determination Date and (y) the Reserve Interest Rate (as defined
herein).
As used in this section, "LIBOR Business Day" means a day on which
banks are open for dealing in foreign currency and exchange in London and New
York City; "Telerate Page 3750" means the display page currently so designated
on the Dow Jones Telerate Capital Markets Report (or such other page as may
replace that page on that service for the purpose of displaying comparable rates
or prices); "Reference Banks" means leading banks selected by the Indenture
Trustee, after consultation with the Depositor, and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London and (ii) not controlling, controlled by
or under common control with, the Servicer or any successor Servicer or the
Originator; and "Reserve Interest Rate" will be 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
United States dollar lending rates which New York City banks selected by the
Indenture Trustee (after consultation with the Depositor) are quoting on the
relevant LIBOR Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest one-month United
States dollar lending rate which New York City banks selected by the Indenture
Trustee (after consultation with the Depositor) are quoting on such LIBOR
Determination Date to leading European banks.
The establishment of the Note Index on each LIBOR Determination Date by
the Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Floating Rate Notes for the related Accrual Period
will (in the absence of manifest error) be final and binding.
INTEREST COVERAGE ACCOUNTS
The Indenture Trustee may establish for the benefit of the Noteholders
a trust account (the "Interest Coverage Accounts"), if required in the Indenture
and, on the Closing Date, [__________] Trust [200_-___] may deliver to the
Indenture Trustee for deposit in the Interest Coverage Accounts cash amounts as
specified in the Indenture. On each Payment Date during, and the Payment Date
immediately following, the Funding Period, funds on deposit in the Interest
Coverage Accounts, if any, will be applied by the Indenture Trustee to cover
certain shortfalls in the amount of interest generated by the assets of the
Trust Estate attributable to the pre-funding feature. Such shortfall may exist
during the Funding Period because the interest accruing on the aggregate
Principal Balance of the Initial Mortgage Loans during such period will be less
than the amount of interest which would have accrued on the Mortgage Loans if
the related Subsequent Mortgage Loans were included in the Trust Estate as of
the Closing Date. On the first Payment Date following the termination of the
Funding Period (after the payment on the Notes to be made on such Payment Date),
funds on deposit in the Interest Coverage Accounts, if any, to the extent not
needed to fund any shortfall of the kind described above, will be released by
the Indenture Trustee to [__________] Trust [200_-___] or its designee. The
Interest Coverage Accounts, if any, will not be an asset of any REMIC.
MANDATORY PRINCIPAL PAYMENTS ON CLASS A NOTES
The Class A Notes will receive a principal payment on the Payment Date
immediately following the end of the Funding Period to the extent of any amounts
remaining on deposit in either Pre-Funding Account on such Payment Date.
Although no assurance can be given, it is anticipated by the Depositor that the
aggregate Principal Balance of Subsequent Mortgage Loans sold to [__________]
Trust [200_-___] and pledged to the Indenture Trustee will require the
application of substantially all of the Original Pre-Funded Amounts and that
there will be no material amount of principal payment to the holders of the
related Class A Notes from the Pre-Funding Accounts. It is unlikely, however,
that the Depositor will be able to deliver Subsequent Mortgage Loans with an
aggregate Principal Balance identical to the Original Pre-Funded Amounts.
Accordingly, a small amount of principal representing the related unused
Original Pre-Funded Amounts is likely to be paid on the Class A Notes on the
Payment Date immediately following the end of the Funding Period.
REPORTS TO NOTEHOLDERS
On each Payment Date, the Indenture Trustee will provide or make
available to each holder of an Offered Note and the rating agencies a statement
(based on information received from the Servicer pursuant to the Sale and
Servicing Agreement) setting forth the information required to be included in
such statement pursuant to the Indenture. The Indenture Trustee will make the
statement (and, at its option, any additional files containing the same
information in an alternative format) available each month via the Indenture
Trustee's internet website. The Indenture Trustee's internet website will
initially be located at [__________], and assistance in using the website can be
obtained by calling the Indenture Trustee's investor relations desk at
1-800-735-7777. Parties that are unable to use the above payment options are
entitled to have a paper copy mailed to them via first class mail by calling the
customer service desk and indicating such. The Indenture Trustee will have the
right to change the way statements are distributed in order to make such payment
more convenient and/or more accessible to the above parties and the Indenture
Trustee will provide timely and adequate notification to all above parties
regarding any such changes.
In addition, within a reasonable period of time after the end of each
calendar year, the Indenture Trustee will prepare and deliver to each holder of
an Offered Note of record during the previous calendar year a statement
containing information necessary to enable holders of the Offered Notes to
prepare their tax returns. Such statements will not have been examined and
reported upon by an independent public accountant.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity of the Offered Notes will be sensitive to
defaults on the Mortgage Loans. If a purchaser of an Offered Note calculates its
anticipated yield based on an assumed rate of default and amount of losses that
is lower than the default rate and amount of losses actually incurred, its
actual yield to maturity may be lower than that so calculated. In general, the
earlier a loss occurs, the greater is the effect on an investor's yield to
maturity. There can be no assurance as to the delinquency, foreclosure or loss
experience with respect to the Mortgage Loans.
The rate of principal payments, the aggregate amount of payments and
the yields to maturity of the Offered Notes will be affected by 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
(including for this purpose prepayments resulting from refinancing, liquidations
of the Mortgage Loans due to defaults, casualties or condemnations, the rate at
which borrowers make draws and repurchases by the Originator).
Prepayments, liquidations and purchases of the Mortgage Loans
(including any optional purchase) will result in payments on the Offered Notes
of principal amounts which would otherwise be paid over the remaining terms of
the Mortgage Loans. Since the rate of payment of principal on the Mortgage Loans
will depend on future events and a variety of other factors, no assurance can be
given as to such rate or the rate of principal prepayments. The extent to which
the yield to maturity of a class of Offered Notes may vary from the anticipated
yield will depend upon the degree to which such class of Notes is purchased at a
discount or premium. Further, an investor should consider the risk that, in the
case of any Offered Note purchased at a discount, a slower than anticipated rate
of principal payments (including prepayments) on the Mortgage Loans could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Note purchased at a premium, a faster than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield.
The Mortgage Loans generally may be prepaid in full or in part at any
time. However, all of the HELOCs have termination fees for three years after
origination, except for those HELOCs which were originated in those states where
termination fees are prohibited by law.
Principal collections on the Mortgage Loans will be applied to acquire
Additional Balances for the Trust before being applied to payments of principal
on the Offered Notes. Noteholders, therefore, can expect a slower rate of
payment than would be the case if principal collections were not so used.
However, principal collections on the Mortgage Loans may exceed draws on the
consisting of HELOCs in any given Collection Period and the principal
collections remaining after the purchase of Additional Balances on each Payment
Date will generally be applied to pay principal of the Offered Notes. Depending
on the payment experience of the Mortgage Loans, such excess paid to the
Noteholders may be substantial on any Payment Date.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. In general, if prevailing
interest rates were to fall significantly below the Loan Rates on the Mortgage
Loans, such Mortgage Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain at or above the Loan Rates on such
Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on such Mortgage Loans would generally be
expected to decrease. The Mortgage Loans may be subject to a greater rate of
principal prepayments in a low interest rate environment. For example, if
prevailing interest rates were to fall, mortgagors may be inclined to refinance
their Mortgage Loans with other more competitive adjustable-rate home equity
lines of credit or mortgage loan. The existence of the applicable Maximum Loan
Rate with respect to the Mortgage Loans also may affect the likelihood of
prepayments resulting from refinancing. No assurances can be given as to the
rate of prepayments on the Mortgage Loans in stable or changing interest rate
environments.
The rate of prepayment on the Mortgage Loans cannot be predicted. The
Depositor is not aware of any relevant studies or statistics on the rate of
prepayment of such Mortgage Loans. Generally, home equity lines of credit are
not viewed by borrowers as permanent financing. Accordingly, the Mortgage Loans
may experience a higher rate of prepayment than traditional first lien or second
lien mortgages. Conversely, because the Mortgage Loans amortize as described
herein, rates of principal payment on the Mortgage Loans will generally be
slower than those of traditional fully-amortizing first lien mortgages with the
same loan terms in the absence of prepayments on such Mortgage Loans. The
prepayment experience of the Trust with respect to the Mortgage Loans may be
affected by a wide variety of factors, including general economic conditions,
prevailing interest rate levels, the availability of alternative financing,
homeowner mobility, the frequency and amount of any future draws on the Credit
Line Agreements and changes affecting the deductibility for federal income tax
purposes of interest payments on home equity loans. All of the Mortgage Loans
contain "due-on-sale" provisions and the Servicer intends to enforce such
provisions, unless such enforcement is not permitted by applicable law. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related Mortgage Loan.
YIELD CONSIDERATIONS RELATING TO INTEREST PAYMENTS
INTEREST MAY BE LIMITED BY THE NET WAC RATE. If the note rate of any
class of Offered Notes is limited by the Net WAC Rate, such class will accrue
less interest than would otherwise be the case.
To the extent the Note Rate for any class of Offered Notes on any
Payment Date is limited to the Net WAC Rate, a shortfall in interest equal to
the Net WAC Rate Carryover Amount for such class will occur. Such shortfall will
only be payable, from Net Monthly Excess Cashflow, to the extent of any Net
Monthly Excess Cashflow remaining after the payments set forth under (i) through
(iii) under "Description of the Notes--Overcollateralization Provisions" in this
prospectus supplement. The Net WAC Rate for the Offered Notes will be lower for
Accrual Periods that are longer than 30 days, and the Note Rates on the Offered
Notes are more likely to be capped at the Net WAC Rate than they would if all
Accrual Periods were 30 days long.
For a discussion of other factors that could cause the Note Rate on the
Offered Notes to be capped at the Net WAC Rate, see "Risk Factors--Effect of
Loan Rates on the Offered Notes" in this prospectus supplement.
PREPAYMENT INTEREST SHORTFALLS AND RELIEF ACT SHORTFALLS. On any
Payment Date, any shortfalls resulting from the application of the Relief Act or
similar state laws and any Prepayment Interest Shortfalls will be allocated,
first, to the interest distribution amount with respect to the Class [__]
Certificates, and thereafter, to the Monthly Interest Payable Amounts with
respect to the Floating Rate Notes on a PRO RATA basis based on the respective
amounts of interest accrued on such notes for such Payment Date. THE HOLDERS OF
THE FLOATING RATE NOTES WILL NOT BE ENTITLED TO REIMBURSEMENT FOR ANY SUCH
INTEREST SHORTFALLS. IF THESE SHORTFALLS ARE ALLOCATED TO THE FLOATING RATE
NOTES THE AMOUNT OF INTEREST PAID TO THOSE NOTES WILL BE REDUCED, ADVERSELY
AFFECTING THE YIELD ON YOUR INVESTMENT. See "Risk Factors--Prepayment Interest
Shortfalls and Relief Act Shortfalls" in this prospectus supplement.
ADDITIONAL INFORMATION
The Depositor has filed certain yield tables and other computational
materials with respect to the Offered Notes with the Securities and Exchange
Commission (the "Commission") in a report on Form 8-K and may file certain
additional yield tables and other computational materials with respect to the
Offered Notes with the Commission in a report on Form 8-K. Such tables and
materials were prepared by the Underwriters at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and assumptions
may be based on assumptions that differ from the Structuring Assumptions (as
defined herein). Accordingly, such tables and other materials may not be
relevant to or appropriate for investors other than those specifically
requesting them.
The Subsequent Mortgage Loans may have characteristics different from
the Initial Mortgage Loans. However, each Subsequent Mortgage Loan must satisfy
the eligibility criteria referred to herein under "The Loan Pool--Conveyance of
Subsequent Mortgage Loans and the Pre-Funding Accounts" at the time of its
conveyance to [__________] Trust [200_-___] and be underwritten in accordance
with the criteria set forth under "[__________], Inc.--Underwriting Standards"
herein.
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 Offered Notes 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.
WEIGHTED AVERAGE LIVES
The timing of changes in the rate of principal prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal prepayments is consistent with such
investor's expectation. In general, the earlier a principal prepayment on the
Mortgage Loans occurs, the greater the effect of such principal prepayment on an
investor's yield to maturity. The effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Notes may not be offset by a subsequent like decrease (or increase) in the rate
of principal prepayments.
The weighted average life of an Offered Note is the average amount of
time that will elapse from the Closing Date, until each dollar of principal is
repaid to the investors in such Note. Because it is expected that there will be
prepayments and defaults on the Mortgage Loans, the actual weighted average
lives of these Notes are expected to vary substantially from the weighted
average remaining terms to stated maturity of the Mortgage Loans as set forth
herein under "The Loan Pool."
The Final Stated Maturity Date with respect to the Offered Notes could
occur significantly earlier than the Payment Date in [______ 20__] because (i)
prepayments are likely to occur, (ii) excess cashflow, if any, will be applied
as principal of the Offered Notes as described herein and (iii) an early
redemption of the Notes may occur as provided herein.
Prepayments of mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
"Prepayment Assumption") assumes a prepayment rate of [__]% CPR and a constant
draw rate of [__]%. CPR is a prepayment assumption that represents a constant
assumed rate of prepayment each month relative to the then outstanding principal
balance of a pool of mortgage loans for the life of such mortgage loans. The
model does not purport to be either an historical description of the prepayment
experience of any pool of mortgage loans or a prediction of the anticipated rate
of prepayment of any mortgage loans, including the Mortgage Loans to be included
in the Trust.
Each of the Prepayment Scenarios in the tables below assumes the
respective percentage of the Prepayment Assumption.
The tables entitled "Percent of Original Note Balance Outstanding" were
prepared on the basis of the assumptions in the following paragraph and the
table set forth below. There are certain differences between the loan
characteristics included in such assumptions and the characteristics of the
actual Mortgage Loans. Any such discrepancy may have an effect upon the
percentages of Original Note Balances outstanding and weighted average lives of
the Offered Notes set forth in the tables. In addition, since the actual
Mortgage Loans in the Trust will have characteristics that differ from those
assumed in preparing the tables set forth below, the payments of principal of
the Offered Notes may be made earlier or later than indicated in the table.
The percentages and weighted average lives in the tables entitled
"Percent of Original Note Balance Outstanding" were determined assuming that
(the "Structuring Assumptions"): (i) the Mortgage Loans have the characteristics
set forth in Annex II, (ii) the closing date for the Offered Notes occurs on
[_______, 200_] and the Offered Notes were sold to investors on such date, (iii)
payments on the Notes are made on the 25th day of each month regardless of the
day on which the Payment Date actually occurs, commencing in [_______ 200_], in
accordance with the allocation of Available Funds set forth above under
"Description of the Notes--Allocation of Available Funds," (iv) prepayments are
calculated under each of the percentages of the Prepayment Assumption, set forth
in the "Percent of Original Note Balance Outstanding" tables below, before
giving effect to draws, (v) prepayments include thirty days' interest thereon,
(vi) monthly draws are calculated before giving effect to prepayments; (vii) the
Originator is not required to substitute or repurchase any of the Mortgage Loans
pursuant to the Sale and Servicing Agreement and no optional redemption is
exercised, except with respect to the entries identified by the row captioned
"Weighted Average Life (years) to Optional Redemption" in the tables below,
(viii) scheduled payments for all Mortgage Loans are received on the first day
of each month commencing on [_______, 200_] and prepayments for all Mortgage
Loans are received on the last day of the related Collection Period commencing
on [_______, 200_], the principal portion of such payments is computed prior to
giving effect to prepayments received on such date and there are no losses or
delinquencies with respect to such Mortgage Loans, (ix) all related Mortgage
Loans prepay at the same rate and all such payments are treated as prepayments
in full of individual Mortgage Loans, with no shortfalls in collection of
interest, (x) the minimum payment due on each HELOC during the draw and
repayment period is equal to the accrued but unpaid interest on such HELOC; (xi)
no scheduled payment of principal is due during the draw period and during the
repayment period the scheduled payment of principal is determined on each
Distribution Date such that each Mortgage Loan will fully amortize; (xii) the
Note Index is at all times equal to [__]%, (xiii) the Note Rates for the Offered
Notes are as set forth herein, (xiv) the Prime Rate is equal to [__]%, (xv) the
Servicing Fee Rate for each Mortgage Loan is equal to 0.50% per annum and the
Credit Risk Manager Fee Rate for each Mortgage Loan is equal to [__]% per annum
and (xvi) the Subsequent Mortgage Loans are acquired in [_______ 200_] with the
characteristics set forth in Annex II and have a first scheduled payment date in
[_______ 200_]. Nothing contained in the foregoing assumptions should be
construed as a representation that the Mortgage Loans will not experience
delinquencies or losses.
PREPAYMENT SCENARIOS(1)
SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
---------- ------------------------------------ ----------
20% 30% 40% 50% 60%
- -----------------
(1) Percentage of CPR.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of the Offered Notes, and set forth the
percentages of the Original Note Balance of such Offered Note that would be
outstanding after each of the dates shown, at various percentages of CPR.
PERCENT OF ORIGINAL NOTE BALANCE OUTSTANDING
CLASS [__]
---------------------------------------------------------------------------------
PREPAYMENT SCENARIO
PAYMENT DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
------------ ---------- ----------- ------------ ----------- ----------
Initial Percentage.............. 100% 100% 100% 100% 100%
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
* If applicable, represents a number greater than zero but less than 0.5%.
(1) The weighted average life of any class of Notes is determined by (i)
multiplying the assumed net reduction, if any, in the Note Balance on each
Payment Date of such class of Notes by the number of years from the date of
issuance of the Notes to the related Payment Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the assumed
net reductions in the Note Balance of such class of Notes.
(2) Assumes an optional redemption of the Offered Notes on the earliest Payment
Date on which it is permitted.
PERCENT OF ORIGINAL NOTE BALANCE OUTSTANDING
CLASS [__]
---------------------------------------------------------------------------------
PREPAYMENT SCENARIO
PAYMENT DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
------------ ---------- ----------- ------------ ----------- ----------
Initial Percentage.............. 100% 100% 100% 100% 100%
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
* If applicable, represents a number greater than zero but less than 0.5%.
(1) The weighted average life of any class of Notes is determined by (i)
multiplying the assumed net reduction, if any, in the Note Balance on each
Payment Date of such class of Notes by the number of years from the date of
issuance of the Notes to the related Payment Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the assumed
net reductions in the Note Balance of such class of Notes.
(2) Assumes an optional redemption of the Offered Notes on the earliest Payment
Date on which it is permitted.
PERCENT OF ORIGINAL NOTE BALANCE OUTSTANDING
CLASS [__]
---------------------------------------------------------------------------------
PREPAYMENT SCENARIO
PAYMENT DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
------------ ---------- ----------- ------------ ----------- ----------
Initial Percentage.............. 100% 100% 100% 100% 100%
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
* If applicable, represents a number greater than zero but less than 0.5%.
(1) The weighted average life of any class of Notes is determined by (i)
multiplying the assumed net reduction, if any, in the Note Balance on each
Payment Date of such class of Notes by the number of years from the date of
issuance of the Notes to the related Payment Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the assumed
net reductions in the Note Balance of such class of Notes.
(2) Assumes an optional redemption of the Offered Notes on the earliest Payment
Date on which it is permitted.
PERCENT OF ORIGINAL NOTE BALANCE OUTSTANDING
CLASS [__]
---------------------------------------------------------------------------------
PREPAYMENT SCENARIO
PAYMENT DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
------------ ---------- ----------- ------------ ----------- ----------
Initial Percentage.............. 100% 100% 100% 100% 100%
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
[___________ __, 20__]..........
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
* If applicable, represents a number greater than zero but less than 0.5%.
(1) The weighted average life of any class of Notes is determined by (i)
multiplying the assumed net reduction, if any, in the Note Balance on each
Payment Date of such class of Notes by the number of years from the date of
issuance of the Notes to the related Payment Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the assumed
net reductions in the Note Balance of such class of Notes.
(2) Assumes an optional redemption of the Offered Notes on the earliest Payment
Date on which it is permitted.
YIELD SENSITIVITY OF THE MEZZANINE NOTES
If the Certificate Principal Balance of the Class [__] Certificates and
the Note Balance of the Class B Notes and each class of Mezzanine Notes with a
lower payment priority have been reduced to zero, the yield to maturity on any
remaining classes of Mezzanine Notes will become extremely sensitive to losses
on the Mortgage Loans (and the timing thereof) 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 those Notes.
The Original Note Balances of the Class [__] Notes, the Class [__] Notes and the
Class [__] Notes are approximately [____]%, approximately [____]%, approximately
[____]% and approximately [____]%, respectively, of the aggregate Principal
Balance of the Mortgage Loans as of the Cut-off Date. Investors in the Mezzanine
Notes should fully consider the risk that Realized Losses on the Mortgage Loans
could result in the failure of such investors to fully recover their
investments. In addition, once Realized Losses have been allocated to the
Mezzanine Notes, such amounts with respect to such Notes will no longer accrue
interest and will not be reinstated thereafter (except in the case of Subsequent
Recoveries). However, Allocated Realized Loss Amounts may be paid to the holders
of the Mezzanine Notes from Net Monthly Excess Cashflow in the priorities set
forth under "Description of the Notes--Overcollateralization Provisions" in this
prospectus supplement.
Unless the aggregate Note Balance of the Class A Notes has been reduced
to zero, the Mezzanine Notes will not be entitled to any principal payments
until the Stepdown Date or during any period in which a Trigger Event is in
effect. As a result, the weighted average lives of the Mezzanine Notes will be
longer than would otherwise be the case if payments of principal were allocated
on a PRO RATA basis among the Offered Notes. As a result of the longer weighted
average lives of the Mezzanine Notes, the holders of such Notes have a greater
risk of suffering a loss on their investments. Further, because a Trigger Event
may be based on delinquencies, it is possible for the Mezzanine Notes to receive
no principal payments (unless the aggregate Note Balance of the Class A Notes
has been reduced to zero) on and after the Stepdown Date even if no losses have
occurred on the Loan Pool. For additional considerations relating to the yield
on the Mezzanine Notes, see "Yield and Prepayment Considerations" in the
prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Notes to the purchase of the Mortgage Loans transferred to the Trust and to
deposit funds into the Pre-Funding Accounts.
FEDERAL INCOME TAX CONSEQUENCES
[One or more elections will be made to treat designated portions of the
Trust (exclusive of the Net WAC Rate Carryover Reserve Account, the Pre-Funding
Accounts, the Interest Coverage Accounts, if any, any Subsequent Mortgage Loan
Interest and the Reserve Account, as more fully described herein or in the Sale
and Servicing Agreement) as a real estate mortgage investment conduit (a
"REMIC") for federal income tax purposes. Upon the issuance of the Offered
Notes, [__________], counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
Indenture, for federal income tax purposes, each REMIC elected by the Trust will
qualify as a REMIC under Sections 860A through 860G of the Internal Revenue Code
of 1986, as amended (the "Code").]
[For federal income tax purposes, (i) the Residual Certificates will
consist of components, each of which will represent the sole class of "residual
interests" in each REMIC elected by the Trust and (ii) the Floating Rate Notes
(exclusive of any right of the holder of any such Notes to receive payments from
the Net WAC Rate Carryover Reserve Account in respect of the Net WAC Rate
Carryover Amount) and the Class [__] Certificates will represent the "regular
interests" in, and which generally will be treated as debt instruments of, a
REMIC. See "Certain Material Federal Income Tax Considerations--General" in the
prospectus.]
[Each holder of an Floating Rate Note is deemed to own an undivided
beneficial ownership interest in a REMIC regular interest and the right to
receive payments from the Net WAC Rate Carryover Reserve Account in respect of
the Net WAC Rate Carryover Amount. The Net WAC Rate Carryover Reserve Account is
not an asset of any REMIC. The treatment of amounts received by a holder of a
Floating Rate Note under such Noteholder's right to receive the Net WAC Rate
Carryover Amount will depend on the portion, if any, of such Noteholder's
purchase price allocable thereto. Under the REMIC Regulations, each holder of a
Floating Rate Note must allocate its purchase price for the Floating Rate Note
between its undivided interest in the regular interest of the related REMIC and
its undivided interest in the right to receive payments from the Net WAC Rate
Carryover Reserve Account in respect of the Net WAC Rate Carryover Amount in
accordance with the relative fair market values of each property right. The
Trust intends to treat payments made to the holders of the Floating Rate Notes
with respect to the Net WAC Rate Carryover Amount as includible in income based
on the regulations relating to notional principal contracts (the "Notional
Principal Contract Regulations"). The OID Regulations provide that the Trust's
allocation of the issue price is binding on all holders unless the holder
explicitly discloses on its tax return that its allocation is different from the
Trust's allocation. For tax reporting purposes, the right to receive payments
from the Net WAC Rate Carryover Reserve Account in respect of Net WAC Rate
Carryover Amounts may have more than a DE MINIMIS value. The value of such right
may be obtained from the Indenture Trustee upon request to the extent that the
Indenture Trustee has received such information from the Underwriters. Under the
REMIC Regulations, the Trust is required to account for the REMIC regular
interest and the right to receive payments from the Net WAC Rate Carryover
Reserve Account in respect of the Net WAC Rate Carryover Amount as discrete
property rights. Holders of the Floating Rate Notes are advised to consult their
own tax advisors regarding the allocation of issue price, timing, character and
source of income and deductions resulting from the ownership of such Notes.
Treasury regulations have been promulgated under Section 1275 of the Code
generally providing for the integration of a "qualifying debt instrument" with a
hedge if the combined cash flows of the components are substantially equivalent
to the cash flows on a variable rate debt instrument. However, such regulations
specifically disallow integration of debt instruments subject to Section
1272(a)(6) of the Code. Therefore, holders of the Floating Rate Notes will be
unable to use the integration method provided for under such regulations with
respect to those Notes. If the Trust's treatment of payments of the Net WAC Rate
Carryover Amount is respected, ownership of the right to the Net WAC Rate
Carryover Amount will entitle the owner to amortize the separate price paid for
the right to the Net WAC Rate Carryover Amount under the Notional Principal
Contract Regulations.]
[Upon the sale of a Floating Rate Note the amount of the sale allocated
to the selling Noteholder's right to receive payments from the Net WAC Rate
Carryover Reserve Account in respect of the Net WAC Rate Carryover Amount would
be considered a "termination payment" under the Notional Principal Contract
Regulations allocable to the related Floating Rate Note. A holder of a Floating
Rate Note will have gain or loss from such a termination of the right to receive
payments from the Net WAC Rate Carryover Reserve Account in respect of the Net
WAC Rate Carryover Amount equal to (i) any termination payment it received or is
deemed to have received minus (ii) the unamortized portion of any amount paid
(or deemed paid) by the Noteholder upon entering into or acquiring its interest
in the right to receive payments from the Net WAC Rate Carryover Reserve Account
in respect of the Net WAC Rate Carryover Amount. Gain or loss realized upon the
termination of the right to receive payments from the Net WAC Rate Carryover
Reserve Account in respect of the Net WAC Rate Carryover Amount will generally
be treated as capital gain or loss. Moreover, in the case of a bank or thrift
institution, Code Section 582(c) would likely not apply to treat such gain or
loss as ordinary.]
[For federal income tax reporting purposes, the Offered Notes 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 the Prepayment Assumption. No
representation is made that the Mortgage Loans will prepay at such rate or at
any other rate. See "Certain Material Federal Income Tax
Considerations--Taxation of Debt Securities" in the prospectus.]
[The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Offered Notes should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
prepayable securities such as the Offered Notes. In addition, there is
considerable uncertainty concerning the application of the OID Regulations to
REMIC Regular Notes that provide for payments based on an adjustable rate such
as the Offered Notes. Because of the uncertainty concerning the application of
Section 1272(a)(6) of the Code to such Notes and because the rules of the OID
Regulations relating to debt instruments having an adjustable rate of interest
are limited in their application in ways that could preclude their application
to such Notes even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Offered Notes should be treated as issued with original
issue discount or should be governed by the rules applicable to debt instruments
having contingent payments or by some other method not yet set forth in
regulations. Prospective purchasers of the Offered Notes are advised to consult
their tax advisors concerning the tax treatment of such Notes.]
[It appears that a reasonable method of reporting original issue
discount with respect to the Offered Notes, if such Notes are required to be
treated as issued with original issue discount, generally would be to report all
income with respect to such Notes as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index will remain constant for purposes of determining the original
yield to maturity of, and projecting future payments on such Notes, thereby
treating such Notes as fixed rate instruments to which the original issue
discount computation rules described in the prospectus can be applied, and (ii)
by accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment to
original issue discount with respect to such period. See "Certain Federal Income
Tax Considerations--Taxation of Debt Securities " in the prospectus.]
[Certain of the Notes may be treated for federal income tax purposes as
having been issued at a premium. Whether any holder of a Note will be treated as
holding such Note with amortizable bond premium will depend on such Noteholder's
purchase price and the payments remaining to be made on such Note at the time of
its acquisition by such Noteholder. Holders of such Notes are encouraged to
consult their own tax advisors regarding the possibility of making an election
to amortize such premium. See "Certain Material Federal Income Tax
Considerations--Taxation of Debt Securities" in the prospectus.]
[With respect to the Floating Rate Notes, this paragraph is relevant to
such Notes exclusive of the rights of the holders of the Offered Notes to
receive certain payments in respect of the Net WAC Rate Carryover Amount. The
Offered Notes 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 Trust would be so
treated. In addition, interest on the Offered Notes 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 Notes are treated as "real
estate assets" under Section 856(c)(4)(A) of the Code. Amounts held in the
Pre-Funding Accounts and the Interest Coverage Accounts, if any, may not be
treated as assets as described in the foregoing sections of the Code. The
Offered Notes will also be treated as "qualified mortgages" under Section
860G(a)(3) of the Code. See "Certain Material Federal Income Tax
Considerations--Taxation of Debt Securities--Status as Real Property Loans" in
the prospectus.]
[The holders of the Floating Rate Notes will be required to include in
income interest on such Notes in accordance with the accrual method of
accounting. As noted above, each holder of a Floating Rate Note will be required
to allocate a portion of the purchase price paid for the Notes to the right to
receive payments from the Net WAC Rate Carryover Reserve Account in respect of
the Net WAC Rate Carryover Amount. The value of the right to receive any such
Net WAC Rate Carryover Amount is a question of fact which could be subject to
differing interpretations. Because the Net WAC Rate Carryover Amount is treated
as a separate right of the Floating Rate Notes not payable by any REMIC elected
by the Trust, such right will not be treated as a qualifying asset for any
Noteholder that is a mutual savings bank, domestic building and loan
association, real estate investment trust, or real estate mortgage investment
conduit and any amounts received from the Net WAC Rate Carryover Reserve Account
will not be qualifying real estate income for real estate investment trusts.]
[It is not anticipated that any REMIC elected by the Trust 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 any REMIC elected under the Indenture, such tax will be borne
(i) by the Indenture Trustee, if the Indenture Trustee has breached its
obligations with respect to REMIC compliance under the Indenture and (ii)
otherwise by the Trust, with a resulting reduction in amounts otherwise payable
to the holders of the Notes.]
[For federal income tax purposes, the Notes will be treated as
indebtedness to a Noteholder and not as an equity interest in the issuer.]
The responsibility for filing annual federal information returns and
other reports will be borne by the Indenture Trustee.
For further information regarding the federal income tax consequences
of investing in the Offered Notes, see "Certain Material Federal Income Tax
Considerations" in the prospectus.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
Sections 404 and 406 of ERISA impose certain fiduciary and prohibited
transaction restrictions on employee pension and welfare benefit plans subject
to Title I of ERISA ("ERISA Plans") and on certain other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and bank collective investment funds and insurance company general and
separate accounts, in which such ERISA Plans are invested. Section 4975 of the
Code imposes essentially the same prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code,
individual retirement accounts described in Section 408 of the Code, Archer MSAs
described in Section 220(d) of the Code and education individual retirement
accounts described in Section 530 of the Code and certain other entities
(referred to in this prospectus supplement as Tax Favored Plans). ERISA and the
Code prohibit a broad range of transactions involving assets of ERISA Plans and
Tax Favored Plans (collectively referred to in this prospectus supplement as
Plans) and persons who have certain specified relationships to such Plans
(so-called "Parties in Interest" within the meaning of ERISA or "Disqualified
Persons" within the meaning of Code), unless a statutory or administrative
exemption is available with respect to any such transaction.
Certain employee benefit plans, such as governmental plans (as defined
in ERISA Section 3(32)), plans maintained outside the United States primarily
for the benefit of persons substantially all of whom are non-resident aliens as
described in Section 4(b)(4) of ERISA and, if no election has been made under
Section 410(d) of the Code, church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the offered notes without regard to the ERISA considerations
described below, subject to the provisions of other applicable federal and state
law. Any such plan which is qualified and exempt from taxation under Sections
401(a) and 501(a) of the Code, however, is subject to the prohibited transaction
rules set forth in Section 503 of the Code.
Certain transactions involving [__________] Trust [200_-___] might be
deemed to constitute prohibited transactions under ERISA and the Code with
respect to a Plan that purchases an offered note, if the assets of [__________]
Trust [200_-___] are deemed to be assets of the Plan. Under the DOL Regulations,
generally, when a Plan makes an investment in an equity interest in another
entity (such as [__________] Trust [200_-___]), the underlying assets of that
entity may be considered Plan Assets unless certain exceptions apply. Exceptions
contained in the DOL Regulations provide that a Plan's assets will include both
an equity interest and an undivided interest in each asset of an entity in which
it makes an equity investment, unless certain exemptions apply as described in
the prospectus, which exemptions are not expected to apply to the offered notes.
Under the DOL Regulations, the term "equity interest" means any interest in an
entity other than an instrument that is treated as indebtedness under applicable
local law and which has no substantial equity features.
[Although it is not free from doubt, [__________] Trust [200_-___]
anticipates that, as of the date hereof, the Offered Notes should be treated as
indebtedness without significant equity features for the purposes of the DOL
Regulations as of the date hereof.]
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Any person who exercises any authority or control with
respect to the management or disposition of the assets of a Plan and any person
who provides investment advice with respect to such assets for a fee is a
fiduciary of such Plan. As a result of the DOL Regulations, a Plan's investment
in the Offered Notes may cause the Mortgage Loans and other assets of the Trust
Estate to be deemed Plan Assets. If this is the case, any party exercising
management or discretionary control with respect to such assets may be deemed a
Plan fiduciary and will therefore be subject to the fiduciary requirements and
prohibited transaction provisions of ERISA and the Code with respect thereto.
[__________] Trust [200_-___], the Depositor, the Underwriters, the Indenture
Trustee, any other provider of credit support, a holder of the Certificates or
any of their affiliates may be considered to be or may become Parties in
Interest (or Disqualified Persons) with respect to certain Plans. Therefore, the
acquisition or holding of the Offered Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction within the meaning of ERISA
and the Code unless one or more statutory or administrative exemptions is
available.
[Because [__________] Trust [200_-___], the Depositor, the
Underwriters, the Indenture Trustee, any provider of credit support, a holder of
the Certificates or any of their affiliates may receive certain benefits in
connection with the sale of the Offered Notes, the purchase of Offered Notes
using Plan Assets over which any of such parties has investment authority might
be deemed to be a violation of the prohibited transaction rules of ERISA or
Section 4975 of the Code for which no exemption may be available. Whether or not
the Mortgage Loans and other assets of the Trust Estate were deemed to include
Plan Assets, prior to making an investment in the Offered Notes, prospective
Plan investors should determine whether [__________] Trust [200_-___], the
Depositor, the Underwriters, the Indenture Trustee, any provider of credit
support, a holder of the Certificates or any of their affiliates is a Party in
Interest (or Disqualified Person) with respect to such Plan and, if so, whether
such transaction is subject to one or more statutory or administrative
exemptions.] The DOL has granted certain class exemptions which provide relief
from certain of the prohibited transaction provisions of ERISA and the related
excise tax provisions of the Code and which are described in the prospectus.
There can be no assurance that any DOL exemption will apply with respect to any
particular Plan investment in the Offered Notes or, even if all of the
conditions specified therein were satisfied, that any exemption would apply to
all prohibited transactions that may occur in connection with such investment.
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Offered Notes by an insurance company general
account, Section 401(c) of ERISA provides certain exemptive relief from the
provisions of Part 4 of Title I of ERISA and Section 4975 of the Code, including
the prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for certain transactions involving an insurance
company general account.
As mentioned above, although it is not free from doubt, [__________]
Trust [200_-___] anticipates that the [Offered Notes should be treated as
indebtedness without substantial equity features for the purposes of the DOL
Regulations as of the date hereof. In addition, although it is not free from
doubt, [__________] Trust [200_-___] believes that, so long as the Offered Notes
retain a rating of at least investment grade, the Offered Notes should continue
to be treated as indebtedness without substantial equity features for purposes
of the DOL Regulations. There is, however, increased uncertainty regarding the
characterization of debt instruments that do not carry an investment grade
rating. Consequently, a subsequent transferee of the Offered Notes or any
interest therein who is a Plan trustee or one who is acting on behalf of a Plan,
or using Plan Assets to effect such transfer, is required to provide written
confirmation (or in the case of any Offered Note transferred in book-entry form,
will be deemed to have confirmed) that at the time of such transfer (i) the
Offered Notes are rated at least investment grade, (ii) such transferee believes
that the Offered Notes are properly treated as indebtedness without substantial
equity features for purposes of the DOL Regulations, and agrees to so treat the
Offered Notes and (iii) the acquisition and holding of the Offered Note will not
give rise to a nonexempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code. Alternatively, regardless of the rating of the Offered
Notes, a prospective transferee of the Offered Notes or any interest therein who
is a Plan trustee or is acting on behalf of a Plan, or using Plan Assets to
effect such transfer, may provide the Indenture Trustee an opinion of counsel
satisfactory to the Indenture Trustee and for the benefit of the Indenture
Trustee, [__________] Trust [200_-___] and the Depositor, which opinion will not
be at the expense of the Trust, [__________] Trust [200_-___], the Depositor or
the Indenture Trustee, that the purchase, holding and transfer of the Offered
Notes or interests therein is permissible under ERISA or Section 4975 of the
Code, will not constitute or result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the trust,
[__________] Trust [200_-___], the Depositor or the Indenture Trustee, to any
obligation in addition to those undertaken in the indenture.]
Any prospective Plan investor considering whether to invest in the
Offered Notes are encouraged to consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. In addition, any Plan
fiduciary should consider its general fiduciary obligations under ERISA in
determining whether to purchase Offered Notes on behalf of a Plan.
The sale of any of the Offered Notes to a Plan is in no respect a
representation by the Depositor or the Underwriters 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.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Notes will [not] constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
The Depositor makes no representations as to the proper
characterization of any class of Offered Notes for legal investment or other
purposes, or as to the ability of particular investors to purchase any class of
Offered Notes under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Offered Notes.
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 Notes constitutes a
legal investment or is subject to investment, capital or other restrictions. See
"Legal Investment" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated [_______, 200_] (the "Underwriting Agreement"), between the
Underwriter and the Depositor, the Depositor has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Depositor, the
Offered Notes.
Payment of the Offered Notes 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 Notes,
before deducting expenses payable by the Depositor and underwriting fees, will
be approximately $[_______, 200_]. The Underwriter's commission will be any
positive difference between the price it pays to the Depositor for the Offered
Notes and the amount it receives from the sale of the Offered Notes to the
public. In connection with the purchase and sale of the Offered Notes, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Offered Notes of each class to the public in Europe and
the United States.
Until the payment of the Offered Notes is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Offered Notes. As an exception to these rules, the
Underwriter is permitted to engage in certain transactions that stabilize the
price of the Offered Notes. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Offered Notes.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Offered Notes. In addition,
neither the Depositor nor the Underwriter makes any representation that the
Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Depositor has been advised by the Underwriter that it intends to
make a market in the Offered Notes but the Underwriter has no obligation to do
so. There can be no assurance that a secondary market for the Offered Notes will
develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Act.
LEGAL MATTERS
Certain legal matters with respect to the Offered Notes will be passed
upon for the Depositor and the Underwriters by [__________], New York, New York.
LEGAL PROCEEDINGS
[There are no other material legal proceedings pending against the
Sponsor, the Depositor, the Indenture 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
other 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 other 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 Indenture 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 Indenture Trustee, [any 10%
concentration Originator], [any credit enhancement provider or derivatives
counterparty], the Securities Administrator or the Custodians. Notwithstanding
the affiliation of the Sponsor to the Depositor and Underwriter, 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 Offered Notes that they be
assigned the following ratings by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") Fitch
Ratings ("Fitch") and Dominion Bond Ratings Service, Inc. ("DBRS"; and
collectively with Moody's, S&P and Fitch, the "Rating Agencies"):
Moody's S&P Fitch DBRS
------- --- ----- ----
[__].......
[__].......
[__].......
[__].......
[__].......
A securities rating addresses the likelihood of the receipt by a
Noteholder of payments on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the Offered Notes. The ratings on the
Offered Notes do not, however, constitute statements regarding the likelihood or
frequency of prepayments on the Mortgage Loans, the payment of the Net WAC Rate
Carryover Amount or the possibility that a holder of an Offered Note might
realize a lower than anticipated yield.
The Depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the Offered Notes. However, there can be no
assurance as to whether any other rating agency will rate the Offered Notes, or,
if it does, what rating would be assigned by any such other rating agency. Any
rating on the Offered Notes by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Offered Notes by the Rating Agencies.
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
[__________] Trust [200_-___] 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 [__________] Trust [200_-___]'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.
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 any of the Offered Notes by the Rating Agencies are
subsequently lowered for any reason, no person or entity is obligated to provide
any additional support or credit enhancement with respect to such Offered Notes.
INDEX OF DEFINED TERMS
Accrual Period
Additional Balance
Additional Balance Advance Amount
Additional Balances
Adjusted Net Loan Rate
Adjusted Net Maximum Loan Rate
Allocated Realized Loss Amount
Available Funds
beneficial owner
Book-Entry Notes
Certificates
Class A Notes
Class B Notes
Class [__] Principal Payment Amount
Class [__] Principal Payment Amount
Class [__] Principal Payment Amount
Clearstream
Clearstream Participants
Code
Collection Account
Collection Period
Commission
Credit Enhancement Percentage
Credit Limit
Credit Limit Utilization Rate
Credit Line Agreements
Credit Risk Manager
Credit Risk Manager Fee
Credit Risk Manager Fee Rate
Cut-off Date Principal Balance
DBRS
Definitive Note
Deleted HELOCs
Delinquent
Determination Date
Disqualified Persons
Draw Period
DTC
DTC Participants
Due Date
Equity Interest
ERISA
ERISA Plans
Euroclear
Euroclear Operator
Euroclear Participants
European Depositaries
Extra Principal Payment Amount
EZ Documentation
Financial Intermediary
Fitch
Formula Rate
Funding Period:
Global Securities
[______]
Group I Allocation Percentage
Group I Basic Principal Payment Amount
Group I Interest Remittance Amount
Group I Mortgage Loans
Group I Net Principal Collections
Group I Pre-Funding Account
Group I Principal Payment Amount
Group I Principal Remittance Amount
Group I Senior Principal Payment Amount
Group II Allocation Percentage
Group II Basic Principal Payment Amount
Group II Interest Remittance Amount
Group II Mortgage Loans
Group II Net Principal Collections
Group II Pre-Funding Account
Group II Principal Payment Amount
Group II Principal Remittance Amount
Group II Senior Principal Payment Amount
HELOCs
High Cost Loans
Homeownership Act
IML
Indenture
Index Rate
Initial Group I HELOCs
Initial Group I Mortgage Loans
Initial Group II Mortgage Loans
Initial HELOCs
Initial Mortgage Loans
Insurance Proceeds
Interest Coverage Accounts
IRS
Issuing Entity
LIBOR Business Day
LIBOR Determination Date
Liquidated HELOC
Loan Group
Loan Pool
Loan Rate
Margin
Maximum Cap Rate
Maximum Loan Rate
MERS
Mezzanine Notes
Minimum Loan Rate
Monthly Interest Payable Amount
Moody's .
Mortgage
Mortgage Loan Schedule
Mortgage Loans
Mortgaged Property
Net Liquidation Proceeds
Net Monthly Excess Cashflow
Net WAC Rate
Net WAC Rate Carryover Amount
Net WAC Rate Carryover Reserve Account
NFB
No Employment/Income Documentation
No Ratio Documentation
Note Balance
Note Index
Note Margin
Note Owners
Note Rate
Notes
Notional Principal Contract Regulations
Offered Notes
OID Regulations
Original Group I Pre-Funded Amount
Original Group II Pre-Funded Amount
Original Note Balance
Original Pre-Funded Amounts
Overcollateralization Deficiency Amount
Overcollateralization Target Amount
Overcollateralized Amount
Parties in Interest
Payment Account
Payment Date
Pool Balance
Pre-Funding Accounts
Prepayment Assumption
Prepayment Interest Shortfall:
Principal Balance
Principal Remittance Amount
Purchase Price
Qualifying Substitute HELOC
Rating Agencies
Realized Loss
Record Date
Redeemer
Redemption Price
Reference Banks
Related Documents
Relevant Depositary
Relief Act
REMIC
Reserve Interest Rate
Residual Certificates
Rules
S&P
Sale and Servicing Agreement
Second Mortgage Ratio
Senior Principal Payment Amount
Servicing Advance:
Servicing Fee Rate:
Servicing Fee:
SMMEA
Stepdown Date
Structuring Assumptions
Subsequent Cut-off Date:
Subsequent Group I Mortgage Loans
Subsequent Group II Mortgage Loans
Subsequent Mortgage Loans
Subsequent Recoveries
Subsequent Transfer Date
Subsequent Transfer Instruments:
Substitution Adjustment
Telerate Page 3750
Terms and Conditions
Trigger Event
Trust
Trust Agreement
U.S. Person
Underwriter
Underwriting Agreement
Unpaid Interest Shortfall Amount
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Offered Notes will be
offered globally (the "Global Securities") and will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of DTC and upon request through Clearstream or Euroclear.
The Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream and Euroclear will be conducted in accordance with their
normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Clearstream and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no `lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and Sponsor's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset-backed notes issues in same-day funds.
TRADING BETWEEN CLEARSTREAM AND/OR EUROCLEAR PARTICIPANTS. Secondary
market trading between Clearstream Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND CLEARSTREAM OR EUROCLEAR PURCHASER. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Clearstream Participant or a Euroclear Participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream Participant or Euroclear Participant at least one business day prior
to settlement. Clearstream or Euroclear will instruct the respective Depositary,
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
the actual number of days in such accrual period and a year assumed to consist
of 360 days or a 360-day year consisting of twelve 30 day months, as applicable.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary 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 Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Clearstream or Euroclear cash debt will be valued instead as of the actual
settlement date.
Clearstream Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Participants or Euroclear 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
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Clearstream Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Clearstream
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC Seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CLEARSTREAM OR EUROCLEAR SELLER AND DTC PURCHASER. Due
to time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The Sponsor will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days or a 360-day year consisting of twelve 30-day
months, as applicable. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the
Clearstream Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Clearstream Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Clearstream Participant
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream
Participants or Euroclear Participants should note that these trades will
automatically fail on the sale side unless affirmative action is taken. At least
three techniques should be readily available to eliminate this potential problem
(a) through Clearstream or Euroclear for one day (until the
purchase side of the day trade is reflected in their Clearstream or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) he 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 account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner who is an individual or corporation holding the
Global Securities on its own behalf through Clearstream or Euroclear (or through
DTC if the holder has an address outside the U.S.) will be subject to the 30%
U.S. withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. Persons, unless (i)
each clearing system, bank or other institution that holds customers' securities
in the ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner or a foreign partnership or trust and the U.S.
entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8BEN). Beneficial owners of
Global Securities that are non-U.S. Persons generally 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 such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Certificate of Foreign Person's Claim for
Exemption from Withholding on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM W-8BEN). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding). Form W-8BEN may be filed by the Certificate Owners or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
Global Security files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8BEN and Form W-8ECI are generally
effective until the third succeeding calendar year from the date such form is
signed. However, a Form W-8BEN or Form W-8ECI with a taxpayer identification
number will remain effective until a change in circumstances makes any
information on such form incorrect, provided that the withholding agent reports
at least annually to the beneficial owner of Form 1042-S.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a corporation
or partnership for United States federal income tax purposes organized in or
under the laws of the United States or any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise) or (iii) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to such
date, that elect to continue to be treated as United States persons will also be
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.
================================================================================
$[__________] (APPROXIMATE)
[________________] TRUST [200_-___]
[FINANCIAL ASSET SECURITIES CORP.]
[GREENWICH CAPITAL ACCEPTANCE INC.]
DEPOSITOR
[_________]
SERVICER
[_________]
SPONSOR
ASSET-BACKED NOTES, SERIES [200_-___]
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
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 Asset-Backed Notes, Series [200_-___] in any state where
the offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
Underwriter of the Asset-Backed Notes, Series [200_-___] and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Asset-Backed Notes, Series [200_-___] will be required to deliver a prospectus
supplement and prospectus for ninety days following the date of this prospectus
supplement.
[__________, 200_]
================================================================================
THE INFORMATION 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 IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MARCH 31, 2006
PROSPECTUS SUPPLEMENT dated [__] (to Prospectus dated [__])
$[ ] (APPROXIMATE)
[__________] Trust [200_-___]
ASSET-BACKED CERTIFICATES, SERIES [SERIES]
[__________] TRUST [200_-____]
Issuing Entity
[FINANCIAL ASSET SECURITIES CORP.]
[GREENWICH CAPITAL ACCEPTANCE INC.]
DEPOSITOR
[___________]
SERVICER
[___________]
SPONSOR
Only the [__] classes of certificates identified below are being offered by this
prospectus supplement and the accompanying prospectus.
The Offered Certificates
o Represent ownership interests in a trust consisting of a pool
of first lien, fixed-rate and adjustable-rate residential
mortgage loans. The mortgage loans will be segregated into two
groups, one consisting of mortgage loans with principal
balances at origination that conform to Fannie Mae and Freddie
Mac loan limits and one consisting of mortgage loans with
principal balances at origination that may or may not conform
to Fannie Mae and Freddie Mac loan limits.
o The offered certificates will accrue interest at a rate equal
to one-month LIBOR plus the related fixed margin, subject to
certain limitations described in this prospectus supplement.
Credit Enhancement
o Subordination as described in this prospectus supplement under
"Description of the Certificates Subordination."
o Overcollateralization as described in this prospectus
supplement under "Description of the
Certificates--Overcollateralization Provisions."
o Excess Interest as described in this prospectus supplement
under "Description of the Certificates--Overcollateralization
Provisions."
o An Interest rate swap agreement as described in this
prospectus supplement under "Description of the
Certificates--Interest Rate Swap Agreement, the Swap Provider
and the Swap Account"
o [a financial guaranty insurance policy issued by [NIMS
Insurer] for the benefit of the Class [___] Certificates.]
o [A Cap Contract as described in this prospectus supplement
under "Description of the Certificates--Cap Contract".]
ORIGINAL CERTIFICATE PASS-THROUGH
CLASS PRINCIPAL BALANCE(1) RATE(2)
----------- -------------------- ------------
Class [__] $ [__] Variable
Class [__] $ [__] Variable
Class [__] $ [__] Variable
Class [__] $ [__] Variable
- -----------------
(1) Approximate.
(2) Calculated at the per annum rate of one-month LIBOR plus the related margin
as set forth in "Summary of Terms--Distributions on the Certificates" and
as described under "Description of the Certificates--Pass-Through Rates" in
this prospectus supplement and subject to limitation or increase under
certain circumstances.
[__________] (the "Underwriter") will offer the offered certificates from time
to time to the public in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. The proceeds to the Depositor from the
sale of the offered certificates, before deducting expenses and underwriting
fees, will be approximately $[__]. The Underwriter's commission will be any
positive difference between the price it pays to the Depositor for the offered
certificates and the amount it receives from the sale of such certificates to
the public. See "Method of Distribution" in this prospectus supplement.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
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.
Delivery of the offered certificates will be made in book-entry form through the
facilities of The Depository Trust Company, and upon request through the
facilities of Clearstream Banking Luxembourg and the Euroclear System, on or
about [_____].
[LOGO]
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS................................................................
RISK FACTORS....................................................................
THE MORTGAGE POOL...............................................................
STATIC POOL INFORMATION.........................................................
[ISSUING ENTITY]]...............................................................
THE ORIGINATORS.................................................................
THE SPONSOR.....................................................................
THE POOLING AGREEMENT...........................................................
DESCRIPTION OF THE CERTIFICATES.................................................
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS...................................
USE OF PROCEEDS.................................................................
FEDERAL INCOME TAX CONSEQUENCES.................................................
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS.......................................
LEGAL INVESTMENT CONSIDERATIONS.................................................
METHOD OF DISTRIBUTION..........................................................
LEGAL MATTERS...................................................................
RATINGS.........................................................................
INDEX OF DEFINED TERMS..........................................................
ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES..........
ANNEX II ASSUMED MORTGAGE LOAN CHARACTERISTICS.................................
ANNEX III INTEREST RATE SWAP SCHEDULE..........................................
EUROPEAN ECONOMIC AREA
In relation to each Member State of the European Economic Area which has
implemented the Prospectus Directive (each, a Relevant Member State), the
Underwriter has represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) it has not made and will not make an
offer of certificates to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the certificates which has been
approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and including the
Relevant Implementation Date, make an offer of certificates to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorised or regulated to operate in the
financial markets or, if not so authorised or regulated, whose
corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least
250 employees during the last financial year; (2) a total balance sheet
of more than (euro)43,000,000 and (3) an annual net turnover of more
than (euro)50,000,000, as shown in its last annual or consolidated
accounts; or
(c) in any other circumstances which do not require the publication by the
Issuing Entity of a prospectus pursuant to Article 3 of the Prospectus
Directive.
For the purposes of this provision, the expression an "offer of certificates to
the public" in relation to any certificates in any Relevant Member State means
the communication in any form and by any means of sufficient information on the
terms of the offer and the certificates to be offered so as to enable an
investor to decide to purchase or subscribe the certificates, as the same may be
varied in that Member State by any measure implementing the Prospectus Directive
in that Member State and the expression PROSPECTUS DIRECTIVE means Directive
2003/71/EC and includes any relevant implementing measure in each Relevant
Member State.
UNITED KINGDOM
The Underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement to
engage in investment activity (within the meaning of Section 21 of the
Financial Services and Markets Act) received by it in connection with
the issue or sale of the certificates in circumstances in which Section
21(1) of the Financial Services and Markets Act does not apply to the
Issuer; and
(b) it has complied and will comply with all applicable provisions of the
Financial Services and Markets Act with respect to anything done by it
in relation to the certificates in, from or otherwise involving the
United Kingdom.
SUMMARY OF TERMS
o This summary highlights selected information from this
document and does not contain all of the information that you
need to consider in making your investment decision. To
understand all of the terms of the offering of the
certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations,
cash flow priorities and other information to aid your
understanding and is qualified by the full description of
these calculations, cash flow priorities and other information
in this prospectus supplement and the accompanying prospectus.
Some of the information consists of forward-looking statements
relating to future economic performance or projections and
other financial items. Forward-looking statements are subject
to a variety of risks and uncertainties that could cause
actual results to differ from the projected results. Those
risks and uncertainties include, among others, general
economic and business conditions, regulatory initiatives and
compliance with governmental regulations, and various other
matters, all of which are beyond our control. Accordingly,
what actually happens may be very different from what we
predict in our forward-looking statements.
Offered Certificates
On the Closing Date, [__________] Trust [200_-___] will issue [__] classes of
certificates, four of which are being offered by this prospectus supplement and
the accompanying prospectus. The assets of the trust that will support the
certificates will consist of a pool of fixed-rate and adjustable-rate, first
lien mortgage loans having the characteristics described in this prospectus
supplement. The Class [__] Certificates, Class [__] Certificates, the Class [__]
Certificates and the Class [__] Certificates are the only classes of offered
certificates.
The offered certificates will be book-entry securities clearing through The
Depository Trust Company (in the United States) or upon request through
Clearstream Banking Luxembourg and the Euroclear System (in Europe) in minimum
denominations of $25,000; provided that offered certificates must be purchased
in minimum total investments of $100,000 per class.
Other Certificates
The trust will issue seven additional classes of certificates. These
certificates will be designated as the Class [__] Certificates, the Class [__]
Certificates, the Class [__] Certificates, the Class [__] Certificates, the
Class [__] Certificates, the Class [__] Certificates and the Class [__]
Certificates and are not being offered to the public by this prospectus
supplement and the prospectus.
The Class [__] Certificates, the Class [__] Certificates and the Class [__]
Certificates are subordinate to the Offered Certificates. The Class [__]
Certificates have an initial certificate principal balance of $[__]. The Class
[__] Certificates have an initial certificate principal balance of $[__]. The
Class [__] Certificates have an initial certificate principal balance of $[__].
The Class [__] Certificates will be sold by the Depositor to Greenwich Capital
Markets, Inc. on the closing date.
The Class [__] Certificates will have an initial certificate principal balance
of approximately $[__], which is approximately equal to the initial
overcollateralization required by the pooling agreement. The Class [__]
Certificates initially evidence an interest of approximately [__]% in the trust.
The Class [__] Certificates will be delivered to the Sponsor or its designee as
partial consideration for the mortgage loans.
The Class [__] Certificates will have an original certificate principal balance
of $100 and will not be entitled to distributions in respect of interest. The
Class [__] Certificates will be entitled to all prepayment charges received in
respect of the mortgage loans. The Class [__] Certificates will be delivered to
the Sponsor or its designee as partial consideration for the mortgage loans.
The Class [__] Certificates and the Class [__] Certificates will not have
original certificate principal balances and are the classes of certificates
representing the residual interests in the trust. The Class [__] Certificates
and the Class [__] Certificates will be sold to Greenwich Capital Markets, Inc.
on the closing date.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES-- GENERAL," "--BOOK-ENTRY
CERTIFICATES" AND "THE MORTGAGE POOL" IN THIS PROSPECTUS SUPPLEMENT.
Cut-off Date
[--].
CLOSING DATE
On or about [__].
THE ISSUING ENTITY
[__________] Trust [200_-___]. We refer you to "[__________] Trust [200_-___]"
in this prospectus supplement for additional information.
THE DEPOSITOR
[Greenwich Capital Acceptance Inc.] [Financial Asset Securities Corp.], a
Delaware corporation and an affiliate of Greenwich Capital Markets, Inc. WE
REFER YOU TO "THE DEPOSITOR" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
SERVICER
[_______________________, a ____________] [To be expanded to include all
servicers of 10% or more of the asset pool]. Any obligation specified to be
performed by the master servicer in the prospectus is an obligation to be
performed by the Servicer with respect to the mortgage loans. WE REFER YOU TO
"THE POOLING AGREEMENT--THE SERVICER" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
ORIGINATORS
[______, or certain of its correspondents originated the mortgage loans to be
included in the trust fund.] Approximately [__]% of the mortgage loans were
originated by [______] [and approximately [__]% of the mortgage loans were
originated by [______]]. [To be expanded to include all originators of 10% or
more of the asset pool]. 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. We refer
you to "The Originators" in this prospectus supplement for additional
information.
SPONSOR
[__________, a __________]. WE REFER YOU TO "THE SPONSOR" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
TRUSTEE
[__________, a __________]. WE REFER YOU TO "THE POOLING AGREEMENT--THE TRUSTEE
AND THE CUSTODIAN" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CUSTODIAN
[__________, a __________]. WE REFER YOU TO "THE POOLING AGREEMENT--THE TRUSTEE
AND THE CUSTODIAN" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CREDIT RISK MANAGER
[__________, a __________]. WE REFER YOU TO "THE POOLING AGREEMENT--THE CREDIT
RISK MANAGER" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
NIMS INSURER
One or more insurance companies (together, the "NIMS Insurer") may issue a
financial guaranty insurance policy covering certain payments to be made on net
interest margin securities to be issued by a separate trust and secured by all
or a portion of the Class C Certificates and the Class P Certificates. In such
event, the NIMS Insurer will be able to exercise rights which could adversely
impact the certificateholders.
WE REFER YOU TO "RISK FACTORS--RIGHTS OF NIMS INSURER" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
CAP CONTRACT COUTERPARTY
[__________, a __________]. WE REFER YOU TO "DESCRIPTION OF THE
CERTIFICATES--CAP CONTRACT" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
DESIGNATIONS
Each class of certificates will have different characteristics, some of which
are reflected in the following general designations.
o OFFERED CERTIFICATES
Class A Certificates and Mezzanine Certificates.
o CLASS A CERTIFICATES
Class [__] Certificates, Class [__] Certificates, Class [__]
Certificates, Class [__] Certificates and Class [__] Certificates.
o GROUP I CERTIFICATES
Class [__] Certificates and Class [__] Certificates.
o CLASS B CERTIFICATES
Class [__] Certificates, Class [__] Certificates and Class [__]
Certificates.
o SUBORDINATE CERTIFICATES
Mezzanine Certificates, Class B Certificates and Class C Certificates.
o RESIDUAL CERTIFICATES
Class [__] Certificates and Class [__] Certificates.
MORTGAGE LOANS
On the Closing Date the trust will acquire a pool of first lien, fixed-rate and
adjustable-rate mortgage loans that will be divided into two loan groups, Loan
Group I and Loan Group II (each, a "Loan Group"). Loan Group I will consist of
fixed-rate and adjustable-rate mortgage loans with principal balances at
origination that conform to Fannie Mae and Freddie Mac loan limits and Loan
Group II will consist of fixed-rate and adjustable-rate mortgage loans with
principal balances at origination that may or may not conform to Fannie Mae and
Freddie Mac loan limits. In addition, certain of the conforming balance Mortgage
Loans included in Loan Group II might otherwise have been included in Loan Group
I, but were excluded from Loan Group I because they did not meet Fannie Mae or
Freddie Mac criteria (including published guidelines) for factors other than
principal balance.
The mortgage loans in the trust as of the Closing Date will consist of
approximately [__] mortgage loans described in this prospectus supplement and
having an aggregate principal balance as of the Cut-off Date of approximately
$[__] (the "Initial Mortgage Loans").
The "Group I Mortgage Loans" will consist of approximately [__] Initial Mortgage
Loans described in this prospectus supplement having an aggregate principal
balance as of the Cut-off Date of approximately $[__] (the "Initial Group I
Mortgage Loans") and any subsequent Mortgage Loans that will be included in Loan
Group I after the Closing Date (the "Subsequent Group I Mortgage Loans").
The "Group II Mortgage Loans" will consist of approximately [__] Initial
Mortgage Loans described in this prospectus supplement having an aggregate
principal balance as of the Cut-off Date of approximately $[__] (the "Initial
Group II Mortgage Loans") and any subsequent Mortgage Loans that will be
included in Loan Group II after the Closing Date (the "Subsequent Group II
Mortgage Loans").
The "Mortgage Loans" will consist of the Group I Mortgage Loans and the Group II
Mortgage Loans.
The statistical information in this prospectus supplement reflects the
characteristics of the Initial Mortgage Loans as of the Cut-off Date. The
Depositor believes that the information set forth in this prospectus supplement
is representative of the characteristics of the mortgage pool as it will be
constituted at the Closing Date, although certain characteristics of the Initial
Mortgage Loans may vary.
The Initial Mortgage Loans have the following characteristics (with all figures
being approximate and all percentages and weighted averages being based on
scheduled principal balances as of the Cut-off Date):
Mortgage Loans with Prepayment Charges: [__]%
Fixed-Rate Mortgage Loans: [__]%
Adjustable-Rate Mortgage Loans: [__]%
60 Month Interest Only Mortgage Loans: [__]%
Range of Remaining Term to Stated [__] months to
Maturities: 360 months
Weighted Average Remaining Term to
Stated Maturity: [__] months
$[__] to
Range of Original Principal Balances: $[__]
Average Original Principal Balance: $[__]
$[__] to
Range of Outstanding Principal Balances: $[__]
Average Outstanding Principal Balance: $[__]
Range of Current Mortgage Rates: [__]% to [__]%
Weighted Average Current Mortgage Rate: [__]%
Weighted Average Gross Margin of the
Adjustable-Rate Mortgage Loans: [__]%
Weighted Average Maximum Mortgage Rate
of the Adjustable-Rate Mortgage Loans: [__]%
Weighted Average Minimum Mortgage Rate
of the Adjustable-Rate Mortgage Loans: [__]%
Weighted Average Initial Rate
Adjustment Cap of the Adjustable-Rate
Mortgage Loans: [__]%
Weighted Average Periodic Rate
Adjustment Cap of the Adjustable-Rate
Mortgage Loans: [__]%
Weighted Average Time Until Next
Adjustment Date for the Adjustable-Rate
Mortgage Loans: [__] months
Geographic Concentration in Excess of
5%:
[__] [__]%
[__] [__]%
The Initial Group I Mortgage Loans have the following characteristics (with all
figures being approximate and all percentages and weighted averages being based
on scheduled principal balances as of the Cut-off Date):
Group I Mortgage Loans with Prepayment
Charges: [__]%
Fixed-Rate Group I Mortgage Loans: [__]%
Adjustable-Rate Group II Mortgage
Loans: [__]%
60 Month Interest Only Group I
Mortgage Loans: [__]%
[__] months
Range of Remaining Term to 360
to Stated Maturities: months
Weighted Average Remaining Term to
Stated Maturity: [__] months
$[__] to
Range of Original Principal Balances: $[__]
Average Original Principal Balance: $[__]
Range of Outstanding Principal $[__] to
Balances: $[__]
Average Outstanding Principal Balance: $[__]
[__]% to
Range of Current Mortgage Rates: [__]%
Weighted Average Current Mortgage Rate: [__]%
Weighted Average Gross Margin of the
Adjustable-Rate Group I Mortgage Loans: [__]%
Weighted Average Maximum Mortgage Rate
of the Adjustable-Rate Group I
Mortgage Loans: [__]%
Weighted Average Minimum Mortgage Rate
of the Adjustable-Rate Group I
Mortgage Loans: [__]%
Weighted Average Initial Rate
Adjustment Cap of the Adjustable-Rate
Group I Mortgage Loans: [__]%
Weighted Average Periodic Rate
Adjustment Cap of the Adjustable-Rate
Group I Mortgage Loans: [__]%
Weighted Average Time Until Next
Adjustment Date for the
Adjustable-Rate Group I Mortgage Loans: [__] months
Geographic Concentration in Excess of
5%:
Ohio [__]%
Indiana [__]%
Michigan [__]%
Illinois [__]%
The Initial Group II Mortgage Loans have the following characteristics (with all
figures being approximate and all percentages and weighted averages being based
on scheduled principal balances as of the Cut-off Date):
Group II Mortgage Loans with Prepayment
Charges: [__]%
Fixed-Rate Group II Mortgage Loans: [__]%
Adjustable-Rate Group II Mortgage Loans: [__]%
60 Month Interest Only Group II
Mortgage Loans: [__]%
Range of Remaining Term [__] months
to Stated Maturities: to 360 months
Weighted Average Remaining Term to
Stated Maturity: [__] months
$[__] to
Range of Original Principal Balances: $[__]
Average Original Principal Balance: $[__]
$[__] to
Range of Outstanding Principal Balances: $[__]
Average Outstanding Principal Balance: $[__]
[__]% to
Range of Current Mortgage Rates: [__]%
Weighted Average Current Mortgage Rate: [__]%
Weighted Average Gross Margin of the
Adjustable-Rate Group II Mortgage Loans: [__]%
Weighted Average Maximum Mortgage Rate
of the Adjustable-Rate Group II
Mortgage Loans: [__]%
Weighted Average Minimum Mortgage Rate
of the Adjustable-Rate Group II
Mortgage Loans: [__]%
Weighted Average Initial Rate
Adjustment Cap of the Adjustable-Rate
Group II Mortgage Loans: [__]%
Weighted Average Periodic Rate
Adjustment Cap of the Adjustable-Rate
Group II Mortgage Loans: [__]%
Weighted Average Time Until Next
Adjustment Date for the Adjustable-Rate
Group II Mortgage Loans: [__] months
Geographic Concentration in Excess of
5%:
California [__]%
Florida [__]%
Illinois [__]%
North Carolina [__]%
Maryland [__]%
New York [__]%
REMOVAL AND SUBSTITUTION OF A MORTGAGE LOAN
The Trustee will acknowledge the sale, transfer, assignment and receipt of the
Mortgage Loans to it by the Depositor, subject to further review and any
exceptions. 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
Originator of such defect. The Originator 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 Originator 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 Originator will, in
accordance with the terms of the Pooling Agreement, within 90 days of the date
of notice, provide the Trustee with a substitute Mortgage Loan (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) or repurchase the Mortgage Loan.
DISTRIBUTION DATES
The Trustee will make distributions on the certificates on the 25th day of each
calendar month beginning in [______, 20__] (each, a "Distribution Date") (i) to
the holder of record of the certificates as of the business day preceding such
date of distribution, in the case of the certificates held in book-entry form or
(ii) to the holder of record of the certificates as of the last business day of
the month immediately preceding the month in which the distribution occurs, in
the case of the certificates held in registered, certificated form. If the 25th
day of a month is not a business day, then the distribution will be made on the
next business day. The final scheduled distribution date for distributions on
the certificates is [_______ __, 20__].
DISTRIBUTIONS ON THE CERTIFICATES
INTEREST DISTRIBUTIONS
The initial pass-through rate for the Offered Certificates and the Class B
Certificates will be calculated at the per annum rate of one-month LIBOR plus
the related margin as set forth below, subject to the limitations set forth in
this prospectus supplement.
Margin
-----------------------
Class (1) (2)
---------- --------- -----------
[--] [----]% [----]%
[--] [----]% [----]%
[--] [----]% [----]%
[--] [----]% [----]%
[--] [----]% [----]%
(1) For each Distribution Date up to and including the Optional Termination
Date, as defined in this prospectus supplement under "The Pooling
Agreement--Termination."
(2) On each Distribution Date after the Optional Termination Date.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PASS-THROUGH RATES" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
Interest distributable on the certificates accrues during an accrual period. The
accrual period for the Offered Certificates and the Class B Certificates for any
Distribution Date is the period from the previous Distribution Date (or, in the
case of the first accrual period, from the Closing Date) to the day prior to the
current Distribution Date. Interest will be calculated for the Offered
Certificates and the Class B Certificates on the basis of the actual number of
days in the accrual period, based on a 360-day year.
The Offered Certificates and the Class B Certificates will accrue interest on
their certificate principal balances outstanding immediately prior to each
Distribution Date.
The Class C Certificates will accrue interest as provided in the pooling
agreement. The Class P Certificates and the Residual Certificates will not
accrue interest.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION.
PRINCIPAL DISTRIBUTIONS
Principal will be distributed to the holders of each class of Offered
Certificates and Class B Certificates on each Distribution Date in the amounts
described herein under "Description of the Certificates--Allocation of Available
Funds."
DISTRIBUTION PRIORITIES
Group I Certificates
In general, on any Distribution Date, funds available for distribution from
payments and other amounts received on the Group I Mortgage Loans will be
distributed as follows:
INTEREST DISTRIBUTIONS
to distribute interest on the Group I Certificates; and
PRINCIPAL DISTRIBUTIONS
to distribute principal on the Group I Certificates, but only in the amounts and
to the extent described under "Description of the Certificates--Allocation of
Available Funds" in this prospectus supplement.
Group II Certificates
In general, on any Distribution Date, funds available for distribution from
payments and other amounts received on the Group II Mortgage Loans will be
distributed as follows:
INTEREST DISTRIBUTIONS
to distribute interest on the Group II Certificates, on a PRO RATA basis based
on the entitlement of each such class; and
PRINCIPAL DISTRIBUTIONS
to distribute principal on the Group II Certificates, but only in the amounts
and to the extent described under "Description of the Certificates--Allocation
of Available Funds" in this prospectus supplement.
Mezzanine Certificates and Class B Certificates
In general, on any Distribution Date, funds available for distribution from
payments and other amounts received on the Group I Mortgage Loans and the Group
II Mortgage Loans, after the distributions on the Class A Certificates described
above will be distributed as follows:
INTEREST DISTRIBUTIONS
to distribute interest on the Mezzanine Certificates and the Class B
Certificates, but only in the order of priority, amounts and to the extent
described under "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF AVAILABLE FUNDS"
in this prospectus supplement; and
PRINCIPAL DISTRIBUTIONS
to distribute principal on the Mezzanine Certificates and the Class B
Certificates, but only in the order of priority, amounts and to the extent
described under "Description of the Certificates--Allocation of Available Funds"
in this prospectus supplement.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF AVAILABLE FUNDS"
IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
LIMITED CROSS-COLLATERALIZATION
In certain circumstances, payments on the Group I Mortgage Loans may be used to
make certain distributions to the holders of the Group II Certificates and
payments on the Group II Mortgage Loans may be used to make certain
distributions to the holders of the Group I Certificates.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF AVAILABLE FUNDS"
IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
ADVANCES
The Servicer will make cash advances to cover delinquent payments of principal
and interest on each Mortgage Loan to the extent it reasonably believes that the
cash advances are recoverable from future payments on such Mortgage Loan.
Advances are 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.
WE REFER YOU TO "THE POOLING AGREEMENT--ADVANCES" IN THIS PROSPECTUS SUPPLEMENT
AND "DESCRIPTION OF THE SECURITIES--ADVANCES" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
PRE-FUNDING ACCOUNTS
On or before [__], the Depositor may sell and the Trustee will be obligated to
purchase, on behalf of the trust, Subsequent Group I Mortgage Loans and
Subsequent Group II Mortgage Loans to be included in the mortgage pool.
On the closing date, the Depositor will deposit in an account, referred to in
this prospectus supplement as the pre-funding account held by the Trustee in a
pre-funding account (the "Group I Pre-Funding Account"), an amount equal to
approximately $[____], representing approximately [__]% of the asset pool. On
the closing date, the Depositor will deposit in an account, referred to in this
prospectus supplement as the pre-funding account held by the Trustee in a
pre-funding account (the "Group II Pre-Funding Account"; together with the Group
I Pre-Funding Account, the "Pre-Funding Accounts"), an amount equal to
approximately $[____], representing approximately [__]% of the asset pool. The
amount on deposit in the Pre-Funding Accounts will be reduced by the amount
thereof used to purchase Subsequent Group I Mortgage Loans and Subsequent Group
II Mortgage Loans during the period from the Closing Date up to and including
[__]. Any amounts remaining in the Pre-Funding Accounts after [__] will be
distributed as principal on the next Distribution Date to the holders of the
related class or classes of Class A Certificates.
WE REFER YOU TO "THE MORTGAGE POOL--CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND
THE PRE-FUNDING ACCOUNTS" AND "DESCRIPTION OF THE CERTIFICATES--MANDATORY
PRINCIPAL DISTRIBUTIONS ON CLASS A CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION.
INTEREST COVERAGE ACCOUNTS
On the Closing Date, the Depositor may pay to the Trustee, for deposit in one or
more interest coverage accounts, amounts as specified in the pooling agreement.
Funds on deposit in the interest coverage accounts, if any, will be applied by
the Trustee to cover a portion of certain shortfalls in the amount of interest
generated by the assets of the trust attributable to the pre-funding feature
during the funding period. SEE "DESCRIPTION OF THE CERTIFICATES--INTEREST
COVERAGE ACCOUNTS" IN THIS PROSPECTUS SUPPLEMENT.
SERVICING FEE
With respect to each Mortgage Loan, the amount of the servicing fee that shall
be paid to the 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 servicing fee is
limited to, and the servicing fee is payable from the Monthly Payments
collected.
OPTIONAL TERMINATION
The Servicer may purchase all of the Mortgage Loans and any REO properties and
retire the certificates when the aggregate current principal balance of the
Mortgage Loans and REO properties is equal to or less than [__]% of the sum of
the aggregate principal balance of the Initial Mortgage Loans as of the Cut-off
Date and the aggregate amount on deposit in the Pre-Funding Accounts on the
Closing Date.
WE REFER YOU TO "THE POOLING AGREEMENT --TERMINATION" AND "DESCRIPTION OF THE
CERTIFICATES--PASS-THROUGH RATES" IN THIS PROSPECTUS SUPPLEMENT AND "THE
AGREEMENTS--TERMINATION; OPTIONAL TERMINATION" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
CREDIT ENHANCEMENT
1. SUBORDINATION
The rights of the holders of the Subordinate Certificates to receive
distributions will be subordinated, to the extent described in this prospectus
supplement, to the rights of the holders of the Class A Certificates.
In addition, the rights of the holders of Mezzanine Certificates with higher
numerical class designations to receive distributions will be subordinated to
the rights of the holders of the Mezzanine Certificates with lower numerical
class designations, and the rights of the holders of the Class B Certificates
and the Class C Certificates to receive distributions will be subordinated to
the rights of the holders of the Mezzanine Certificates, in each case to the
extent described in this prospectus supplement.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior certificates in respect of interest and principal and to afford
such certificates protection against realized losses on the Mortgage Loans.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--SUBORDINATION" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
2. EXCESS INTEREST
The Mortgage Loans bear interest each month that in the aggregate is expected to
exceed the amount needed to distribute monthly interest on the Offered
Certificates and the Class B Certificates and to pay certain fees and expenses
of the trust (including any Net Swap Payment owed to the Swap Provider and any
Swap Termination Payment owed to the Swap Provider, other than any Swap
Termination Payment resulting from a Swap Provider Trigger Event). The excess
interest from the Mortgage Loans each month will be available to absorb realized
losses on the Mortgage Loans and to maintain overcollateralization at required
levels as described in the pooling agreement.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF AVAILABLE FUNDS"
AND "--OVERCOLLATERALIZATION" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
3. OVERCOLLATERALIZATION
As of the Closing Date, the aggregate principal balance of the Initial Mortgage
Loans as of the Cut-off Date and the amounts on deposit in the Pre-Funding
Accounts will exceed the aggregate certificate principal balance of the Offered
Certificates, the Class B Certificates and the Class P Certificates by
approximately $[__], which is approximately equal to the initial certificate
principal balance of the Class C Certificates. Such amount represents
approximately [__]% of the sum of the aggregate principal balance of the Initial
Mortgage Loans as of the Cut-off Date and the amounts on deposit in the
Pre-Funding Accounts as of the Closing Date, and is the approximate amount of
initial overcollateralization that will be required to be provided under the
pooling agreement. We cannot assure you that sufficient interest will be
generated by the Mortgage Loans to maintain the required level of
overcollateralization.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--OVERCOLLATERALIZATION
PROVISIONS" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
4. INTEREST RATE SWAP AGREEMENT
The Trustee (in its capacity as trustee of the supplemental interest trust
created under the pooling agreement) will enter into an Interest Rate Swap
Agreement (the "Interest Rate Swap Agreement") with [__________], as swap
provider (the "Swap Provider"). Under the Interest Rate Swap Agreement, on each
Distribution Date, the trust will be obligated to make fixed payments as
specified in this prospectus supplement and the Swap Provider will be obligated
to make floating payments equal to the product of (x) one-month LIBOR (as
determined pursuant to the Interest Rate Swap Agreement), (y) the Base
Calculation Amount (as defined herein) for that Distribution Date multiplied by
250, and (z) a fraction, the numerator of which is 30 (or, for the first
Distribution Date, the actual number of days elapsed from the Closing Date to
but excluding the first Distribution Date), and the denominator of which is 360.
To the extent that the fixed payment exceeds the floating payment on any
Distribution Date, amounts otherwise available to certificateholders will be
applied to make a net payment to the Swap Provider, and to the extent that the
floating payment exceeds the fixed payment on any Distribution Date, the Swap
Provider will make a Net Swap Payment for deposit into a segregated trust
account established on the Closing Date (the "Swap Account") pursuant to the
pooling agreement, as more fully described in this prospectus supplement. Upon
early termination of the Interest Rate Swap Agreement, the trust or the Swap
Provider may be liable to make a Swap Termination Payment to the other party
(regardless of which party caused the termination). The Swap Termination Payment
will be computed in accordance with the procedures set forth in the Interest
Rate Swap Agreement. In the event that the trust is required to make a Swap
Termination Payment, that payment will be paid on the related distribution date,
and on any subsequent distribution dates until paid in full, generally prior to
any distribution to certificateholders. See "DESCRIPTION OF THE
CERTIFICATES--THE INTEREST RATE SWAP AGREEMENT AND THE SWAP ACCOUNT" in this
prospectus supplement for additional information.
Net Swap Payments and Swap Termination Payments payable by the trust will be
deducted from available funds (other than Swap Termination Payments resulting
from a Swap Provider Trigger Event) before distributions to certificateholders
and will first be deposited into the Swap Account before payment to the Swap
Provider.
5. ALLOCATION OF LOSSES
If, on any Distribution Date, there is not sufficient excess interest or
overcollateralization to absorb realized losses on the Mortgage Loans as
described under "Description of the Certificates-- Overcollateralization
Provisions" or Net Swap Payments received under the Interest Rate Swap Agreement
in this prospectus supplement, then realized losses on the Mortgage Loans in
excess of such amounts will be allocated first, to the Class B Certificates, in
reverse numerical order, until the certificate principal balances thereof have
been reduced to zero, and second, to the Mezzanine Certificates, in reverse
numerical order, until the certificate principal balances thereof have been
reduced to zero. The pooling agreement does not permit the allocation of
realized losses on the Mortgage Loans to the Class A Certificates, the Class P
Certificates or the Residual Certificates; however investors in the Class A
Certificates should realize that under certain loss scenarios there will not be
enough interest and principal on the Mortgage Loans to distribute to the Class A
Certificates all interest and principal amounts to which such certificates are
then entitled.
If realized losses are allocated to the Mezzanine Certificates and the Class B
Certificates, such realized losses will not be reinstated thereafter (except in
the case of subsequent recoveries). However, the amount of any realized losses
allocated to the Mezzanine Certificates and the Class B Certificates may be
distributed to the holders of these certificates according to the priorities set
forth under "Description of the Certificates-- Overcollateralization Provisions"
and "Description of the Certificates--Interest Rate Swap Agreement, the Swap
Provider and the Swap Account" in this prospectus supplement.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES --ALLOCATION OF LOSSES" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CAP CONTRACT
The Offered Certificates and the Class B Certificates will have the benefit of a
cap contract to pay amounts in respect of basis risk shortfalls on such classes
of certificates. The cap contract requires the counterparty to make a payment to
the extent LIBOR for any interest accrual period exceeds the rate set forth in
the related cap contract, up to a maximum LIBOR of [__]%, multiplied by the
lesser of (i) the notional amount set forth in the cap contract and (ii) the
aggregate certificate principal balance of the Offered Certificates and the
Class B Certificates and adjusted for the actual number of days in the related
accrual period. Cap payments, if any, made by the counterparty will be deposited
in the Net WAC Rate Carryover Reserve Account and will be available for
distribution in respect of basis risk shortfall amounts on the Offered
Certificates and the Class B Certificates as set forth in this prospectus
supplement.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--CAP CONTRACT" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
RATINGS
It is a condition of the issuance of the Offered Certificates that they be
assigned the following ratings by Fitch Ratings ("Fitch"), Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P") and Moody's Investors
Services, Inc. ("Moody's"):
MOODY'S S&P FITCH
Class [__].... [__] [__] [__]
Class [__].... [__] [__] [__]
Class [__].... [__] [__] [__]
Class [__].... [__] [__] [__]
A security rating is not a recommendation to buy, sell or hold securities. These
ratings may be lowered or withdrawn at any time by any of the rating agencies.
WE REFER YOU TO "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "RATING" IN THE
PROSPECTUS FOR ADDITIONAL INFORMATION.
TAX STATUS
One or more elections will be made to treat designated portions of the trust
(exclusive of the Pre-Funding Accounts, the Net WAC Rate Carryover Reserve
Account, the Interest Coverage Accounts, if any, the cap contract, the Interest
Rate Swap Agreement, the Swap Account, any Subsequent Mortgage Loan Interest and
any Servicer Prepayment Charge Payment Amounts, as described more fully herein
or in the pooling agreement) as real estate mortgage investment conduits for
federal income tax purposes.
WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT
AND "CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS" IN THE PROSPECTUS FOR
ADDITIONAL INFORMATION.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
[After the termination of the supplemental interest trust, the Offered
Certificates may be purchased by a pension or other employee benefit plan or
arrangement (each, a "Plan") subject to the Employee Retirement Income Security
Act of 1974, as amended, ("ERISA") or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code") so long as certain conditions are met. Prior to
termination of the supplemental interest trust, such a plan which meets the
requirements of an investor-based class exemption may purchase the Offered
Certificates. A fiduciary of an employee benefit plan must determine that the
purchase of a certificate is consistent with its fiduciary duties under
applicable law and does not result in a nonexempt prohibited transaction under
applicable law. It is expected that a Plan or any person acting on behalf of a
Plan or using assets of a Plan will be permitted to purchase the Mezzanine
Certificates unless it meets the qualifications set forth in "Considerations for
Benefit Plan Investors" in this prospectus supplement.][The Offered Certificates
will not be eligible for purchase by a pension or other employee benefit plan or
arrangement (each, a "Plan") subject to the Employee Retirement Income Security
Act of 1974, as amended, ("ERISA") or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code").]
WE REFER YOU TO "CONSIDERATIONS FOR BENEFIT PLAN INVESTORS" IN THIS PROSPECTUS
SUPPLEMENT AND "ERISA CONSIDERATIONS" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
LEGAL INVESTMENT
[The Class A Certificates, the Class [__] Certificates and the Class [__]
Certificates are expected to constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
until such time as the balances of the Pre-Funding Accounts have been reduced to
zero. At such time, such certificates will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are rated lower than the
second highest rating category by one or more nationally recognized statistical
rating organizations and, as such, will be legal investments for certain
entities to the extent provided in SMMEA and applicable state laws.]
[The Mezzanine Certificates (other than the Class [__] Certificates and Class
[__] Certificates) and the Class B Certificates [the Offered Certificates] will
constitute "mortgage related securities" for purposes of SMMEA.]
WE REFER YOU TO "LEGAL INVESTMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT
AND "LEGAL INVESTMENT" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
TRANSACTION STRUCTURE
FLOW OF FUNDS
SUBORDINATE/CREDIT ENHANCEMENT
Allocation of Realized Losses B-8
|
|
B-7
|
|
B-6
|
|
B-5
| In each case, until the
| current principal
B-4 balance equals zero.
|
|
B-3
|
|
B-2
|
|
B-1
|
|
Senior Certificates
(Losses are allocated on a pro rata basis
based on current principal amounts
when the current principal amount equals zero,
the loss is allocated to the
remaining classes.)
RISK FACTORS
The following information, which you should carefully consider,
identifies certain significant sources of risk associated with an investment in
the certificates. You should also carefully consider the information set forth
under "Risk Factors" in the prospectus.
HIGH LOAN-TO-VALUE RATIOS INCREASE RISK OF LOSS
Mortgage loans with higher loan-to-value ratios may present a greater
risk of loss than mortgage loans with loan-to-value ratios of 80% or below.
Substantially all of the Initial Mortgage Loans had loan-to-value ratios in
excess of 80%, but no more than [__]% at origination. Additionally, the
Originator's determination of the value of a mortgaged property used in the
calculation of the loan-to-value ratios of the Mortgage Loans may differ from
the appraised value of such mortgaged properties. SEE "THE
ORIGINATOR--UNDERWRITING GUIDELINES" IN THIS PROSPECTUS SUPPLEMENT.
UNPREDICTABILITY OF PREPAYMENTS AND EFFECT ON YIELDS
Mortgagors may prepay their Mortgage Loans in whole or in part at any
time. We cannot predict the rate at which mortgagors will repay their Mortgage
Loans. A prepayment of a Mortgage Loan generally will result in a prepayment on
the certificates.
o If you purchase your certificates at a discount and principal is repaid
slower than you anticipate, then your yield may be lower than you
anticipate.
o If you purchase your certificates at a premium and principal is repaid
faster than you anticipate, then your yield may be lower than you
anticipate.
o The rate of prepayments on the Mortgage Loans will be sensitive to
prevailing interest rates. Generally, if prevailing interest rates
decline significantly below the mortgage rates on the fixed-rate
Mortgage Loans, the Mortgage Loans are more likely to prepay than if
prevailing rates remain above the mortgage rates on the Mortgage Loans.
In addition, if prevailing interest rates decline, adjustable-rate
mortgage loan prepayments may increase due to the availability of
fixed-rate mortgage loans or other adjustable-rate mortgage loans at
lower interest rates. Conversely, if prevailing interest rates rise
significantly, the prepayments on fixed-rate and adjustable-rate
mortgage loans may decrease. Furthermore, adjustable-rate mortgage
loans may prepay at different rates and in response to different
factors than fixed-rate mortgage loans; the inclusion of both types of
mortgage loans in each Loan Group may increase the difficulty in
analyzing possible prepayment rates.
o Approximately [__]% of the Initial Group I Mortgage Loans and
approximately [__]% of the Initial Group II Mortgage Loans (in each
case, by aggregate principal balance of the related Loan Group as of
the Cut-off Date) and approximately [__]% of the Initial Mortgage Loans
(by aggregate principal balance of the Initial Mortgage Loans as of the
Cut-off Date) require the mortgagor to pay a prepayment charge in
certain instances if the mortgagor prepays the Mortgage Loan during a
stated period, which may be from one year to three years after the
Mortgage Loan was originated. A prepayment charge may or may not
discourage a mortgagor from prepaying the Mortgage Loan during the
applicable period.
o The Sponsor may be required to purchase Mortgage Loans from the trust
in the event certain breaches of representations and warranties occur
and have not been cured. In addition, the Servicer has the option to
purchase Mortgage Loans that become 90 days or more delinquent. These
purchases will have the same effect on the holders of the Offered
Certificates and the Class B Certificates as a prepayment of the
Mortgage Loans.
o The Servicer may purchase all of the Mortgage Loans and any REO
properties when the aggregate principal balance of the Mortgage Loans
and REO properties is equal to or less than 10% of the sum of the
aggregate principal balance of the Initial Mortgage Loans as of the
Cut-off Date and the amounts on deposit in the Pre-Funding Accounts on
the Closing Date.
o If the rate of default and the amount of losses on the Mortgage Loans
is higher than you expect, then your yield may be lower than you
expect.
o As a result of the absorption of realized losses on the Mortgage Loans
by excess interest and overcollateralization and amounts received under
the Interest Rate Swap Agreement as described herein, liquidations of
defaulted Mortgage Loans, whether or not realized losses are incurred
upon such liquidations, will result in an earlier return of the
principal of the Offered Certificates and the Class B Certificates and
will influence the yield on the Offered Certificates and the Class B
Certificates in a manner similar to the manner in which principal
prepayments on the Mortgage Loans will influence the yield on the
Offered Certificates and the Class B Certificates.
o The overcollateralization provisions are intended to result in an
accelerated rate of principal distributions to holders of the Offered
Certificates and the Class B Certificates then entitled to principal
distributions at any time that the overcollateralization provided by
the mortgage pool falls below the required level. In addition, if the
Class A Certificates are entitled to distributions of principal at any
time that overcollateralization is required to be restored to the
required level, then the amounts available for such purpose will be
allocated between the Group I Certificates and the Group II
Certificates on a PRO RATA basis based on the amount of principal
actually received on the Mortgage Loans in the related Loan Group for
the related Distribution Date. This, as well as the relative sizes of
the Loan Groups, may magnify the prepayment effect on the Group I
Certificates or Group II Certificates, as applicable, caused by the
relative rates of prepayments and defaults experienced by the Loan
Groups.
o See "Yield, Prepayment and Maturity Considerations" in this prospectus
supplement for a description of factors that may influence the rate and
timing of prepayments on the mortgage loans.
TERRORIST ATTACKS AND MILITARY ACTION COULD ADVERSELY AFFECT THE YIELD ON THE
OFFERED CERTIFICATES
The terrorist attacks in the United States on September 11, 2001
suggest that there is an increased likelihood of future terrorist activity in
the United States. In addition, the military conflict with Iraq has resulted in
a significant deployment of United States military personnel in the region.
Investors should consider the possible effects of past and possible future
terrorist attacks and any resulting military response by the United States on
the delinquency, default and prepayment experience of the Mortgage Loans. In
accordance with the servicing standard set forth in the pooling agreement, the
Servicer may defer, reduce or forgive payments and delay foreclosure proceedings
in respect of Mortgage Loans to borrowers affected in some way by past and
possible future events.
In addition, the current deployment of United States military personnel
in the Middle East and the activation of a substantial number of United States
military reservists and members of the National Guard may significantly increase
the proportion of Mortgage Loans whose mortgage rates are reduced by the
application of the Servicemembers Civil Relief Act (the "Relief Act") or state
laws providing for similar relief. See "Material Legal Aspects of the
Loans--Servicemembers Civil Relief Act" in the prospectus. Shortfalls in
interest collections arising from the application of the Relief Act or any state
law providing for similar relief will not be covered by the Servicer or any
subservicer.
INTEREST ONLY MORTGAGE LOANS
Substantially all of the Initial Mortgage Loans require the borrowers
to make monthly payments only of accrued interest for the first 5 or 15 years
following origination. After such interest-only period, the borrower's monthly
payment will be recalculated to cover both interest and principal so that the
Mortgage Loan will amortize fully prior to its final payment date. If the
monthly payment increases, the related borrower may not be able to pay the
increased amount and may default or may refinance the related Mortgage Loan to
avoid the higher payment. Because no principal payments may be made on such
Mortgage Loan for 5 or 15 years following origination, the certificateholders
will receive smaller principal distributions during such period than they would
have received if the related borrowers were required to make monthly payments of
interest and principal for the entire lives of such Mortgage Loans. This slower
rate of principal distributions may reduce the return on an investment in the
Offered Certificates and the Class B Certificates that are purchased at a
discount.
POTENTIAL INADEQUACY OF CREDIT ENHANCEMENT FOR THE OFFERED CERTIFICATES
The credit enhancement features described in the summary of this
prospectus supplement are intended to enhance the likelihood that holders of the
Class A Certificates, and to a limited extent, the holders of the Mezzanine
Certificates and the Class B Certificates, will receive regular distributions of
interest and principal. However, we cannot assure you that the applicable credit
enhancement will adequately cover any shortfalls in cash available to pay your
certificates as a result of delinquencies or defaults on the Mortgage Loans. If
delinquencies or defaults occur on the Mortgage Loans, neither the Servicer nor
any other entity will advance scheduled monthly payments of interest and
principal on delinquent or defaulted Mortgage Loans if such advances are not
likely to be recovered.
If substantial losses occur as a result of defaults and delinquent
payments on the Mortgage Loans, you may suffer losses.
INTEREST GENERATED BY THE MORTGAGE LOANS MAY BE INSUFFICIENT TO MAINTAIN
OVERCOLLATERALIZATION
The Mortgage Loans are expected to generate more interest than is
needed to distribute interest owed on the Offered Certificates and the Class B
Certificates and to pay certain fees and expenses of the trust. Any remaining
interest generated by the Mortgage Loans will then be used to absorb losses that
occur on the Mortgage Loans. After these financial obligations of the trust are
covered, the available excess interest generated by the Mortgage Loans will be
used to maintain overcollateralization. We cannot assure you, however, that
enough excess interest will be generated to absorb losses that occur on the
Mortgage Loans or maintain the required level of overcollateralization. The
factors described below will affect the amount of excess interest that the
Mortgage Loans will generate:
o Every time a Mortgage Loan is prepaid in full, liquidated or
written off, excess interest may be reduced because the
Mortgage Loan will no longer be outstanding and generating
interest or, in the case of a partial prepayment, will be
generating less interest.
o If the rates of delinquencies, defaults or losses on the
Mortgage Loans turn out to be higher than expected, excess
interest will be reduced by the amount necessary to compensate
for any shortfalls in cash available to make required
distributions on the Offered Certificates and the Class B
Certificates.
o The fixed-rate Mortgage Loans have mortgage rates that are
fixed and will not adjust based on any index and the
adjustable-rate Mortgage Loans have mortgage rates that adjust
based on an index that is different from the index used to
determine the pass-through rates on the Offered Certificates
and the Class B Certificates. In addition, (i) the first
adjustment of the rates for approximately [__]% of the
adjustable-rate Initial Group I Mortgage Loans and
approximately [__]% of the adjustable-rate Initial Group II
Mortgage Loans (in each case, by aggregate principal balance
of the adjustable-rate Initial Mortgage Loans in the related
Loan Group as of the Cut-off Date) and approximately 0.46% of
the adjustable-rate Initial Mortgage Loans (by aggregate
principal balance of the adjustable-rate Initial Mortgage
Loans as of the Cut-off Date), will not occur until one year
after the date of origination, (ii) the first adjustment of
the rates for approximately [__]% of the adjustable-rate
Initial Group I Mortgage Loans and approximately [__]% of the
adjustable-rate Initial Group II Mortgage Loans (in each case,
by aggregate principal balance of the adjustable-rate Initial
Mortgage Loans in the related Loan Group as of the Cut-off
Date) and approximately [__]% of the adjustable-rate Initial
Mortgage Loans (by aggregate principal balance of the
adjustable-rate Initial Mortgage Loans as of the Cut-off
Date), will not occur until two years after the date of
origination, (iii) the first adjustment of the rates for
approximately [__]% of the adjustable-rate Initial Group I
Mortgage Loans and approximately [__]% of the adjustable-rate
Initial Group II Mortgage Loans (in each case, by aggregate
principal balance of the adjustable-rate Initial Mortgage
Loans in the related Loan Group as of the Cut-off Date) and
approximately [__]% of the adjustable rate Initial Mortgage
Loans (by aggregate principal balance of the adjustable rate
Initial Mortgage Loans as of the Cut-off Date), will not occur
until three years after the date of origination and (iv) the
first adjustment of the rates for approximately [__]% of the
adjustable-rate Initial Group I Mortgage Loans and
approximately [__]% of the adjustable-rate Initial Group II
Mortgage Loans (in each case, by aggregate principal balance
of the adjustable-rate Initial Mortgage Loans in the related
Loan Group as of the Cut-off Date) and approximately [__]% of
the adjustable-rate Initial Mortgage Loans (by aggregate
principal balance of the adjustable-rate Initial Mortgage
Loans as of the Cut-off Date), will not occur until five years
after the date of origination. As a result, the pass-through
rate on the Offered Certificates and the Class B Certificates
may increase relative to the mortgage rates on the Mortgage
Loans, or may remain constant as the mortgage rates on the
adjustable-rate Mortgage Loans decline. In either case,
increases in the pass-through rates on the Offered
Certificates and the Class B Certificates would require that
more of the interest generated by the Mortgage Loans be
applied to cover interest on the Offered Certificates and the
Class B Certificates .
o If prepayments, defaults and liquidations occur more rapidly
on Mortgage Loans with relatively higher mortgage rates than
on Mortgage Loans with relatively lower mortgage rates, the
amount of excess interest generated by the Mortgage Loans will
be less than would otherwise be the case.
EFFECT OF MORTGAGE RATES ON THE OFFERED CERTIFICATES
The Offered Certificates and the Class B Certificates accrue interest
at pass-through rates based on the one-month LIBOR index plus specified margins,
but are subject to a limit. The limit on the pass-through rates on the Offered
Certificates and the Class B Certificates is based on the interest received on
the Mortgage Loans net of certain fees and expenses of the trust (including any
Net Swap Payment owed to the Swap Provider and any Swap Termination Payment owed
to the Swap Provider, other than a Swap Termination Payment due to a Swap
Provider Trigger Event).
The adjustable-rate Mortgage Loans have mortgage rates that adjust
based on a six-month LIBOR index. The adjustable-rate Mortgage Loans have
periodic and maximum limitations on adjustments to their mortgage rates, and
substantially all of the adjustable-rate Mortgage Loans will have the first
adjustment to their mortgage rates generally one year, two years, three years or
five years after the origination thereof. The fixed-rate Mortgage Loans have
mortgage rates that will not adjust. As a result of the limit on the
pass-through rates on the Offered Certificates and the Class B Certificates ,
such certificates may accrue less interest than they would accrue if their
pass-through rates were based solely on the one-month LIBOR index plus the
specified margin.
A variety of factors could limit the pass-through rates on the Offered
Certificates and the Class B Certificates . Some of these factors are described
below:
o The pass-through rates for the Offered Certificates and the
Class B Certificates adjust monthly while the mortgage rates
on the adjustable-rate Mortgage Loans adjust less frequently
and the mortgage rates on the fixed-rate Mortgage Loans do not
adjust. Furthermore, substantially all of the adjustable-rate
Mortgage Loans will have the first adjustment to their
mortgage rates one year, two years, three years or five years
following their origination. Consequently, the limit on the
pass-through rates on the Offered Certificates and the Class B
Certificates may prevent any increases in the pass-through
rates on such certificates for extended periods in a rising
interest rate environment.
o If prepayments, defaults and liquidations occur more rapidly
on the Mortgage Loans with relatively higher mortgage rates
than on the Mortgage Loans with relatively lower mortgage
rates, the pass-through rates on the Offered Certificates and
the Class B Certificates are more likely to be limited.
o With respect to the Offered Certificates and the Class B
Certificates , the index used to determine the mortgage rates
on the adjustable-rate Mortgage Loans may respond to different
economic and market factors than does one-month LIBOR. It is
possible that the mortgage rates on certain of the
adjustable-rate Mortgage Loans may decline while the
pass-through rates on the Offered Certificates and the Class B
Certificates are stable or rising. It is also possible that
the mortgage rates on the adjustable-rate Mortgage Loans and
the pass-through rates on the Offered Certificates and the
Class B Certificates may both decline or increase during the
same period, but that the pass-through rates on such Offered
Certificates and the Class B Certificates may decline more
slowly or increase more rapidly.
If the pass-through rates on the Offered Certificates and the Class B
Certificates are limited for any Distribution Date, the resulting basis risk
shortfalls may be recovered by the holders of these certificates on such
Distribution Date or future Distribution Dates to the extent that on such
Distribution Date or future Distribution Dates there are available funds
remaining after certain other distributions on the Offered Certificates and the
Class B Certificates and the payment of certain fees and expenses of the trust
(including any Net Swap Payment owed to the Swap Provider and any Swap
Termination Payment owed to the Swap Provider, other than a Swap Termination
Payment due to a Swap Provider Trigger Event).
RISKS ASSOCIATED WITH THE MEZZANINE CERTIFICATES AND THE CLASS B CERTIFICATES
The weighted average lives of, and the yields to maturity on, the
Mezzanine Certificates, in increasing order of their numerical class
designations, and then the Class B Certificates, will be progressively more
sensitive 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 such
certificates, the actual yield to maturity of such certificates may be lower
than the yield anticipated by such holder based on such 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 Loans in both Loan Groups 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. Realized losses on the Mortgage Loans, to the
extent they exceed the amount of excess interest and overcollateralization
following distributions of principal on the related Distribution Date and any
Net Swap Payment received under the Interest Rate Swap Agreement, first, will
reduce the certificate principal balance of the class of Class B Certificates
then outstanding with the highest numerical class designation and second, will
reduce the certificate principal balance of the class of Mezzanine Certificates
then outstanding with the highest numerical class designation. As a result of
such reductions, less interest will accrue on such class of Class B Certificates
and Mezzanine Certificates than would otherwise be the case. Once a realized
loss is allocated to a Class B Certificate or Mezzanine Certificate, no
principal or interest will be distributable with respect to such written down
amount (except in the case of subsequent recoveries). However, the amount of any
realized losses allocated to the Class B Certificates or Mezzanine Certificates
may be distributed to the holders of the Class B Certificates or Mezzanine
Certificates according to the priorities set forth under "Description of the
Certificates--Overcollateralization Provisions" and "Description of the
Certificates--Interest Rate Swap Agreement, the Swap Provider and the Swap
Account" in this prospectus supplement.
Unless the certificate principal balance of the Class A Certificates
has been reduced to zero, neither the Mezzanine Certificates nor the Class B
Certificates will be entitled to any principal distributions until at least [__]
or a later date as provided in this prospectus supplement or during any period
in which delinquencies or realized losses on the Mortgage Loans exceed certain
levels. As a result, the weighted average lives of the Mezzanine Certificates
and Class B Certificates will be longer than would otherwise be the case if
distributions of principal were allocated among all of the certificates at the
same time. As a result of the longer weighted average lives of the Mezzanine
Certificates and Class B Certificates, the holders of such certificates have a
greater risk of suffering a loss on their investments. Further, because such
certificates might not receive any principal if certain delinquency levels
occur, it is possible for such certificates to receive no principal
distributions even if no losses have occurred on the Mortgage Loans.
In addition, the multiple class structure of the Mezzanine Certificates
and the Class B Certificates causes the yield of such classes to be particularly
sensitive to changes in the rates of prepayment of the Mortgage Loans. Because
distributions of principal will be made to the holders of such certificates
according to the priorities described in this prospectus supplement, the yield
to maturity on such classes of certificates will be sensitive to the rates of
prepayment on the Mortgage Loans experienced both before and after the
commencement of principal distributions on such classes. The yield to maturity
on such classes of certificates will also be extremely sensitive to losses due
to defaults on the Mortgage Loans (and the timing thereof), to the extent such
losses are not covered by excess interest, overcollateralization, Net Swap
Payments received under the Interest Rate Swap Agreement, the Class B
Certificates or a class of Mezzanine Certificates with a higher numerical class
designation. Furthermore, as described in this prospectus supplement, the timing
of receipt of principal and interest by the Mezzanine Certificates and the Class
B Certificates may be adversely affected by losses even if such classes of
certificates do not ultimately bear such loss.
PREPAYMENT INTEREST SHORTFALLS AND RELIEF ACT SHORTFALLS
When a Mortgage Loan is prepaid, the mortgagor is charged interest on
the amount prepaid only up to the date on which the prepayment is made, rather
than for an entire month. This may result in a shortfall in interest collections
available for distribution on the next Distribution Date. The Servicer is
required to cover a portion of the shortfall in interest collections that are
attributable to voluntary prepayments, but only up to the amount of the
Servicer's servicing fee. In addition, certain shortfalls in interest
collections arising from the application of the Relief Act or any state law
providing for similar relief will not be covered by the Servicer.
On any Distribution Date, any shortfalls resulting from the application
of the Relief Act or any state law providing for similar relief and any
Prepayment Interest Shortfalls to the extent not covered by Compensating
Interest paid by the Servicer will be allocated, first, to the interest
distribution amount with respect to the Class C Certificates, and thereafter, to
the interest distribution amount with respect to the Offered Certificates and
the Class B Certificates on a PRO RATA basis based on the respective amounts of
interest accrued on such certificates for such Distribution Date.
The holders of the Offered Certificates and such Class B Certificates
will not be entitled to reimbursement for any interest shortfalls resulting from
the application of the Relief Act or any state law providing for similar relief
or any Prepayment Interest Shortfalls. If these shortfalls are allocated to the
Offered Certificates or the Class B Certificates , such shortfalls will be
allocated on a PRO RATA basis, adversely affecting the yield on your investment.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS THAN
PRINCIPAL BALANCE OF MORTGAGE LOANS
Substantial delays could be encountered in connection with the
liquidation of delinquent Mortgage Loans. Further, reimbursement of advances
made on a Mortgage Loan, liquidation expenses such as legal fees, real estate
taxes, hazard insurance and maintenance and preservation expenses may reduce the
portion of liquidation proceeds distributable to you. If a mortgaged property
fails to provide adequate security for the Mortgage Loan, you will incur a loss
on your investment if the credit enhancements are insufficient to cover the
loss.
GEOGRAPHIC CONCENTRATION
The chart presented under "Summary of Terms--Mortgage Loans" lists the
states with the highest concentrations of Mortgage Loans. Mortgaged properties
in California may be particularly susceptible to certain types of uninsurable
hazards, such as earthquakes, floods, mudslides and other natural disasters for
which there may or may not be insurance.
In addition, the conditions below will have a disproportionate impact
on the Mortgage Loans in general:
o Economic conditions in states with high concentrations of
Mortgage Loans may affect the ability of mortgagors to repay
their loans on time even if such conditions do not affect real
property values.
o Declines in the residential real estate markets in the states
with high concentrations of Mortgage Loans may reduce the
values of properties located in those states, which would
result in an increase in loan-to-value ratios.
o Any increase in the market value of properties located in the
states with high concentrations of Mortgage Loans would reduce
loan-to-value ratios and could, therefore, make alternative
sources of financing available to mortgagors at lower interest
rates, which could result in an increased rate of prepayment
of the Mortgage Loans.
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.
HURRICANES MAY POSE SPECIAL RISKS
At the end of August 2005, Hurricane Katrina and Hurricane Rita caused
catastrophic damage to areas in the Gulf Coast region of the United States. The
Sponsor will represent and warrant as of the Closing Date that each mortgaged
property is free of material damage and in good repair. In the event of a breach
of that representation and warranty that materially and adversely affects the
value of such Mortgage Loan, the Sponsor will be obligated to repurchase or
substitute for the related Mortgage Loan. Any such repurchase would have the
effect of increasing the rate of principal distributions on the Offered
Certificates and the Class B Certificates. Any damage to a mortgaged property
that secures a Mortgage Loan in the trust occurring after the Closing Date as a
result of any other casualty event occurring after the Closing Date (including,
but not limited to, other hurricanes) will not cause a breach of this
representation and warranty.
The full economic impact of Hurricane Katrina and Hurricane Rita is
uncertain but may affect the ability of borrowers to make payments on their
mortgage loans. We have no way to determine the particular nature of such
economic effects, how long any of these effects may last, or how these effects
may impact the performance of the Mortgage Loans. Any impact of these events on
the performance of the Mortgage Loans may increase the amount of losses borne by
the holders of the Offered Certificates and the Class B Certificates or impact
the weighted average lives of the Offered Certificates and the Class B
Certificates.
VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS
Applicable state laws generally regulate interest rates (where rate
exportation is not used) and other charges, and require certain disclosures. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the 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 certain disclosures to the
mortgagors 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.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans and in addition could subject the trust to damages and
administrative enforcement and could result in the borrowers rescinding such
Mortgage Loans against either the trust or subsequent holders of the Mortgage
Loans.
The Sponsor will represent that as of the Closing Date, each Mortgage
Loan originated by the Originator is in compliance with applicable federal,
state and local laws and regulations. In the event of a breach of such
representation, the Sponsor will be obligated to cure such breach or repurchase
or replace the affected Mortgage Loan in the manner described under "The Pooling
Agreement--Assignment of the Mortgage Loans" in this prospectus supplement.
The mortgage lending and servicing business involves the collection of
numerous accounts and compliance with various federal, state and local laws that
regulate consumer lending. Lenders and servicers may be subject from time to
time to various types of claims, legal actions (including class action
lawsuits), investigations, subpoenas and inquiries in the course of their
business. It is impossible to predict the outcome of any particular actions,
investigations or inquiries or the resulting legal and financial liability. If
any such proceeding were determined adversely to the Originator or the Servicer
and were to have a material adverse effect on its financial condition, the
ability of the Servicer to service the Mortgage Loans in accordance with the
Pooling Agreement, or the ability of the Originator to fulfill its obligation to
repurchase or substitute for defective mortgage loans, could be impaired.
HIGH COST LOANS
None of the Initial Mortgage Loans are, and none of the Subsequent
Mortgage Loans will be, "High Cost Loans" within the meaning of the Home
Ownership and Equity Protection Act of 1994 (the "Homeownership Act") or any
similar applicable state or local law or regulation. See "Material Legal Aspects
of the Loans--Home Ownership Act and Similar State Laws" in the prospectus.
In addition to the Homeownership Act, however, a number of legislative
proposals have been introduced at both the federal and state 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 mortgage rates or origination costs in excess of
prescribed levels, and require that borrowers be given certain disclosures prior
to the consummation of such mortgage loans. In some cases, state law may impose
requirements and restrictions greater than those in the Homeownership Act. The
Originator's 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 such 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. 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 a Mortgage Loan does not meet the
test will result in a violation of the state anti-predatory lending law (where
applicable to the Originator), in which case the Sponsor will be required to
purchase such Mortgage Loan from the trust.
See "Material Legal Aspects of the Loans--Home Ownership Act and
Similar State Laws" in the prospectus.
THE OFFERED CERTIFICATES AND THE CLASS B CERTIFICATES ARE OBLIGATIONS OF THE
TRUST ONLY
The Offered Certificates and the Class B Certificates will not
represent an interest in or obligation of the Depositor, the Servicer, the
Originator, the Sponsor, the Trustee, the Underwriter or any of their respective
affiliates. None of the Offered Certificates, Class B Certificates or the
underlying Mortgage Loans will be guaranteed or insured by any governmental
agency or instrumentality, or by the Depositor, the Servicer, the Trustee, the
Underwriter or any of their respective affiliates. Proceeds of the assets
included in the trust and proceeds from the Net WAC Rate Carryover Account will
be the sole source of distributions on the Offered Certificates, and there will
be no recourse to the Depositor, the Servicer, the Originator, the Sponsor, the
Trustee, the Underwriter or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all distributions provided for
under the Offered Certificates.
THE INTEREST RATE SWAP AGREEMENT AND THE SWAP PROVIDER
Any amounts received from the Swap Provider under the Interest Rate
Swap Agreement will be applied as described in this prospectus supplement to pay
interest shortfalls and basis risk shortfalls, maintain overcollateralization
and cover losses. However, no amounts will be payable by the Swap Provider
unless the floating amount owed by the Swap Provider on a Distribution Date
exceeds the fixed amount owed to the Swap Provider on such Distribution Date.
This will not occur except in periods when one-month LIBOR (as determined
pursuant to the Interest Rate Swap Agreement) generally exceeds [__]%. No
assurance can be made that any amounts will be received under the Interest Rate
Swap Agreement, or that any such amounts that are received will be sufficient to
maintain required overcollateralization or to cover interest shortfalls, basis
risk shortfalls and losses on the Mortgage Loans. Any net payment payable to the
Swap Provider under the terms of the Interest Rate Swap Agreement will reduce
amounts available for distribution to certificateholders, and may reduce the
pass-through rates of the certificates. If the rate of prepayments on the
Mortgage Loans is faster than anticipated, the schedule on which payments due
under the Interest Rate Swap Agreement are calculated may exceed the aggregate
principal balance of the Mortgage Loans, thereby increasing the relative
proportion of interest collections on the Mortgage Loans that must be applied to
make net payments to the Swap Provider. The combination of a rapid rate of
prepayment and low prevailing interest rates could adversely affect the yields
on the Offered Certificates and Class B Certificates. In addition, any
termination payment payable to the Swap Provider (other than a termination
payment resulting from a Swap Provider Trigger Event) in the event of early
termination of the Interest Rate Swap Agreement will reduce amounts available
for distribution to certificateholders.
Upon early termination of the Interest Rate Swap Agreement, the trust
or the Swap Provider may be liable to make a Swap Termination Payment to the
other party (regardless of which party caused the termination). The Swap
Termination Payment will be computed in accordance with the procedures set forth
in the Interest Rate Swap Agreement. In the event that the trust is required to
make a Swap Termination Payment, that payment will be paid on the related
Distribution Date, and on any subsequent Distribution Dates until paid in full,
generally prior to distributions to certificateholders. This feature may result
in losses on the certificates. Due to the priority of the applications of the
available funds, the Subordinate Certificates will bear the effects of any
shortfalls resulting from a Net Swap Payment or Swap Termination Payment by the
trust before such effects are borne by the Class A Certificates and one or more
classes of Subordinate Certificates may suffer a loss as a result of such
payment.
To the extent that distributions on the Offered Certificates and the
Class B Certificates depend in part on payments to be received by the trust
under the Interest Rate Swap Agreement, the ability of the Trustee to make such
distributions on such certificates will be subject to the credit risk of the
Swap Provider to the Interest Rate Swap Agreement. The credit ratings of the
Swap Provider as of the date of this prospectus supplement are lower than the
ratings assigned to the Class A Certificates. See "Description of the Offered
Certificates--The Swap Provider" in this prospectus supplement.
LACK OF LIQUIDITY
[_______]. (the "Underwriter") intends to make a secondary market in
the Offered Certificates, but has no obligation to do so. There is no assurance
that such a secondary market will develop or, if it develops, that it will
continue. Consequently, you may not be able to sell your certificates readily or
at prices that will enable you to realize your desired yield. The market values
of the certificates are likely to fluctuate; these fluctuations may be
significant and could result in significant losses to you.
The secondary markets for asset-backed securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of securities that are
especially sensitive to prepayment, credit, or interest rate risk, or that have
been structured to meet the investment requirements of limited categories of
investors.
NATURE OF THE MORTGAGE LOANS
Substantially all of the Mortgage Loans in the trust are loans that do
not meet the customary credit standards of Fannie Mae or Freddie Mac. As a
result, delinquencies and liquidation proceedings are more likely with these
Mortgage Loans than with mortgage loans that satisfy such credit standards. In
the event the Mortgage Loans do become delinquent or subject to liquidation, you
may face delays in receiving distributions and losses if the credit enhancement
features of the trust are insufficient to cover the delays and losses.
THE CAP CONTRACT IS SUBJECT TO COUNTERPARTY RISK
The assets of the trust include the cap contract, which will require
the counterparty thereunder to make certain payments for the benefit of the
holders of the Offered Certificates and Class B Certificates. To the extent that
distributions on such certificates depend in part on payments to be received by
the Trustee under the cap contract, the ability of the Trustee to make such
distributions on such certificates will be subject to the credit risk of the
counterparty to the cap contract. Although there is a mechanism in place to
facilitate replacement of the cap contract upon the default or credit impairment
of the counterparty, there can be no assurance that any such mechanism will
result in the ability of the Trustee to obtain suitable replacement cap
contract.
REDUCTION OR WITHDRAWAL OF RATINGS
Each rating agency rating the Offered Certificates may change or
withdraw its initial ratings at any time in the future if, in its judgment,
circumstances warrant a change. No rating agency is obligated to maintain the
ratings at their initial levels. If a rating agency reduces or withdraws its
rating on one or more classes of the Offered Certificates, the liquidity and
market value of the affected certificates is likely to be reduced.
SUITABILITY OF THE OFFERED CERTIFICATES AS INVESTMENTS
The Offered Certificates are not suitable investments for any investor
that requires a regular or predictable schedule of monthly distributions or
distribution on any specific date. The Offered Certificates are complex
investments that should be considered only by investors who, either alone or
with their financial, tax and legal advisors, have the expertise to analyze the
prepayment, reinvestment, default and market risk, the tax consequences of an
investment and the interaction of these factors.
MANDATORY PRINCIPAL DISTRIBUTION
To the extent that the amounts on deposit in the Pre-Funding Accounts
have not been fully applied to the purchase of Subsequent Group I Mortgage Loans
and Subsequent Group II Mortgage Loans on or before [__] the holders of the
related class or classes of Class A Certificates will receive on the
Distribution Date in March 2006 the amounts in the related Pre-Funding Account
after giving effect to any purchase of Subsequent Group I Mortgage Loans and
Subsequent Group II Mortgage Loans. Although no assurance can be given, the
Depositor intends that the principal amount of Subsequent Group I Mortgage Loans
and Subsequent Group II Mortgage Loans sold to the Trustee will require the
application of substantially all amounts on deposit in the Group I Pre-Funding
Account and the Group II Pre-Funding Account and that there will be no material
principal distribution to the holders of any Class A Certificates on such
Distribution Date resulting from unused pre-funding amount.
RIGHTS OF THE NIMS INSURER
One or more insurance companies (together, the "NIMS Insurer") may
issue a financial guaranty insurance policy covering certain payments to be made
on net interest margin securities to be issued by a separate trust. Such net
interest margin securities will not be backed by any of the Mortgage Loans or
any other assets of the Trust. The net interest margin securities will be
secured by, among other things, all or a portion of the Class CE, Class P and/or
Residual Certificates. The issuance of such net interest margin securities will
not affect distributions on the Certificates because such net interest margin
securities are not backed by any Mortgage Loan or any other asset of the Trust.
Pursuant to the terms of the pooling agreement, unless there exists a
continuance of any failure by the NIMS Insurer, if any, to make a required
payment under the policy insuring the net interest margin securities (such
event, a "NIMS Insurer Default"), such NIMS Insurer will be entitled to
exercise, among others, the following rights of the holders of the Offered
Certificates and Class B Certificates, without the consent of such holders, and
the holders of the Offered Certificates and Class B Certificates may exercise
such rights only with the prior written consent of such NIMS Insurer: (i) the
right to provide notices of Servicer defaults and the right to direct the
Trustee to terminate the rights and obligations of the Servicer under the
pooling agreement in the event of a default by the Servicer; (ii) the right to
remove the Trustee or any co-trustee or custodian pursuant to the pooling
agreement; and (iii) the right to direct the Trustee to make investigations and
take actions pursuant to the pooling agreement. In addition, unless a NIMS
Insurer Default exists, such NIMS Insurer's consent will be required prior to,
among other things, (i) the removal or replacement of the Servicer, any
successor servicer or the Trustee, (ii) the appointment or termination of any
subservicer or co-trustee or (iii) any amendment to the pooling agreement. The
NIMS Insurer, if any, will not have any claim against the Mortgage Loans. Any
rights granted to the NIMS Insurer will be extinguished once the net interest
margin securities are paid off in accordance with its terms. The NIMS Insurer,
if any, will be granted these rights which may, in certain cases, be superior to
the rights of any single holder of an Offered Certificate or Class B Certificate
in order to obtain their guaranty of the payment obligations of the issuing
entity for the net interest margin securities.
INVESTORS IN THE OFFERED CERTIFICATES AND CLASS B CERTIFICATES SHOULD NOTE THAT:
o any insurance policy issued by the NIMS Insurer, if any, will not
cover, and will not benefit in any manner whatsoever, the Offered
Certificates and Class B Certificates;
o the rights to be granted to the NIMS Insurer, if any, are extensive;
o the interests of the NIMS Insurer, if any, may be inconsistent with,
and adverse to the interests of the holders of the Offered Certificates
and Class B Certificates and the NIMS Insurer, if any, has no
obligation or duty to consider the interests of the Offered
Certificates and Class B Certificates in connection with the exercise
or non-exercise of such NIMS Insurer's rights;
o such NIMS Insurer's, if any, exercise of the rights and consents set
forth above may negatively affect the Offered Certificates and the
existence of such NIMS Insurer's rights, whether or not exercised, may
adversely affect the liquidity of the Offered Certificates and Class B
Certificates relative to other asset-backed certificates backed by
comparable mortgage loans and with comparable payment priorities and
ratings; and
o there may be more than one series of notes insured by the NIMS Insurer
and the NIMS Insurer will have the rights set forth herein so long as
any such series of notes remain outstanding.
THE MORTGAGE POOL
The information set forth in the following paragraphs is based on
servicing records and representations about the Mortgage Loans that were made or
acquired by [__] at the time it sold the Mortgage Loans.
The statistical information presented in this prospectus supplement
relates to the Initial Mortgage Loans and related Mortgaged Properties in the
aggregate and in each Loan Group as of the Cut-off Date, as adjusted for
scheduled principal payments due on or before the Cut-off Date whether or not
received. Prior to the issuance of the Certificates, Mortgage Loans may be
removed from one or both Loan Groups as a result of incomplete documentation or
otherwise if the Depositor deems such removal necessary or desirable, and may be
prepaid at any time. The Depositor believes that the information set forth in
this prospectus supplement with respect to the Mortgage Loans in the aggregate
and in each Loan Group will be representative of the characteristics of the
Mortgage Pool and each such Loan Group as it will be constituted at the time the
Certificates are issued, although the range of Mortgage Rates and maturities and
certain other characteristics of the Initial Mortgage Loans in the Mortgage Pool
or in a Loan Group may vary.
Unless otherwise noted, all statistical percentages or weighted
averages set forth in this prospectus supplement are measured as a percentage of
the aggregate principal balance of the Initial Mortgage Loans in the related
Loan Group or in the aggregate as of the Cut-off Date (the "Cut-off Date
Principal Balance"). The "Principal Balance" of a Mortgage Loan as of any date
is equal to the principal balance of such Mortgage Loan at its origination, less
the sum of scheduled and unscheduled payments in respect of principal made on
such Mortgage Loan, whether received or advanced. The "Pool Balance" as of any
date is equal to the aggregate of the Principal Balances of the Mortgage Loans
in both Loan Groups.
GENERAL
[__________] Trust [200_-___] (the "Trust") will consist of a pool of
residential mortgage loans (the "Mortgage Loans" or the "Mortgage Pool") which
will consist of a group of fixed-rate and adjustable-rate, first lien mortgage
loans with Principal Balances at origination that conform to Fannie Mae and
Freddie Mac loan limits (the "Group I Mortgage Loans") and a group of fixed-rate
and adjustable-rate, first lien mortgage loans with Principal Balances at
origination that may or may not conform to Fannie Mae and Freddie Mac loan
limits (the "Group II Mortgage Loans"). In addition, certain of the conforming
balance Mortgage Loans included in Loan Group II might otherwise have been
included in Loan Group I, but were excluded from Loan Group I because they did
not meet Fannie Mae or Freddie Mac criteria (including published guidelines) for
factors other than principal balance. The Group I Mortgage Loans will include
initial Mortgage Loans described in this prospectus supplement (the "Initial
Group I Mortgage Loans") and subsequent mortgage loans delivered after the
Closing Date (the "Subsequent Group I Mortgage Loans"). The Group II Mortgage
Loans will include initial Mortgage Loans described in this prospectus
supplement (the "Initial Group II Mortgage Loans"; and together with the Initial
Group I Mortgage Loans, the "Initial Mortgage Loans") and subsequent mortgage
loans delivered after the Closing Date (the "Subsequent Group II Mortgage
Loans"; and together with the Subsequent Group I Mortgage Loans, the "Subsequent
Mortgage Loans").
The Initial Mortgage Loans consist of approximately [__] Mortgage Loans
with a Cut-off Date Principal Balance of approximately $[__]. The Initial Group
I Mortgage Loans consist of approximately [__] Mortgage Loans with a Cut-off
Date Principal Balance of approximately $[__]. The Initial Group II Mortgage
Loans consist of approximately [__] Mortgage Loans with a Cut-off Date Principal
Balance of approximately $[__].
All of the Mortgage Loans will be secured by first mortgages or deeds
of trust or other similar security instruments (each, a "Mortgage"). The
Mortgages create first liens on one- to four-family residential properties
consisting of attached or detached one- to four-family dwelling units and
individual condominium units (each, a "Mortgaged Property").
The Depositor will purchase the Mortgage Loans from the Sponsor
pursuant to the Mortgage Loan Purchase Agreement, dated as of [__] (the
"Mortgage Loan Purchase Agreement"), between the Sponsor and the Depositor.
Pursuant to the Pooling Agreement, dated as of [__] (the "Pooling Agreement"),
among the Depositor, the Servicer and the Trustee, the Depositor will cause the
Mortgage Loans and the Depositor's rights under the Mortgage Loan Purchase
Agreement to be assigned to the Trustee for the benefit of the
Certificateholders. See "The Pooling Agreement" herein and "The Agreements" in
the prospectus.
Subsequent Mortgage Loans are intended to be purchased by the Trustee,
on behalf of the Trust, from the Depositor from time to time on or before [__]
from funds on deposit in the Group I Pre-Funding Account and the Group II
Pre-Funding Account. The Pooling Agreement will provide that each Subsequent
Mortgage Loan must conform to certain specified characteristics and, following
the conveyance of the Subsequent Mortgage Loans, the Mortgage Pool must conform
to certain specified characteristics as described below under "--Conveyance of
Subsequent Mortgage Loans and the Pre-Funding Accounts."
[As of the cut-off date, not more than [ ]% of the mortgage loans were
more than 30 days delinquent in payments of principal and interest. No more than
approximately [___]% of the mortgage loans have been 30 to 59 days delinquent
one time during the twelve months preceding the cut-off date. No more than
approximately [___]% of the mortgage loans have been 30 to 59 days delinquent
two times during the twelve months preceding the cut-off date. No more than
approximately [___]% of the mortgage loans have been more than 60 days
delinquent one time during the twelve months preceding the cut-off date. No more
than approximately [___]% of the mortgage loans have been more than 60 days
delinquent two times during the twelve months preceding the cut-off date.][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.
For a further description of the underwriting or selection criteria
used to purchase the mortgage pool assets, please see "The Originator --
Underwriting Guidelines" and "The Sponsor" in the prospectus.
Each of the Mortgage Loans was selected from the Sponsor's portfolio of
mortgage loans. The Mortgage Loans were originated by the Originator or acquired
by the Originator in the secondary market in the ordinary course of its business
and were underwritten or re-underwritten by the Originator in accordance with
its underwriting standards as described under "The Originator--Underwriting
Guidelines" in this prospectus supplement.
Under the Mortgage Loan Purchase Agreement, the Sponsor will make
certain representations and warranties to the Depositor relating to, among other
things, the due execution and enforceability of the Mortgage Loan Purchase
Agreement and certain characteristics of the Mortgage Loans. Subject to certain
limitations, the Sponsor will be obligated to repurchase or substitute a similar
mortgage loan for any Mortgage Loan as to which there exists deficient
documentation or an uncured breach of any such representation or warranty, if
such breach of any such representation or warranty materially and adversely
affects the Certificateholders' interests in such Mortgage Loan. The Sponsor is
selling the Mortgage Loans without recourse and will have no obligation with
respect to the Certificates in its capacity as Sponsor, other than the
repurchase or substitution obligations described above. The Originator will have
no obligation with respect to the Certificates in its capacity as Originator.
The Mortgage Loans are subject to the "due-on-sale" provisions included
therein and each adjustable-rate mortgage loan provides that the Mortgage Loan
is assumable by a creditworthy purchaser of the related Mortgaged Property.
Each Mortgage Loan will accrue interest at the adjustable-rate or
fixed-rate calculated as specified under the terms of the related mortgage note
(each such rate, a "Mortgage Rate"). Approximately [__]% of the Initial Group I
Mortgage Loans are adjustable-rate mortgage loans (the "Adjustable-Rate Initial
Group I Mortgage Loans") and approximately [__]% of the Initial Group I Mortgage
Loans are fixed-rate mortgage loans (the "Fixed-Rate Initial Group I Mortgage
Loans"). Approximately [__]% of the Initial Group II Mortgage Loans are
adjustable-rate mortgage loans (the "Adjustable-Rate Initial Group II Mortgage
Loans") and approximately [__]% of the Initial Group II Mortgage Loans are
fixed-rate mortgage loans (the "Fixed-Rate Initial Group II Mortgage Loans").
Approximately [__]% of the Initial Mortgage Loans are adjustable-rate mortgage
loans (the "Adjustable-Rate Initial Mortgage Loans") and approximately [__]% of
the Initial Mortgage Loans are fixed-rate mortgage loans (the "Fixed-Rate
Initial Mortgage Loans").
Each fixed-rate mortgage loan has a Mortgage Rate that is fixed for the
life of such Mortgage Loan.
Substantially all of the adjustable-rate Mortgage Loans accrue interest
at a Mortgage Rate that is adjustable following an initial period of one year,
two years, three years or five years following origination. Generally, the
adjustable-rate Mortgage Loans provide for semi-annual adjustment to the
Mortgage Rate thereon and for corresponding adjustments to the monthly payment
amount due thereon, in each case on each adjustment date applicable thereto
(each such date, an "Adjustment Date"); provided, that (i) the first adjustment
of the rates for approximately [__]% of the Adjustable-Rate Initial Group I
Mortgage Loans and approximately [__]% of the Adjustable-Rate Initial Group II
Mortgage Loans (in each case, by aggregate principal balance of the
Adjustable-Rate Initial Mortgage Loans in the related Loan Group as of the
Cut-off Date) and approximately [__]% of the Adjustable-Rate Initial Mortgage
Loans (by aggregate principal balance of the Adjustable-Rate Initial Mortgage
Loans as of the Cut-off Date), will not occur until one year after the date of
origination, (ii) the first adjustment of the rates for approximately [__]% of
the Adjustable-Rate Initial Group I Mortgage Loans and approximately [__]% of
the Adjustable-Rate Initial Group II Mortgage Loans (in each case, by aggregate
principal balance of the Adjustable-Rate Initial Mortgage Loans in the related
Loan Group as of the Cut-off Date) and approximately [__]% of the
Adjustable-Rate Initial Mortgage Loans (by aggregate principal balance of the
Adjustable-Rate Initial Mortgage Loans as of the Cut-off Date) will not occur
until two years after the date of origination, (iii) the first adjustment of the
rates for approximately [__]% of the Adjustable-Rate Initial Group I Mortgage
Loans and approximately [__]% of the Adjustable-Rate Initial Group II Mortgage
Loans (in each case, by aggregate principal balance of the Adjustable-Rate
Initial Mortgage Loans in the related Loan Group as of the Cut-off Date) and
approximately [__]% of the Adjustable-Rate Initial Mortgage Loans (by aggregate
principal balance of the Adjustable Rate Initial Mortgage Loans as of the
Cut-off Date), will not occur until three years after the date of origination
and (iv) the first adjustment of the rates for approximately [__]% of the
Adjustable-Rate Initial Group I Mortgage Loans and approximately [__]% of the
Adjustable-Rate Initial Group II Mortgage Loans by aggregate principal balance
of the Adjustable-Rate Initial Mortgage Loans in the related Loan Group as of
the Cut-off Date) and approximately [__]% of the Adjustable Rate Initial
Mortgage Loans (by aggregate principal balance of the Adjustable Rate Initial
Mortgage Loans as of the Cut-off Date), will not occur until five years after
the date of origination (each such adjustable-rate Mortgage Loan, a "Delayed
First Adjustment Mortgage Loan"). On each Adjustment Date for each
adjustable-rate Mortgage Loan, the Mortgage Rate thereon will be adjusted to
equal the sum, rounded to the nearest or next highest multiple of 0.125%, of
Six-Month LIBOR and a fixed percentage amount (the "Gross Margin"). The Mortgage
Rate on any adjustable-rate Mortgage Loan will not decrease on the first related
Adjustment Date, will not increase by more than a stated percentage (up to [__]%
per annum, as specified in the related mortgage note) on the first related
Adjustment Date (the "Initial Periodic Rate Cap") and will not increase or
decrease by more than a stated percentage ([__]% per annum, as specified in the
related mortgage note) on any Adjustment Date thereafter (the "Periodic Rate
Cap"). The Adjustable-Rate Initial Group I Mortgage Loans have a weighted
average Initial Periodic Rate Cap of approximately [__]% per annum and a
weighted average Periodic Rate Cap of approximately [__]% per annum thereafter.
The Adjustable Rate Initial Group II Mortgage Loans have a weighted average
Initial Periodic Rate Cap of approximately [__]% per annum and a weighted
average Periodic Rate Cap of approximately [__]% per annum thereafter. The
Adjustable-Rate Initial Mortgage Loans have a weighted average Initial Periodic
Rate Cap of approximately [__]% per annum and a weighted average Periodic Rate
Cap of approximately [__]% per annum thereafter. Each Mortgage Rate on each
adjustable-rate Mortgage Loan will not exceed a specified maximum Mortgage Rate
over the life of such Mortgage Loan (the "Maximum Mortgage Rate") or be less
than a specified minimum Mortgage Rate over the life of such Mortgage Loan (the
"Minimum Mortgage Rate"). 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 Initial Periodic Rate Caps, the Periodic Rate Caps and
the Maximum Mortgage Rates, the Mortgage Rate on each adjustable-rate Mortgage
Loan, as adjusted on any related Adjustment Date, may be less than the sum of
the Index and the related Gross Margin, rounded as described in this prospectus
supplement. None of the adjustable-rate Mortgage Loans will permit the related
mortgagor to convert the adjustable Mortgage Rate thereon to a fixed Mortgage
Rate.
Approximately [__]% of the Initial Group I Mortgage Loans, and
approximately [__]% of the Initial Group II Mortgage Loans and approximately
[__]% of the Initial Mortgage Loans (the "Interest Only Mortgage Loans"),
provide that for a period of 60 months after origination, the required monthly
payments are limited to accrued interest (each, an "Interest Only Period"). At
the end of the Interest Only Period, the monthly payments on each such Mortgage
Loan will be recalculated to provide for amortization of the Principal Balance
by the maturity date and payment of interest at the then-current Mortgage Rate.
Approximately [__]% of the Initial Group I Mortgage Loans,
approximately [__]% of the Initial Group II Mortgage Loans and approximately
[__]% of the Initial Mortgage Loans provide for payment by the mortgagor of a
prepayment charge in limited circumstances on certain prepayments. Generally,
each such Mortgage Loan provides for payment of a prepayment charge on partial
prepayments and prepayments in full made within a stated number of months that
is between 12 and 36 months from the date of origination of such Mortgage Loan.
The amount of the prepayment charge is provided in the related mortgage note and
with respect to approximately [__]% of the Initial Mortgage Loans that have a
prepayment charge, the prepayment charge is equal to six months' interest on any
amounts prepaid in excess of 20% of the original Principal Balance of the
related Mortgage Loan in any 12 month period. The holders of the Class P
Certificates will be entitled to all prepayment charges received on the Mortgage
Loans, and such amounts will not be available for distribution on the other
classes of Certificates. Under certain circumstances, as described in the
Pooling Agreement, the Servicer may waive the payment of any otherwise
applicable prepayment charge. Investors should conduct their own analysis of the
effect, if any, that the prepayment charges, and decisions by the Servicer with
respect to the waiver thereof, may have on the prepayment performance of the
Mortgage Loans. As of July 1, 2003, the Alternative Mortgage Parity Act of 1982
(the "Parity Act"), which regulates the ability of some originators to impose
prepayment charges, was amended. The Depositor makes no representations as to
the effect that the prepayment charges, decisions by the Servicer with respect
to the waiver thereof and the recent amendment of the Parity Act, may have on
the prepayment performance of the Mortgage Loans. However, the Office of Thrift
Supervision's ruling does not retroactively affect loans originated before July
1, 2003. See "Material Legal Aspects of Mortgage Loans--Prepayment Charge; Late
Fees" in the prospectus.
THE INDEX. The index with respect to the adjustable-rate Mortgage Loans
is the average of interbank offered rates for six-month U.S. dollar deposits in
the London market based on quotations of major banks, and most recently
available as of a day specified in the related note as published by the Western
Edition of THE WALL STREET JOURNAL ("Six Month LIBOR" or the "Index"). If the
Index becomes unpublished or is otherwise unavailable, the Servicer will select
an alternative index which is based upon comparable information.
MORTGAGE LOAN STATISTICS FOR ALL INITIAL MORTGAGE LOANS
The following statistical information, unless otherwise specified, is
based upon percentages of the aggregate Cut-off Date Principal Balance of the
Initial Mortgage Loans.
Approximately [__]% of the Initial Mortgage Loans had loan-to-value
ratios at origination in excess of 80.00%. No Initial Mortgage Loan had a
loan-to-value ratio at origination in excess of [__]%. The weighted average
loan-to-value ratio of the Initial Mortgage Loans at origination was
approximately [__]%. There can be no assurance that the loan-to-value ratio of
any Initial Mortgage Loan determined at any time after origination is less than
or equal to its original loan-to-value ratio. Additionally, the Originator's
determination of the value of a Mortgaged Property used in the calculation of
the original loan-to-value ratios of the Mortgage Loans may differ from the
appraised value of such Mortgaged Property or the actual value of such Mortgaged
Property at origination. See "Risk Factors--High Loan-to-Value Ratios Increase
Risk of Loss."
All of the Mortgage Loans have a scheduled payment due each month (the
"Due Date") on the first day of the month.
The weighted average remaining term to maturity of the Initial Mortgage
Loans was approximately [__] months as of the Cut-off Date. None of the Initial
Mortgage Loans had a first Due Date prior to [__]or after [__], or has a
remaining term to maturity of less than [__] months or greater than 360 months
as of the Cut-off Date. The latest maturity date of any Initial Mortgage Loan is
[__].
The average Principal Balance of the Initial Mortgage Loans at
origination was approximately $[__]. The average Cut-off Date Principal Balance
of the Initial Mortgage Loans was approximately $[__]. No Initial Mortgage Loan
had a Cut-off Date Principal Balance of greater than approximately $[__] or less
than approximately $[__].
As of the Cut-off Date, the Initial Mortgage Loans had Mortgage Rates
of not less than [__]% per annum and not more than [__]% per annum and the
weighted average Mortgage Rate of the Initial Mortgage Loans was approximately
[__]% per annum. As of the Cut-off Date, the Adjustable-Rate Initial Mortgage
Loans had Gross Margins ranging from [__]% per annum to [__]% per annum, Minimum
Mortgage Rates ranging from [__]% per annum to [__]% per annum and Maximum
Mortgage Rates ranging from [__]% per annum to [__]% per annum. As of the
Cut-off Date, the weighted average Gross Margin of the Adjustable-Rate Initial
Mortgage Loans was approximately [__]% per annum, the weighted average Minimum
Mortgage Rate of the Adjustable-Rate Initial Mortgage Loans was approximately
[__]% per annum and the weighted average Maximum Mortgage Rate of the
Adjustable-Rate Initial Mortgage Loans was approximately [__]% per annum. The
latest next Adjustment Date following the Cut-off Date on any Adjustable-Rate
Initial Mortgage Loan occurs in [__] and the weighted average time until the
next Adjustment Date for all of the Adjustable-Rate Initial Mortgage Loans is
approximately [__] months.
The Initial 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):
SERVICER CONCENTRATIONS IN THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SERVICER MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
[------------]
[------------]
[------------]
Total.........................
ORIGINATOR CONCENTRATIONS IN THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINATOR MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
[------------]
[------------]
[------------]
Total.........................
CUT-OFF DATE PRINCIPAL BALANCES OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PRINCIPAL BALANCE ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
23,988 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 300,000......................
300,001 - 350,000......................
350,001 - 400,000......................
400,001 - 450,000......................
450,001 - 500,000......................
500,001 - 550,000......................
550,001 - 600,000......................
600,001 - 650,000......................
650,001 - 700,000......................
700,001 - 750,000......................
750,001 - 800,000......................
800,001 - 850,000......................
850,001 - 895,000......................
Total ......................
- -------------------
(1) The average Cut-off Date Principal Balance of the Initial Mortgage Loans was
approximately $[__].
CREDIT SCORES FOR THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT SCORE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
540- 550................................
551- 575................................
576- 600................................
601- 625................................
626- 650................................
651- 675................................
676- 700................................
701- 725................................
726- 750................................
751- 775................................
776- 800................................
801- 817................................
Total..............................
- -------------------
(1) The weighted average credit score of the Initial Mortgage Loans that had
credit scores was approximately [__].
ORIGINAL TERMS TO MATURITY OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
180......................................
240......................................
360......................................
Total..............................
- -------------------
(1) The weighted average original term to maturity of the Initial Mortgage Loans
was approximately [__] months.
REMAINING TERMS TO MATURITY OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
177- 178................................
179- 180................................
239- 240................................
353- 354................................
355- 356................................
357- 358................................
359- 360................................
Total..............................
- -------------------
(1) The weighted average remaining term to maturity of the Initial Mortgage
Loans was approximately 358 months.
PROPERTY TYPES OF THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PROPERTY TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Single Family ...........................
PUD(1)...................................
Condominium..............................
Two Units................................
Three Units..............................
Four Units...............................
Modular..................................
Total..............................
- -------------------
(1) PUD refers to a home or "unit" in a Planned Unit Development.
OCCUPANCY STATUS OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
OCCUPANCY STATUS MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Primary..................................
Second Home..............................
Non-owner................................
Total..............................
- -------------------
(1) Occupancy as represented by the mortgagor at the time of origination.
PURPOSE OF THE INITIAL MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PURPOSE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Purchase.................................
Cash Out Refinance.......................
Rate/Term Refinance......................
Total..............................
ORIGINAL LOAN-TO-VALUE RATIOS OF THE INITIAL MORTGAGE LOANS(1)(2)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL LOAN-TO-VALUE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
14.67 - 15.00...........................
30.01 - 35.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
100.01 -103.00...........................
Total..............................
- -------------------
(1) The weighted average original loan-to-value ratio of the Initial Mortgage
Loans as of the Cut-off Date was approximately [__]%.
(2) For a description of the determination of loan-to-value ratio by the
Originator see "The Originator--Underwriting Guidelines" in this prospectus
supplement.
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES RELATED TO THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
LOCATION MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Alabama.................................
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Connecticut.............................
Delaware................................
District of Columbia....................
Florida.................................
Georgia.................................
Idaho...................................
Illinois................................
Indiana.................................
Iowa....................................
Kansas..................................
Kentucky................................
Louisiana...............................
Maine...................................
Maryland................................
Massachusetts...........................
Michigan................................
Minnesota...............................
Mississippi.............................
Missouri................................
Nebraska................................
Nevada..................................
New Hampshire...........................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
North Dakota............................
Ohio....................................
Oklahoma................................
Oregon..................................
Pennsylvania............................
Rhode Island............................
South Carolina..........................
South Dakota............................
Tennessee...............................
Texas...................................
Utah....................................
Vermont.................................
Virginia................................
Washington..............................
West Virginia...........................
Wisconsin...............................
Wyoming.................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The greatest ZIP Code geographic concentration of Initial Mortgage Loans was
approximately 0.29% in the 60431 ZIP Code.
DOCUMENTATION LEVELS OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
DOCUMENTATION LEVEL MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Full Documentation.......................
No Income Verification...................
Stated Plus Documentation................
Blended Access...........................
Limited Income Verification..............
Total.............................. $ 100.00%
============= ======
- -------------------
(1) For a description of each Documentation Level, see "The
Originator--Underwriting Guidelines" in this prospectus supplement.
CURRENT MORTGAGE RATES OF THE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CURRENT MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.625 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 -10.000...........................
10.001 -10.250...........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average current Mortgage Rate of the Initial Mortgage Loans as
of the Cut-off Date was approximately [__] % per annum.
GROSS MARGINS OF THE ADJUSTABLE-RATE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
GROSS MARGIN (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.000 - 5.000...........................
5.001 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 8.500...........................
Total ........................... $ 100.00%
============= ======
- -------------------
(1) The weighted average Gross Margin of the Adjustable-Rate Initial Mortgage
Loans as of the Cut-off Date was approximately [__]% per annum.
NEXT ADJUSTMENT DATE FOR THE ADJUSTABLE-RATE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
NEXT ADJUSTMENT DATE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
December 1, 2005.........................
September 1, 2006........................
October 1, 2006..........................
April 1, 2007............................
May 1, 2007..............................
June 1, 2007.............................
July 1, 2007.............................
August 1, 2007...........................
September 1, 2007........................
October 1, 2007..........................
November 1, 2007.........................
July 1, 2008.............................
August 1, 2008...........................
September 1, 2008........................
October 1, 2008..........................
November 1, 2008.........................
August 1, 2010...........................
September 1, 2010........................
October 1, 2010..........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average time until the next Adjustment Date for the
Adjustable-Rate Initial Mortgage Loans as of the Cut-off Date was
approximately [__] months.
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE-RATE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MAXIMUM MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
11.625 -12.000...........................
12.001 -13.000...........................
13.001 -14.000...........................
14.001 -15.000...........................
15.001 -16.000...........................
16.001 -16.250...........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average Maximum Mortgage Rate of the Adjustable-Rate Initial
Mortgage Loans as of the Cut-off Date was approximately [__]% per annum.
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE-RATE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MINIMUM MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.625 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 -10.000...........................
10.001 -10.250...........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average Minimum Mortgage Rate of the Adjustable-Rate Initial
Mortgage Loans as of the Cut-off Date was approximately [__]% per annum.
INITIAL PERIODIC RATE CAPS OF THE ADJUSTABLE-RATE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
INITIAL PERIODIC RATE CAP (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
1.000....................................
2.000....................................
3.000....................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) Relates solely to initial rate adjustments.
SUBSEQUENT PERIODIC RATE CAPS OF THE ADJUSTABLE-RATE INITIAL MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PERIODIC RATE CAP (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
1.000.................................... 100.00%
------
Total.............................. 100.00%
======
- -------------------
(1) Relates to all rate adjustments subsequent to initial rate adjustments.
INITIAL GROUP I MORTGAGE LOAN STATISTICS
The following statistical information, unless otherwise specified, is
based upon percentages of the aggregate Cut-off Date Principal Balance of the
Initial Group I Mortgage Loans.
Approximately [__]% of the Initial Group I Mortgage Loans had
loan-to-value ratios at origination in excess of 80%. No Initial Group I
Mortgage Loan had a loan-to-value ratio at origination in excess of [__]%. The
weighted average loan-to-value ratio of the Initial Group I Mortgage Loans at
origination was approximately [__]%. There can be no assurance that the
loan-to-value ratio of any Initial Group I Mortgage Loan determined at any time
after origination is less than or equal to its original loan-to-value ratio.
Additionally, the Originator's determination of the value of a Mortgaged
Property used in the calculation of the original loan-to-value ratios of the
Mortgage Loans may differ from the appraised value of such Mortgaged Property or
the actual value of such Mortgaged Property at origination. SEE "RISK
FACTORS--HIGH LOAN-TO-VALUE RATIOS INCREASE RISK OF LOSS."
All of the Initial Group I Mortgage Loans have a Due Date on the first
day of the month.
The weighted average remaining term to maturity of the Initial Group I
Mortgage Loans was approximately [__] months as of the Cut-off Date. None of the
Initial Group I Mortgage Loans had a first Due Date prior to [__] or after [__],
or has a remaining term to maturity of less than [__] months or greater than 360
months as of the Cut-off Date. The latest maturity date of any Initial Group I
Mortgage Loan is [__].
The average Principal Balance of the Initial Group I Mortgage Loans at
origination was approximately $[__]. The average Cut-off Date Principal Balance
of the Initial Group I Mortgage Loans was approximately $[__]. No Initial Group
I Mortgage Loan had a Cut-off Date Principal Balance of greater than
approximately $[__] or less than approximately $[__]
As of the Cut-off Date, the Initial Group I Mortgage Loans had Mortgage
Rates of not less than [__]% per annum and not more than [__]% per annum and the
weighted average Mortgage Rate of the Initial Group I Mortgage Loans was
approximately [__]% per annum. As of the Cut-off Date, the Adjustable-Rate
Initial Group I Mortgage Loans had Gross Margins ranging from [__]% per annum to
[__]% per annum, Minimum Mortgage Rates ranging from [__]% per annum to [__]%
per annum and Maximum Mortgage Rates ranging from [__]% per annum to [__]% per
annum. As of the Cut-off Date, the weighted average Gross Margin of the
Adjustable-Rate Initial Group I Mortgage Loans was approximately [__]% per
annum, the weighted average Minimum Mortgage Rate of the Adjustable-Rate Initial
Group I Mortgage Loans was approximately [__]% per annum and the weighted
average Maximum Mortgage Rate of the Adjustable-Rate Initial Group I Mortgage
Loans was approximately [__]% per annum. The latest next Adjustment Date
following the Cut-off Date on any Adjustable-Rate Initial Group I Mortgage Loan
occurs in [__] and the weighted average time until the next Adjustment Date for
all of the Adjustable-Rate Initial Group I Mortgage Loans is approximately [__]
months.
The Initial Group I 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):
SERVICER CONCENTRATIONS IN THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SERVICER MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
[------------]
[------------]
[------------]
Total.........................
ORIGINATOR CONCENTRATIONS IN THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINATOR MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
[------------]
[------------]
[------------]
Total.........................
CUT-OFF DATE PRINCIPAL BALANCES OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PRINCIPAL BALANCE ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
23,988 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 300,000......................
300,001 - 350,000......................
350,001 - 400,000......................
400,001 - 441,739......................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The average Cut-off Date Principal Balance of the Initial Group I Mortgage
Loans was approximately $[__].
CREDIT SCORES FOR THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT SCORE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
540- 550................................
551- 575................................
576- 600................................
601- 625................................
626- 650................................
651- 675................................
676- 700................................
701- 725................................
726- 750................................
751- 775................................
776- 800................................
801- 817................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average credit score of the Initial Group I Mortgage Loans that
had credit scores was approximately [__].
ORIGINAL TERMS TO MATURITY OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
180......................................
240......................................
360......................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average original term to maturity of the Initial Group I
Mortgage Loans was approximately [__] months.
REMAINING TERMS TO MATURITY OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
177- 178................................
179- 180................................
239- 240................................
353- 354................................
355- 356................................
357- 358................................
359- 360................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average remaining term to maturity of the Initial Group I
Mortgage Loans was approximately [__] months.
PROPERTY TYPES OF THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PROPERTY TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Single Family............................
PUD(1)...................................
Condominium..............................
Two Units................................
Three Units..............................
Four Units...............................
Modular..................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) PUD refers to a home or "unit" in a Planned Unit Development.
OCCUPANCY STATUS OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
OCCUPANCY STATUS MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Primary..................................
Second Home..............................
Non-owner................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) Occupancy as represented by the mortgagor at the time of origination.
PURPOSE OF THE INITIAL GROUP I MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PURPOSE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Purchase.................................
Cash Out Refinance.......................
Rate/Term Refinance......................
Total.............................. $ 100.00%
============= ======
ORIGINAL LOAN-TO-VALUE RATIOS OF THE INITIAL GROUP I MORTGAGE LOANS(1)(2)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
14.67 - 15.00...........................
30.01 - 35.00...........................
45.01 - 50.00...........................
50.01 - 55.00...........................
55.01 - 60.00...........................
60.01 - 65.00...........................
65.01 - 70.00...........................
70.01 - 75.00...........................
75.01 - 80.00...........................
80.01 - 85.00...........................
85.01 - 90.00...........................
90.01 - 95.00...........................
95.01 -100.00...........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average original loan-to-value ratio of the Initial Group I
Mortgage Loans as of the Cut-off Date was approximately [__]%.
(2) For a description of the determination of loan-to-value ratio by the
Originator, see "The Originator--Underwriting Guidelines" in this
prospectus supplement.
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES RELATED TO THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
LOCATION MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Alabama.................................
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Connecticut.............................
District of Columbia....................
Florida.................................
Georgia.................................
Idaho...................................
Illinois................................
Indiana.................................
Iowa....................................
Kansas..................................
Kentucky................................
Louisiana...............................
Maine...................................
Maryland................................
Massachusetts...........................
Michigan................................
Minnesota...............................
Mississippi.............................
Missouri................................
Nebraska................................
Nevada..................................
New Hampshire...........................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
North Dakota............................
Ohio....................................
Oklahoma................................
Oregon..................................
Pennsylvania............................
Rhode Island............................
South Carolina..........................
South Dakota............................
Tennessee...............................
Texas...................................
Utah....................................
Vermont.................................
Virginia................................
Washington..............................
West Virginia...........................
Wisconsin...............................
Wyoming.................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The greatest ZIP Code geographic concentration of Initial Group I Mortgage
Loans was approximately [__]% in the [__] ZIP Code.
DOCUMENTATION LEVELS OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
DOCUMENTATION LEVEL MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Full Documentation.......................
No Income Verification...................
Stated Plus Documentation................
Blended Access...........................
Limited Income Verification..............
Total.............................. $ 100.00%
============= ======
- -------------------
(1) For a description of each Documentation Level, see "The
Originator--Underwriting Guidelines" in this prospectus supplement.
CURRENT MORTGAGE RATES OF THE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CURRENT MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.625 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 -10.000...........................
10.001 -10.250...........................
Total.............................. $ 100.00%
===== ============= ================
- -------------------
(1) The weighted average current Mortgage Rate of the Initial Group I Mortgage
Loans as of the Cut-off Date was approximately [__]% per annum.
GROSS MARGINS OF THE ADJUSTABLE-RATE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
GROSS MARGIN (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.000 - 5.000...........................
5.001 - 6.000...........................
6.001 - 7.000...........................
7.001 - 7.875...........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average Gross Margin of the Adjustable-Rate Initial Group I
Mortgage Loans as of the Cut-off Date was approximately [__]% per annum.
NEXT ADJUSTMENT DATE FOR THE ADJUSTABLE-RATE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
NEXT ADJUSTMENT RATE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
December 1, 2005.........................
September 1, 2006........................
April 1, 2007............................
May 1, 2007..............................
June 1, 2007.............................
July 1, 2007.............................
August 1, 2007...........................
September 1, 2007........................
October 1, 2007..........................
November 1, 2007.........................
July 1, 2008.............................
August 1, 2008...........................
September 1, 2008........................
October 1, 2008..........................
November 1, 2008.........................
August 1, 2010...........................
September 1, 2010........................
October 1, 2010..........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average time until the next Adjustment Date for the
Adjustable-Rate Initial Group I Mortgage Loans as of the Cut-off Date was
approximately [__] months.
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE-RATE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MAXIMUM MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
11.625 - 12.000..........................
12.001 - 13.000..........................
13.001 - 14.000..........................
14.001 - 15.000..........................
15.001 - 16.000..........................
16.001 - 16.250..........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average Maximum Mortgage Rate of the Adjustable-Rate Initial
Group I Mortgage Loans as of the Cut-off Date was approximately [__]% per
annum.
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE-RATE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MINIMUM MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.625 - 6.000..........................
6.001 - 7.000..........................
7.001 - 8.000..........................
8.001 - 9.000..........................
9.001 - 10.000..........................
10.001 - 10.250..........................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) The weighted average Minimum Mortgage Rate of the Adjustable-Rate Initial
Group I Mortgage Loans as of the Cut-off Date was approximately [__]% per
annum.
INITIAL PERIODIC RATE CAPS OF THE ADJUSTABLE-RATE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
INITIAL PERIODIC RATE CAP (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
1.000....................................
2.000....................................
3.000....................................
Total.............................. $ 100.00%
============= ======
- -------------------
(1) Relates solely to initial rate adjustments.
SUBSEQUENT PERIODIC RATE CAPS OF THE ADJUSTABLE-RATE INITIAL GROUP I MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PERIODIC RATE CAP (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
1.000.................................... 100.00%
------
Total.............................. 100.00%
======
- -------------------
(1) Relates to all rate adjustments subsequent to initial rate adjustments.
INITIAL GROUP II MORTGAGE LOAN STATISTICS
The following statistical information, unless otherwise specified, is
based upon percentages of the aggregate Cut-off Date Principal Balance of the
Initial Group II Mortgage Loans.
Approximately [__]% of the Initial Group II Mortgage Loans had
loan-to-value ratios at origination in excess of 80%. No Initial Group II
Mortgage Loan had a loan-to-value ratio at origination in excess of [__]%. The
weighted average loan-to-value ratio of the Initial Group II Mortgage Loans at
origination was approximately [__]%. There can be no assurance that the
loan-to-value ratio of any Initial Group II Mortgage Loan determined at any time
after origination is less than or equal to its original loan-to-value ratio.
Additionally, the Originator's determination of the value of a Mortgaged
Property used in the calculation of the original loan-to-value ratios of the
Mortgage Loans may differ from the appraised value of such Mortgaged Property or
the actual value of such Mortgaged Property at origination. SEE "RISK
FACTORS--HIGH LOAN-TO-VALUE RATIOS INCREASE RISK OF LOSS."
All of the Initial Group II Mortgage Loans have a Due Date on the first
day of the month.
The weighted average remaining term to maturity of the Initial Group II
Mortgage Loans was approximately [__] months as of the Cut-off Date. None of the
Initial Group II Mortgage Loans had a first Due Date prior to [__] or after
[__], or has a remaining term to maturity of less than [__] months or greater
than 360 months as of the Cut-off Date. The latest maturity date of any Initial
Group II Mortgage Loan is [__].
The average Principal Balance of the Initial Group II Mortgage Loans at
origination was approximately $[__]. The average Cut-off Date Principal Balance
of the Initial Group II Mortgage Loans was approximately $[__]. No Initial Group
II Mortgage Loan had a Cut-off Date Principal Balance of greater than
approximately $[__] or less than approximately $[__].
As of the Cut-off Date, the Initial Group II Mortgage Loans had
Mortgage Rates of not less than [__]% per annum and not more than [__]% per
annum and the weighted average Mortgage Rate of the Initial Group II Mortgage
Loans was approximately [__]% per annum. As of the Cut-off Date, the
Adjustable-Rate Initial Group II Mortgage Loans had Gross Margins ranging from
[__]% per annum to [__]% per annum, Minimum Mortgage Rates ranging from [__]%
per annum to [__]% per annum and Maximum Mortgage Rates ranging from [__]% per
annum to [__]% per annum. As of the Cut-off Date, the weighted average Gross
Margin of the Adjustable-Rate Initial Group II Mortgage Loans was approximately
[__]% per annum, the weighted average Minimum Mortgage Rate of the
Adjustable-Rate Initial Group II Mortgage Loans was approximately [__]% per
annum and the weighted average Maximum Mortgage Rate of the Adjustable-Rate
Initial Group II Mortgage Loans was approximately [__]% per annum. The latest
next Adjustment Date following the Cut-off Date on any Adjustable-Rate Initial
Group II Mortgage Loan occurs in [__] and the weighted average time until the
next Adjustment Date for all of the Adjustable-Rate Initial Group II Mortgage
Loans is approximately [__] months.
The Initial Group II 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):
SERVICER CONCENTRATIONS IN THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
SERVICER MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
[------------]
[------------]
[------------]
Total.........................
ORIGINATOR CONCENTRATIONS IN THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINATOR MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
[------------]
[------------]
[------------]
Total.........................
CUT-OFF DATE PRINCIPAL BALANCES OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PRINCIPAL BALANCE ($) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
34,028 - 50,000......................
50,001 - 100,000......................
100,001 - 150,000......................
150,001 - 200,000......................
200,001 - 250,000......................
250,001 - 300,000......................
300,001 - 350,000......................
350,001 - 400,000......................
400,001 - 450,000......................
450,001 - 500,000......................
500,001 - 550,000......................
550,001 - 600,000......................
600,001 - 650,000......................
650,001 - 700,000......................
700,001 - 750,000......................
750,001 - 800,000......................
800,001 - 850,000......................
850,001 - 895,000......................
Total.............................. 100.00%
======
- -------------------
(1) The average Cut-off Date Principal Balance of the Initial Group II Mortgage
Loans was approximately $[__].
CREDIT SCORES FOR THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CREDIT SCORE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
565- 575................................
576- 600................................
601- 625................................
626- 650................................
651- 675................................
676- 700................................
701- 725................................
726- 750................................
751- 775................................
776- 800................................
801- 806................................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average credit score of the Initial Group II Mortgage Loans
that had credit scores was approximately [__].
ORIGINAL TERMS TO MATURITY OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
180......................................
360......................................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average original term to maturity of the Initial Group II
Mortgage Loans was approximately [__] months.
REMAINING TERMS TO MATURITY OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
REMAINING TERM (MONTHS) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
178- 178................................
179- 180................................
353- 354................................
355- 356................................
357- 358................................
359- 360................................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average remaining term to maturity of the Initial Group II
Mortgage Loans was approximately [__] months.
PROPERTY TYPES OF THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PROPERTY TYPE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Single Family ...........................
PUD(1)...................................
Condominium..............................
Two Units................................
Three Units..............................
Total.............................. 100.00%
======
- -------------------
(1) PUD refers to a home or "unit" in a Planned Unit Development.
OCCUPANCY STATUS OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
OCCUPANCY STATUS MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Primary..................................
Second Home..............................
Total.............................. 100.00%
======
- -------------------
(1) Occupancy as represented by the mortgagor at the time of origination.
PURPOSE OF THE INITIAL GROUP II MORTGAGE LOANS
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PURPOSE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Purchase.................................
Cash Out Refinance.......................
Rate/Term Refinance......................
Total.............................. 100.00%
======
ORIGINAL LOAN-TO-VALUE RATIOS OF THE INITIAL GROUP II MORTGAGE LOANS(1)(2)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
ORIGINAL LOAN-TO-VALUE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
76.00 - 80.00..........................
85.01 - 90.00..........................
90.01 - 95.00..........................
95.01 - 100.00..........................
100.01 - 103.00..........................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average original loan-to-value ratio of the Initial Group II
Mortgage Loans as of the Cut-off Date was approximately [__]%.
(2) For a description of the determination of loan-to-value ratio by the
Originator see "The Originator--Underwriting Guidelines" in this prospectus
supplement.
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES RELATED TO THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
LOCATION MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Alabama.................................
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Connecticut.............................
Delaware................................
District of Columbia....................
Florida.................................
Georgia.................................
Idaho...................................
Illinois................................
Indiana.................................
Iowa....................................
Kansas..................................
Kentucky................................
Louisiana...............................
Maine...................................
Maryland................................
Massachusetts...........................
Michigan................................
Minnesota...............................
Mississippi.............................
Missouri................................
Nevada..................................
New Hampshire...........................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
North Dakota............................
Ohio....................................
Oklahoma................................
Oregon..................................
Pennsylvania............................
Rhode Island............................
South Carolina..........................
Tennessee...............................
Texas...................................
Utah....................................
Virginia................................
Washington..............................
West Virginia...........................
Wisconsin...............................
Total.............................. 100.00%
======
- -------------------
(1) The greatest ZIP Code geographic concentration of Initial Group II Mortgage
Loans was approximately [__]% in the [__] ZIP Code.
DOCUMENTATION LEVELS OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
DOCUMENTATION LEVEL MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
Full Documentation.......................
No Income Verification...................
Stated Plus Documentation................
Blended Access...........................
Limited Income Verification..............
Total.............................. 100.00%
======
- -------------------
(1) For a description of each Documentation Level, see "The
Originator--Underwriting Guidelines" in this prospectus supplement.
CURRENT MORTGAGE RATES OF THE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
CURRENT MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.625 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 - 9.875...........................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average current Mortgage Rate of the Initial Group II Mortgage
Loans as of the Cut-off Date was approximately [__]% per annum.
GROSS MARGINS OF THE ADJUSTABLE-RATE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
GROSS MARGIN (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.000 - 5.000...........................
5.001 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 8.500...........................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average Gross Margin of the Adjustable-Rate Initial Group II
Mortgage Loans as of the Cut-off Date was approximately [__]% per annum.
NEXT ADJUSTMENT DATE FOR THE ADJUSTABLE-RATE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
NEXT ADJUSTMENT DATE MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
September 1, 2006........................
October 1, 2006..........................
May 1, 2007..............................
June 1, 2007.............................
July 1, 2007.............................
August 1, 2007...........................
September 1, 2007........................
October 1, 2007..........................
November 1, 2007.........................
August 1, 2008...........................
September 1, 2008........................
October 1, 2008..........................
November 1, 2008.........................
September 1, 2010........................
October 1, 2010..........................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average time until the next Adjustment Date for the
Adjustable-Rate Initial Group II Mortgage Loans as of the Cut-off Date was
approximately [__] months.
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE-RATE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MAXIMUM MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
11.625 -12.000...........................
12.001 -13.000...........................
13.001 -14.000...........................
14.001 -15.000...........................
15.001 -15.875...........................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average Maximum Mortgage Rate of the Adjustable-Rate Initial
Group II Mortgage Loans as of the Cut-off Date was approximately [__]% per
annum.
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE-RATE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
MINIMUM MORTGAGE RATE (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
5.625 - 6.000...........................
6.001 - 7.000...........................
7.001 - 8.000...........................
8.001 - 9.000...........................
9.001 - 9.875...........................
Total.............................. 100.00%
======
- -------------------
(1) The weighted average Minimum Mortgage Rate of the Adjustable-Rate Initial
Group II Mortgage Loans as of the Cut-off Date was approximately [__] % per
annum.
INITIAL PERIODIC RATE CAPS OF THE ADJUSTABLE-RATE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
INITIAL PERIODIC RATE CAP (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
2.000....................................
3.000....................................
Total.............................. 100.00%
======
- -------------------
(1) Relates solely to initial rate adjustments.
SUBSEQUENT PERIODIC RATE CAPS OF THE ADJUSTABLE-RATE INITIAL GROUP II MORTGAGE LOANS(1)
PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
NUMBER OF OUTSTANDING BALANCE OUTSTANDING
PERIODIC RATE CAP (%) MORTGAGE LOANS AS OF THE CUT-OFF DATE AS OF THE CUT-OFF DATE
- ------------------------------------------ -------------- ---------------------- ------------------------
1.000.................................... 100.00%
------
Total.............................. 100.00%
======
- -------------------
(1) Relates to all rate adjustments subsequent to initial rate adjustments.
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNTS
Under and to the extent provided in the Pooling Agreement, the Trustee,
on behalf of [__________] Trust [200_-___], will be obligated to purchase from
the Depositor during the Funding Period (as defined herein), subject to the
availability thereof, Subsequent Mortgage Loans secured by residential
properties consisting of detached or attached one- to four-family dwelling units
and individual condominium units. Each Subsequent Mortgage Loan will have been
underwritten in accordance with the criteria set forth under "The
Originator--Underwriting Guidelines" in this prospectus supplement. The
Subsequent Mortgage Loans will be transferred to the Trustee, on behalf of the
Trust, pursuant to subsequent transfer instruments (the "Subsequent Transfer
Instruments") between the Depositor and the Trustee. In connection with the
purchase of Subsequent Mortgage Loans on such dates of transfer (the "Subsequent
Transfer Dates"), the Trustee, on behalf of the Trust, will be required to pay
to the Depositor from amounts on deposit in the Group I Pre-Funding Account or
the Group II Pre-Funding Account, as applicable, a cash purchase price of [__]%
of the Principal Balance thereof. The Depositor will designate the later of (i)
the first day of the month in which the related Subsequent Transfer Date occurs
and (ii) the origination date of such Subsequent Mortgage Loan as the cut-off
date with respect to each of the related Subsequent Mortgage Loans (the
"Subsequent Cut-off Date"). The amount paid from the Group I Pre-Funding Account
and the Group II Pre-Funding Account on each Subsequent Transfer Date will not
include accrued interest on the related Subsequent Mortgage Loans. Following
each Subsequent Transfer Date, the aggregate Principal Balance of the Group I
Mortgage Loans and the Group II Mortgage Loans will increase by an amount equal
to the aggregate Principal Balance of the Subsequent Group I Mortgage Loans and
Subsequent Group II Mortgage Loans so purchased and the amount in the Group I
Pre-Funding Account and the Group II Pre-Funding Account will decrease
accordingly. Investors should note the Depositor will not deposit any amounts
with the Trustee in respect of interest on the Original Pre-Funded Amounts (as
defined below). If the Depositor fails to deliver the Subsequent Mortgage Loans
before the Funding Period, such failure will result in less Available Funds on
the first Distribution Date following the Funding Period.
An account (the "Group I Pre-Funding Account") will be established by
the Trustee for the benefit of the Certificateholders and funded on the Closing
Date by the Depositor with an amount equal to approximately $[__] (the "Original
Group I Pre-Funded Amount") to provide the Trustee, on behalf of the Trust, with
funds to purchase Subsequent Group I Mortgage Loans. During the period (the
"Funding Period") from the Closing Date until the earlier of (i) the date on
which the amount on deposit in the Group I Pre-Funding Account and the Group II
Pre-Funding Account is less than $[____], exclusive of investment income, or
(ii) [__], the Original Group I Pre-Funded Amount will be reduced by the amount
used to purchase Subsequent Group I Mortgage Loans for Loan Group I in
accordance with the Pooling Agreement. Any investment income on funds in the
Group I Pre-Funding Account will be paid to the Depositor or its designee as
provided in the Pooling Agreement.
An account (the "Group II Pre-Funding Account"; and together with the
Group I Pre-Funding Account, the "Pre-Funding Accounts") will be established by
the Trustee for the benefit of the Certificateholders and funded on the Closing
Date by the Depositor with an amount equal to approximately $[__] (the "Original
Group II Pre-Funded Amount"; and together with the Original Group I Pre-Funded
Amount, the "Original Pre-Funded Amounts") to provide the Trustee, on behalf of
the Trust, with funds to purchase Subsequent Group II Mortgage Loans. During the
Funding Period, the Original Group II Pre-Funded Amount will be reduced by the
amount used to purchase Subsequent Group II Mortgage Loans for Loan Group II in
accordance with the Pooling Agreement. Any investment income on funds in the
Group II Pre-Funding Account will be paid to the Depositor or its designee as
provided in the Pooling Agreement.
Any conveyance of Subsequent Mortgage Loans on a Subsequent Transfer
Date is subject to certain conditions including, but not limited to the
following: (a) each such Subsequent Mortgage Loan must satisfy the
representations and warranties specified in the related Subsequent Transfer
Instrument and the Pooling Agreement; (b) the Depositor will not select such
Subsequent Mortgage Loans in a manner that it believes to be adverse to the
interests of the Certificateholders; (c) the Depositor will deliver certain
opinions of counsel with respect to the validity of the conveyance of such
Subsequent Mortgage Loans and (d) as of the related Subsequent Cut-off Date,
each such Subsequent Mortgage Loan will satisfy the following criteria: (i) the
Subsequent Mortgage Loan may not be 30 or more days delinquent as of the last
day of the calendar month preceding the Subsequent Cut-off Date; (ii) the
original term to stated maturity of the Subsequent Mortgage Loan will not be
less than [__] months and will not exceed [__]months; (iii) the Subsequent
Mortgage Loan may not provide for negative amortization; (iv) the Subsequent
Mortgage Loan will not have a loan-to-value ratio greater than [__]%; (v) such
Subsequent Mortgage Loans will have, as of the Subsequent Cut-off Date, a
weighted average term since origination not in excess of 3 months; (vi) the
Subsequent Mortgage Loan, if a fixed-rate Mortgage Loan, will have a Mortgage
Rate that is not less than approximately [__]% per annum or greater than
approximately [__]% per annum; (vii) each of the Subsequent Mortgage Loans will
have a first payment date occurring on or before [__] and will include 30 days'
interest thereon; (viii) if the Subsequent Mortgage Loan is an adjustable-rate
Mortgage Loan, the Subsequent Mortgage Loan will have a Gross Margin not less
than approximately [__]% per annum, will have a Maximum Mortgage Rate not less
than approximately [__]% per annum and will have a Minimum Mortgage Rate not
less than approximately [__]% per annum and (x) the Mortgage Loan will have been
underwritten in accordance with the criteria set forth under "The
Originator--Underwriting Guidelines" in this prospectus supplement.
Following the purchase of Subsequent Group I Mortgage Loans by the
Trust, at the end of the Funding Period all of the Group I Mortgage Loans
(including the Subsequent Group I Mortgage Loans): (i) will have a weighted
average original term to stated maturity of not more than 360 months; (ii) will
have a weighted average Mortgage Rate of not less than [__]% per annum and not
more than [__]% per annum; (iii) will have a weighted average loan-to-value
ratio of not more than [__]%; (iv) will have no Mortgage Loan with a Principal
Balance which does not conform to Fannie Mae and Freddie Mac principal balance
guidelines; (v) will consist of Mortgage Loans with prepayment charges
representing no less than approximately [__]of the Group I Mortgage Loans; (vi)
have no more than [__]% of fixed-rate Group I Mortgage Loans; and (vii) will
have a weighted average FICO score of not less than [__]. In addition, the
adjustable-rate Group I Mortgage Loans will have a weighted average Gross Margin
not less than [__]% per annum. For purposes of the calculations described in
this paragraph, percentages of the Group I Mortgage Loans will be based on the
Principal Balance of the Initial Group I Mortgage Loans as of the Cut-off Date
and the Principal Balance of the Subsequent Group I Mortgage Loans as of the
related Subsequent Cut-off Date.
Following the purchase of Subsequent Group II Mortgage Loans by the
Trust, at the end of the Funding Period all of the Group II Mortgage Loans
(including the Subsequent Group II Mortgage Loans): (i) will have a weighted
average original term to stated maturity of not more than 360 months; (ii) will
have a weighted average Mortgage Rate of not less than [__]% per annum and not
more than [__]% per annum; (iii) will have a weighted average loan-to-value
ratio of not more than [__]%; (iv) will have no Mortgage Loan with a Principal
Balance in excess of $[__]; (v) will consist of Mortgage Loans with prepayment
charges representing no less than approximately [__]% of the Group II Mortgage
Loans; (vi) have no more than [__]% of fixed-rate Group II Mortgage Loans; and
(vii) will have a weighted average FICO score of not less than [__]. In
addition, the adjustable-rate Group II Mortgage Loans will have a weighted
average Gross Margin not less than [__]% per annum. For purposes of the
calculations described in this paragraph, percentages of the Group II Mortgage
Loans will be based on the Principal Balance of the Initial Group II Mortgage
Loans as of the Cut-off Date and the Principal Balance of the Subsequent Group
II Mortgage Loans as of the related Subsequent Cut-off Date.
Notwithstanding the foregoing, any Subsequent Mortgage Loan may be
rejected by any of the Rating Agencies if the inclusion of such Subsequent
Mortgage Loan would adversely affect the ratings on any class of Offered
Certificates.
DELINQUENCY AND LOSS INFORMATION
[[No] Mortgage Loan is currently more than 30 days delinquent and [no]
Mortgage Loan has been 30 or more days delinquent since origination.]
[The following tables set forth the historical delinquency experience
of the Mortgage Loans:
[Table to be provided]
STATIC POOL INFORMATION
Static pool information material to this offering may be found at
__________________________.
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. SEE "STATIC POOL INFORMATION" IN
THE PROSPECTUS.
[ISSUING ENTITY]]
[__________] Trust [200_-___] (the "Issuing Entity") 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 Agreement"). The Pooling
Agreement constitutes the "governing instrument" under the laws of the State of
New York. After its formation, the Issuing Entity 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 Agreement. These restrictions cannot be amended without
the consent of holders of Certificates evidencing at least 51% of the voting
rights. For a description of other provisions relating to amending the Pooling
Agreement, please see "The Agreements -- Amendment" in the base prospectus.
The assets of the Issuing Entity will consist of the Mortgage Loans and
certain related assets.
The Issuing Entity's fiscal year end is [December 31].
THE ORIGINATORS
GENERAL
[___________] (the "Originator"), a division of [___________], is a
[___________] with offices in [___________]. The information set forth in the
following paragraphs has been provided by the Originator.]
[[___________] is a wholly-owned subsidiary of [___________]. As of
December 31, 2004, the Originator had approximately $[___] billion in assets,
approximately $[___] billion in liabilities and approximately $[___] billion in
equity.]
[Founded in [___], the Originator has grown from a small mortgage
broker to a full-service mortgage lender with a wide variety of products. During
the late 1980's and early 1990's, the Originator focused primarily on
originating and purchasing agency mortgage loans. Agency origination volume
peaked in [___] at over $[___] billion.]
[In [___], the Originator embarked on a transformation to a full
service "A" through "D" credit lender. Since that time, agency mortgage loan
origination volume has declined significantly as activities have been focused on
originating and acquiring non-agency mortgage loans. As of [___], originations
totaled approximately $[___] billion year-to-date, with $[___] billion of retail
non-agency mortgage loans and $[___] billion of wholesale non-agency mortgage
loans.]
[The following table describes the size, composition and growth of the
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 Mortgage
Loans................
UNDERWRITING GUIDELINES [To be provided for all originators of 20% or more of
the asset pool.]
The Originator's underwriting standards are primarily intended to
assess the ability and willingness of the borrower to repay the debt and to
evaluate the adequacy of the mortgaged property as collateral for the mortgage
loan. All of the Mortgage Loans were underwritten with a view toward the resale
thereof in the secondary mortgage market. The Originator considers, among other
things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio ("Debt Ratio"), as well as the value, type and use of
the mortgaged property. The Mortgage Loans generally bear higher rates of
interest than mortgage loans that are originated in accordance with Fannie Mae
and Freddie Mac standards, and may experience rates of delinquencies and
foreclosures that are higher, and that may be substantially higher, than those
experienced by portfolios of mortgage loans underwritten in a more traditional
manner. Unless prohibited by state law or otherwise waived by the Originator
upon the payment by the related mortgagor of higher origination fees and a
higher Mortgage Rate, a majority of the Mortgage Loans provide for the payment
by the mortgagor of a prepayment charge on certain full or partial prepayments
made within one to four years from the date of origination of the related
Mortgage Loan as described under "The Mortgage Pool--Mortgage Loan Statistics"
above. The amount of the prepayment charge is as provided in the related
mortgage note and with respect to approximately [__]% of the Initial Group I
Mortgage Loans that have a prepayment charge and approximately [__]% of the
Initial Group II Mortgage Loans that have a prepayment charge (in each case, by
aggregate Cut-off Date Principal Balance of the related Loan Group),
representing approximately [__]% of the Initial Mortgage Loans that have a
prepayment charge (by aggregate Cut-off Date Principal Balance of the Initial
Mortgage Loans), the prepayment charge is equal to six month's interest on any
amounts prepaid in excess of 20% of the original Principal Balance of the
related Mortgage Loan in any 12 month period.
Substantially all of the mortgage loans originated by the Originator
are based on loan application packages submitted through mortgage brokerage
companies. These brokers must meet minimum standards set by the Originator based
on an analysis of the following information submitted with an application for
approval: applicable state lending license (in good standing), satisfactory
credit report only if no federal income tax identification number, signed broker
agreement, signed W-9 and signed broker authorization. Once approved, mortgage
brokerage companies are eligible to submit loan application packages in
compliance with the terms of a signed broker agreement.
The Originator has one underwriting program called the Direct Access
Program. Within the Direct Access Program, there are four documentation
programs, the Full Documentation Program, the Limited Income Verification
Program (the "LIV"), the Stated Plus Program and the No Income Verification
Program (the "NIV"). All of the Mortgage Loans were originated in accordance
with the Originator's Direct Access Program. While each underwriting program is
intended to assess the risk of default, the Direct Access Program makes use of
credit bureau risk scores (the "Credit Bureau Risk Score"). The Credit Bureau
Risk 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 Credit Bureau Risk 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 300
to 850. Although the Credit Bureau Risk Scores are based solely on the
information at the particular credit repository, such Credit Bureau Risk Scores
have been calibrated to indicate the same level of credit risk regardless of
which credit repository is used. The Credit Bureau Risk Score is used as an aid
to, not a substitute for, the underwriters' judgment.
The Direct Access Program was developed to simplify the origination
process for the mortgage brokerage companies approved by the Originator. In
contrast to assignment of credit grades according to traditional non-agency
credit assessment methods, i.e., mortgage and other credit delinquencies, Direct
Access relies upon a borrower's Credit Bureau Risk Score initially to determine
a borrower's likely future credit performance. Mortgage brokerage companies are
able to access Credit Bureau Risk Scores at the initial phases of the loan
application process and use the score to determine a borrower's interest rate
based upon the Originator's Direct Access Program risk-based pricing matrix
(subject to final loan approval by the Originator).
Under the Direct Access Program, the Originator requires that the
Credit Bureau Risk Score of the primary borrower (the borrower with at least
51.00% of total income for all LTVs) be used to determine program eligibility.
Credit Bureau Risk Scores must be obtained from at least two national credit
repositories, with the lower of the two scores being utilized in program
eligibility determination. If Credit Bureau Risk Scores are obtained from three
credit repositories, the middle of the three scores can be utilized. In all
cases, a borrower's complete credit history must be detailed in the credit
report that produces a given Credit Bureau Risk Score or the borrower is not
eligible for the Direct Access Program. Generally, the minimum Credit Bureau
Risk Score allowed under the Direct Access Program is [__].
The Credit Bureau Risk Score, along with the loan-to-value ratio, is an
important tool in assessing the creditworthiness of a Direct Access borrower.
However, these two factors are not the only considerations in underwriting a
Direct Access loan. The Originator's underwriting staff fully reviews each
Direct Access loan to determine whether the Originator's guidelines for income,
assets, employment and collateral are met.
All of the Mortgage Loans were underwritten by the Originator's
underwriters having the appropriate signature authority. Each underwriter is
granted a level of authority commensurate with their proven judgment, maturity
and credit skills. On a case by case basis, the Originator may determine that,
based upon compensating factors, a prospective mortgagor not strictly qualifying
under the underwriting risk category guidelines described below warrants an
underwriting exception. Compensating factors may include, but are not limited
to, low loan-to-value ratio, low Debt Ratio, substantial liquid assets, good
credit history, stable employment and time in residence at the applicant's
current address. It is expected that a substantial portion of the Mortgage Loans
may represent such underwriting exceptions.
The Originator's underwriters verify the income of each applicant under
various documentation programs as follows: under the Full Documentation Program,
applicants are generally required to submit verification of stable income for
the periods of six months to two years preceding the application dependent on
credit score range; under the LIV Program, the borrower is qualified based on
the income stated on the application and applicants are generally required to
submit verification of adequate cash flow to meet credit obligations for the six
month period preceding the application; the Stated Plus Program allows income to
be stated, but requires borrowers provide verification of liquid assets equaling
three months of income stated on the mortgage application; under the NIV
Program, applicants are qualified based on monthly income as stated on the
mortgage application and the underwriter will determine that the stated income
is reasonable and realistic when compared to borrower's employment type, assets
and credit history. For Direct Access first lien mortgage loans from
self-employed or 1099 borrowers with a credit score greater than or equal to
[__] and not originated in conjunction with a second lien mortgage, bank
statements (for 12 months) are acceptable as full documentation. For Direct
Access first lien mortgage loans from self-employed or 1099 borrowers with
credit scores greater than or equal to [__], regardless of being originated with
a corresponding second lien mortgage, twelve months bank statements are
acceptable as full documentation. In all cases, the income stated must be
reasonable and customary for the applicant's line of work. Although the income
is not verified under the LIV and NIV Programs, a preclosing audit generally
will confirm that the business exists. Verification may be made through phone
contact to the place of business, obtaining a valid business license,
CPA/Enrolled Agent letter or through Dunn and Bradstreet Information Services.
The Originator also offers Rapid Refi which allows reduced income
documentation in exchange for timely payments of a current mortgage over the
previous eighteen (18) month period.
The applicant generally must have a sufficiently established credit
history to qualify for the appropriate Credit Bureau Risk Score range under the
Direct Access Program. This credit history is substantiated by a two repository
merged report prepared by an independent credit report agency. The report
typically summarizes the applicant's entire credit history, and generally
includes a seven year public record search for each address where the applicant
has lived during the two years prior to the issuance of the credit report and
contains information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcy, repossession, suits or judgments. In some instances,
borrowers with a minimal credit history are eligible for financing under the
Direct Access Program.
The Originator originates loans secured by one- to four-unit
residential properties made to eligible borrowers with a vested fee simple (or
in some cases a leasehold) interest in the property. The Originator's guidelines
are applied in accordance with a procedure which complies with applicable
federal and state laws and regulations and generally require an appraisal of the
mortgaged property which conforms to Freddie Mac and/or Fannie Mae standards;
and if appropriate, a review appraisal. Generally, appraisals are provided by
appraisers approved by the Originator. Review appraisals may only be provided by
appraisers approved by the Originator. In some cases, the Originator relies on a
statistical appraisal methodology provided by a third-party.
Qualified independent appraisers must meet minimum standards of
licensing and provide errors and omissions insurance in states where it is
required to become approved to do business with the Originator. Each Uniform
Residential Appraisal Report includes a market data analysis based on recent
sales of comparable homes in the area and, where deemed appropriate, replacement
cost analysis based on the current cost of constructing a similar home. The
review appraisal may be an enhanced desk, field review or an automated valuation
report that confirms or supports the original appraiser's value of the mortgaged
premises. The review appraisal may be waived by a Standard Plus Delegated
Underwriter.
The Originator requires title insurance on all mortgage loans secured
by liens on real property. The Originator also requires that fire and extended
coverage casualty insurance be maintained on the secured property in an amount
at least equal to the principal balance of the related residential loan or the
replacement cost of the property, whichever is less.
The Originator conducts a number of quality control procedures,
including a post-funding compliance audit as well as a full re-underwriting of a
random selection of loans to assure asset quality. Under the compliance audit,
all loans are reviewed to verify credit grading, documentation compliance and
data accuracy. Under the asset quality procedure, a random selection of each
month's originations is reviewed. The loan review confirms the existence and
accuracy of legal documents, credit documentation, appraisal analysis and
underwriting decision. A report detailing audit findings and level of error is
sent monthly to each branch for response. The audit findings and branch
responses are then reviewed by the Originator's senior management. Adverse
findings are tracked monthly and over a rolling six month period. This review
procedure allows the Originator to assess programs for potential guideline
changes, program enhancements, appraisal policies, areas of risk to be reduced
or eliminated and the need for additional staff training.
Under the mortgage loan programs, various risk categories are used to
grade the likelihood that the applicant will satisfy the repayment conditions of
the loan. These risk categories establish the maximum permitted loan-to-value
ratio and loan amount, given the occupancy status of the mortgaged property and
the applicant's credit history and Debt Ratio. In general, higher credit risk
mortgage loans are graded in categories which permit higher Debt Ratios and more
(or more recent) major derogatory credit items such as outstanding judgments or
prior bankruptcies; however these loan programs establish lower maximum
loan-to-value ratios and lower maximum loan amounts for loans graded in such
categories.
"Equity Refinance" transactions are defined as those instances where
the borrower receives the lesser of 2% of the new loan amount or $2,000
cash-in-hand. Funds used for debt consolidation are not included in this amount.
The Originator's guidelines under the Direct Access Program generally
have the following criteria for borrower eligibility for the specified Credit
Bureau Risk Score range.
The Debt Ratio generally may not exceed [__]% for all credit scores on
full documentation and LIV loans. Loans meeting the residual income requirements
may have a maximum Debt Ratio of [__]%. The Debt Ratio for NIV loans may not
exceed [__]%.
Generally, all liens affecting title must be paid at closing.
Collections, charge-offs, judgments and liens not affecting title may remain
open for combined LTVs less than or equal to 80%, provided certain criteria are
met. For instance, if the loan is a purchase or rate and term refinance, a
payoff of such amounts will not be required if the related loan is not being
originated together with a second lien loan, the balance of the items(s) added
to the loan amount does not exceed the maximum allowed combined LTV, the payment
amounts are included in the debt calculation, and the Originator loan has first
lien priority.
[ADDITIONAL ORIGINATORS]
[Identification of, and information with respect to additional
originators will be provided in accordance with Item 1110(b) if applicable.]
THE SPONSOR
[The Sponsor of the Mortgage Loans will be Greenwich Capital Financial
Products, Inc. The Sponsor acquired the Mortgage Loans from the Originator. WE
REFER YOU TO "THE SPONSOR" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.]
[The Sponsor will be [__________. The Sponsor was incorporated in the
State of [__________] on [__________, ____] as a [__________]. The Sponsor was
organized for the purpose of [______________].
The sponsor maintains its principal office at [__________].
[Background information on the Sponsor.]
[Background information on the loans.]
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 PORTFOLIO TOTAL TOTAL
PORTFOLIO OF PORTFOLIO PORTFOLIO
LOAN TYPE NUMBER OF LOANS NUMBER LOANS NUMBER OF LOANS NUMBER OF LOANS
--------- ------ -------- ------ ----- ------ -------- ------ --------
Alt-A ARM............
Alt-A Fixed..........
Prime ARM............
Prime Fixed..........
Reperforming.........
Scratch&Dent.........
Seconds..............
SubPrime.............
Seasoned.............
]
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement. The
Trust created under the Pooling Agreement will consist of (i) all of the
Depositor's right, title and interest in the Mortgage Loans, the related
mortgage notes, Mortgages and other related documents, (ii) all payments on or
collections in respect of the Mortgage Loans due after the Cut-off Date,
together with any proceeds thereof, (iii) any Mortgaged Properties acquired on
behalf of Certificateholders by foreclosure or by deed in lieu of foreclosure,
and any revenues received thereon, (iv) the Net WAC Rate Carryover Reserve
Account and the rights of the Trustee under cap contract, (v) the rights of the
Trustee under all insurance policies required to be maintained pursuant to the
Pooling Agreement (vi) the rights of the Depositor under the Mortgage Loan
Purchase Agreement, (vii) amounts on deposit in the Pre-Funding Accounts and the
Interest Coverage Accounts, if any, and (viii) the right to any Net Swap Payment
and any Swap Termination Payment made by the Swap Provider and deposited into
the Swap Account.
The NIMS Insurer, if any, will be a third party beneficiary of the
Pooling Agreement to the extent set forth in the Pooling Agreement. In addition,
the NIMS Insurer, if any, will have various rights under the Pooling Agreement
including, but not limited to, the rights set forth under "Risk Factors--Rights
of the NIMS Insurer" in this prospectus supplement.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Depositor will transfer to the Trust all of
its right, title and interest in and to each Initial Mortgage Loan, the related
mortgage note, Mortgage, assignment of mortgage in recordable form in blank or
to the Trustee and other related documents (collectively, the "Related
Documents"), including all scheduled payments with respect to each such Mortgage
Loan due after the Cut-off Date. The Trustee, concurrently with such transfer,
will deliver the Certificates to the Depositor. Each Mortgage Loan transferred
to the Trust will be identified on a schedule (the "Mortgage Loan Schedule")
delivered to the Trustee pursuant to the Pooling Agreement. The Mortgage Loan
Schedule will include information such as the Cut-off Date Principal Balance of
each Initial Mortgage Loan, its Mortgage Rate as well as other information with
respect to each Mortgage Loan.
The Pooling Agreement will require that, within the time period
specified therein, the Depositor will deliver or cause to be delivered to the
Trustee (or a custodian as the Trustee's agent for such purpose) the mortgage
notes endorsed to the Trustee on behalf of the Certificateholders and the
Related Documents. In lieu of delivery of original Mortgages or mortgage notes,
if such original is not available or is lost, the Depositor may deliver or cause
to be delivered true and correct copies thereof, or, with respect to a lost
mortgage note, a lost note affidavit executed by the Sponsor. The assignments of
Mortgage will not be recorded by or on behalf of the Depositor in the
appropriate offices for real property records; provided, however, that upon the
occurrence of certain events set forth in the Pooling Agreement, each such
assignment of Mortgage will be recorded by the Sponsor as set forth in the
Pooling Agreement.
Pursuant to a Custodial Agreement between the Depositor, the Trustee
and a Custodian, the mortgage notes and the Related Documents (the "Custodial
File") will be held by the Custodian on behalf of the Trustee. The Custodian
shall segregate and maintain continuous custody of all mortgage documents
constituting the Custodial File in secure and fire resistant facilities in
accordance with customary standards for such custody.
Within 45 days of the Closing Date, the Trustee will review the Initial
Mortgage Loans and the Related Documents pursuant to the Pooling Agreement and
if any Initial Mortgage Loan or Related Document is found to be defective in any
material respect and such defect is not cured within 120 days following
notification thereof to the Sponsor by the Trustee, the Sponsor will be
obligated to either: (i) substitute for such Mortgage Loan a Qualified
Substitute Mortgage Loan; however, such substitution is permitted only within
two years of the Closing Date and may not be made unless an opinion of counsel
is provided to the effect that such substitution will not disqualify any of the
REMICs (as defined in the Pooling Agreement) as a REMIC or result in a
prohibited transaction tax under the Code; or (ii) purchase such Mortgage Loan
at a price (the "Purchase Price") equal to the outstanding Principal Balance of
such Mortgage Loan as of the date of purchase, plus all accrued and unpaid
interest thereon, computed at the Mortgage Rate through the end of the calendar
month in which the purchase is effected, plus the amount of any unreimbursed
Advances and Servicing Advances (each as defined herein) made by the Servicer,
plus any costs and damages incurred by the Trust in connection with any
violation by such loan of any applicable predatory- or abusive-lending law. The
Purchase Price will be required to be remitted to the Servicer for deposit in
the Collection Account (as defined herein) on or prior to the next succeeding
Determination Date (as defined herein) after such obligation arises. The
obligation of the Sponsor to repurchase or substitute for a Deleted Mortgage
Loan (as defined herein) is the sole remedy regarding any defects in the
Mortgage Loans and Related Documents available to the Trustee or the
Certificateholders.
In connection with the substitution of a Qualified Substitute Mortgage
Loan, the Sponsor will be required to remit to the Servicer for deposit in the
Collection Account on or prior to the next succeeding Determination Date after
such obligation arises an amount (the "Substitution Adjustment") equal to the
excess of the Principal Balance of the related Deleted Mortgage Loan over the
Principal Balance of such Qualified Substitute Mortgage Loan.
A "Qualified Substitute Mortgage Loan" is a mortgage loan substituted
by the Sponsor for a Deleted Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an
aggregate Principal Balance), not in excess of, and not more than 5% less than,
the Principal Balance of the Deleted Mortgage Loan; (ii) have a Mortgage Rate
not less than the Mortgage Rate of the Deleted Mortgage Loan and not more than
1% in excess of the Mortgage Rate of such Deleted Mortgage Loan; (iii) in the
case of any adjustable-rate Mortgage Loan, have a Maximum Mortgage Rate and
Minimum Mortgage Rate not less than the respective rate for the Deleted Mortgage
Loan, have a Gross Margin equal to or greater than the Deleted Mortgage Loan and
have the same Adjustment Date frequency as the Deleted Mortgage Loan; (iv) have
the same Due Date as the Deleted Mortgage Loan; (v) have a remaining term to
maturity not more than one year earlier and not later than the remaining term to
maturity of the Deleted Mortgage Loan; (vi) comply with each representation and
warranty as to the Mortgage Loans set forth in the Mortgage Loan Purchase
Agreement (deemed to be made as of the date of substitution); (vii) have been
underwritten or re-underwritten by the Originator in accordance with the same
underwriting criteria and guidelines as the Mortgage Loans being replaced;
(viii) be of the same or better credit quality as the Mortgage Loan being
replaced; and (ix) satisfy certain other conditions specified in the Pooling
Agreement.
The Sponsor will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., the Mortgage Rate). In
addition, the Sponsor will represent and warrant, on the Closing Date, that,
among other things: (i) 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; (ii) 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 (x) a subsidiary of any of the
foregoing institutions which subsidiary is actually supervised and examined by
applicable regulatory authorities or (y) 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; (iii) immediately prior to the
sale of the mortgage loans, 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; (iv) 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; (v) 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; (vi) the Mortgaged Property and all improvements thereon
comply with all requirements of any applicable zoning and subdivision laws and
ordinances; (vii) 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; (viii) 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; (ix) the
terms of the Mortgage Note and the Mortgage have not been impaired, waived,
altered or modified in any respect, except by written instruments, (a) if
required by law in the jurisdiction where the Mortgaged Property is located, or
(b) to protect the interests of the Trustee on behalf of the Certificateholders;
and (x) 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. Upon discovery of a breach of any such representation and warranty which
materially and adversely affects the interests of the Certificateholders (which
will be deemed to have occurred in the case of a breach of any of the
representations and warranties set forth in clauses (iii) through (vi) above) in
the related Mortgage Loan and Related Documents, the Sponsor will have a period
of 120 days after discovery or notice of the breach to effect a cure. If the
breach cannot be cured within the 120-day period, the Sponsor will be obligated
to (i) substitute for such Deleted Mortgage Loan a Qualified Substitute Mortgage
Loan or (ii) repurchase such Deleted Mortgage Loan from the Trust. The same
procedure and limitations that are set forth above for the substitution or
repurchase of Deleted Mortgage Loans as a result of deficient documentation
relating thereto will apply to the substitution or purchase of a Deleted
Mortgage Loan as a result of a breach of a representation or warranty in the
Mortgage Loan Purchase Agreement that materially and adversely affects the
interests of the Certificateholders.
Mortgage Loans required to be transferred to the Sponsor as described
in the preceding paragraphs are referred to as "Deleted Mortgage Loans."
Pursuant to the Pooling Agreement, the Servicer will service and
administer the Mortgage Loans as more fully set forth therein. In addition, the
Servicer will represent and warrant, on the Closing Date, that, among other
things, it will accurately and fully report its mortgagor credit files to each
of the credit repositories in a timely manner.
[PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The Servicer will establish and maintain or cause to be maintained one
or more separate trust accounts (each, a "Collection Account") for the benefit
of the Certificateholders. Each Collection Account will be an Eligible Account
(as defined in the Pooling Agreement). Upon receipt by the Servicer of amounts
in respect of the Mortgage Loans (excluding amounts representing the Servicing
Fee or other servicing compensation, reimbursement for Advances and Servicing
Advances and insurance proceeds to be applied to the restoration or repair of a
Mortgaged Property), the Servicer will deposit such amounts in the Collection
Account. Amounts so deposited may be invested in Permitted Investments (as
described in the Pooling Agreement) maturing no later than one Business Day
prior to the date on which the amount on deposit therein is required to be
deposited in the Distribution Account. The Trustee will establish an account
(the "Distribution Account") into which will be deposited amounts withdrawn from
the Collection Account for distribution to Certificateholders on a Distribution
Date and payment of certain fees and expenses of the Trust. The Distribution
Account will be an Eligible Account. Amounts on deposit therein may be invested
in Permitted Investments maturing on or before the Business Day prior to the
related Distribution Date unless such Permitted Investments are invested in
investments managed or advised by the Trustee or an affiliate thereof, in which
case such Permitted Investments may mature on the related Distribution Date.
PERMITTED INVESTMENTS
To the extent provided in the Pooling Agreement, amounts on deposit in
the Payment Account may be invested in Permitted Investments in the name of the
Trustee and, except as provided in the Pooling Agreement, not commingled with
any other funds. Such Permitted Investments shall mature, or shall be subject to
redemption or withdrawal, no later than three business days before such funds
are required to be withdrawn for distribution to the Certificateholders. The
income earned from Permitted Investments shall be paid to the Servicer under the
Pooling 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 Pooling
Agreement) shall deposit the amount of any such loss in the Payment Account,
without any right of reimbursement therefor, immediately as realized.
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) (i) 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 such obligations are backed by the full faith
and credit of the United States;
(ii) (A) demand and time deposits in, certificates of deposit of,
bankers' acceptances issued by or federal funds sold by any depository
institution or trust company (including the Trustee or its agent acting in their
respective commercial capacities) incorporated under the laws of the United
States of America or any state thereof and subject to supervision and
examination by federal and/or state authorities, so long as, at the time of such
investment or contractual commitment providing for such investment, such
depository institution or trust company (or, if the only Rating Agency is S&P,
in the case of the principal depository institution in a depository institution
holding company, debt obligations of the depository institution holding company)
or its ultimate parent has a short-term uninsured debt rating in one of the two
highest available ratings of Moody's and the highest available rating category
of Fitch and S&P and provided that each such investment has an original maturity
of no more than 365 days; and provided further that, if the only Rating Agency
is S&P 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 S&P if S&P is the Rating Agency; and (B) any other
demand or time deposit or deposit which is fully insured by the FDIC;
(iii) repurchase obligations with a term not to exceed 30 days with
respect to any security described in clause (i) above and entered into with a
depository institution or trust company (acting as principal) rated F-1+ or
higher by Fitch, P-1 by Moody's and rated A-1+ or higher by S&P, provided,
however, that collateral transferred pursuant to such repurchase obligation must
be of the type described in clause (i) above and must (A) be valued daily at
current market prices plus accrued interest, (B) pursuant to such valuation, be
equal, at all times, to 105% of the cash transferred by the Trustee in exchange
for such collateral and (C) be delivered to the Trustee or, if the Trustee is
supplying the collateral, an agent for the Trustee, in such a manner as to
accomplish perfection of a security interest in the collateral by possession of
certificated securities;
(iv) securities bearing interest or sold at a discount that are issued
by any corporation incorporated under the laws of the United States of America
or any State thereof and that are rated by S&P (and if rated by any other Rating
Agency, also by such other Rating Agency) in its highest long-term unsecured
rating category at the time of such investment or contractual commitment
providing for such investment;
(v) commercial paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand or on a specified
date not more than 30 days after the date of acquisition thereof) that is rated
by S&P (and if rated by any other Rating Agency, also by such other Rating
Agency) in its highest short-term unsecured debt rating available at the time of
such investment;
(vi) units of money market funds, including those money market funds
managed or advised by the Trustee or its Affiliates, that have been rated "AAA"
by Fitch (if rated by Fitch), "Aaa" by Moody's and "AAAm" or "AAAm-G" by S&P;
and
(vii) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security or
investment, as may be acceptable to the Rating Agencies in writing as a
permitted investment of funds backing securities having ratings equivalent to
its highest initial rating of the Class A Certificates;
PROVIDED, HOWEVER, that no such instrument shall be an Permitted Investment if
such instrument evidences either (i) a right to receive only interest payments
with respect to the obligations underlying such instrument, or (ii) 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 of greater than 120% of the yield to
maturity at par of such underlying obligations, provided that any such
investment will be a "permitted investment" within the meaning of Section
860G(a)(5) of the Code.
[THE MASTER SERVICER
[____________] ("[________]") will act as Securities Administrator and
Master Servicer under the Pooling Agreement. [________] is a [national banking
association and a wholly-owned subsidiary of [________]]. A diversified
financial services company with approximately $[__] billion in assets, [__]
million customers and [__] employees, [________] is among the leading U.S. bank
holding companies, providing banking, insurance, trust, mortgage and consumer
finance services throughout the United States and internationally. [________]
provides retail and commercial banking services and corporate trust, custody,
securities lending, securities transfer, cash management, investment management
and other financial and fiduciary services. The [Depositor, the Seller and the
Servicer] may maintain banking and other commercial relationships with
[________] and its affiliates. [________]'s principal corporate trust offices
are located at [________] and its office for certificate transfer services is
located at [________].
[________] acts as Master Servicer pursuant to the Pooling 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 __________, [________] 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
[________]'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 Mortgage
Loans................
[Describe any material changes in [________]'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 information required pursuant to Item 1108 of Regulation AB
will be provided if applicable.]
THE SERVICER
The information set forth in the following paragraphs has been provided
by the Servicer.
[__________], a [_________] ("[______]") will be the Servicer with
respect to the Mortgage Loans.
[______] is an indirect wholly-owned subsidiary of [__] and is one of
the nation's largest mortgage bankers. [______] is engaged in the mortgage
banking business, including origination, purchase, sale and servicing of
residential loans. [______] has been engaged in the servicing of residential
mortgage loans since [ 19__]. As of [ ______, 2___ ], the company's servicing
portfolio of more than $[__], represents nearly [__] customers throughout the
nation. [______] maintains its executive and principal offices at [__________].
Its telephone number is [__________].
[The following table describes size, composition and growth of
[______]'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 Mortgage
Loans................
[Describe any material changes in [______]'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 information required pursuant to Item 1108 of Regulation AB
will be provided if applicable.]
[ADDITIONAL SERVICERS]
[Identification of, and information with respect to additional
servicers will be provided in accordance with Item 1108 if applicable.]
ADVANCES
Subject to the following limitations, the Servicer will be obligated to
advance or cause to be advanced before each Distribution Date from (i) its own
funds or funds provided by an Advancing Person as described below, (ii) funds in
the Collection Account that are not included in the Available Funds for such
Distribution Date or (iii) a combination of (i) and (ii), an amount equal to the
aggregate of all payments of principal and interest (net of Servicing Fees) that
were due during the related Due Period on the Mortgage Loans, other than Balloon
Payments, and that were delinquent on the related Determination Date, plus
certain amounts representing assumed payments not covered by any current net
income on the Mortgaged Properties acquired by foreclosure or deed in lieu of
foreclosure and, with respect to Balloon Loans, with respect to which the
Balloon Payment is not made when due, an assumed monthly payment that would have
been due on the related Due Date based on the original principal amortization
schedule for such Balloon Loan (any such advance, an "Advance").
Advances are required to be made on each Mortgage Loan only to the
extent they are deemed by the Servicer to be recoverable from related late
collections, insurance proceeds, condemnation proceeds and liquidation proceeds
on such Mortgage Loan. The purpose of making such Advances is to maintain a
regular cash flow to the Certificateholders, rather than to guarantee or insure
against losses. The Servicer will not be required, however, to make any Advances
with respect to reductions in the amount of the monthly payments on the Mortgage
Loans due to bankruptcy proceedings or the application of the Relief Act or any
state law providing for similar relief. Subject to the recoverability standard
above, the Servicer's obligation to make Advances as to any Mortgage Loan will
continue until the Mortgage Loan is paid in full or until the recovery of all
Liquidation Proceeds thereon.
All Advances will be reimbursable to the Servicer from late
collections, insurance proceeds, condemnation proceeds and liquidation proceeds
from the Mortgage Loan as to which such unreimbursed Advance was made unless
such amounts are deemed to be nonrecoverable by the Servicer from the proceeds
of the related Mortgage Loan, in which event reimbursement will be made to the
Servicer from general funds in the Collection Account. The Servicer may recover
from amounts in the Collection Account the amount of any Advance that remains
unreimbursed to the Servicer from the related liquidation proceeds after the
final liquidation of the related Mortgage Loan, and such reimbursement amount
will not be available for remittance to the Trustee for distribution on the
Certificates. In the event the Servicer fails in its obligation to make any
required Advance, the Trustee, in its capacity as successor Servicer, will be
obligated to make any such Advance, to the extent required in the Pooling
Agreement.
In the course of performing its servicing obligations, the Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
(including reasonable attorneys' fees and disbursements) incurred in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration, inspection and protection of the
Mortgaged Properties, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of Mortgaged Properties
acquired in satisfaction of the related Mortgage and (iv) certain insurance
premiums and certain ongoing expenses associated with the Mortgage Pool and
incurred by the Servicer in connection with its responsibilities under the
Pooling Agreement. Each such expenditure will constitute a "Servicing Advance."
Servicing Advances are required to be made on each Mortgage Loan only
to the extent they are deemed by the Servicer to be recoverable from related
late collections, insurance proceeds, condemnation proceeds and liquidation
proceeds on each Mortgage Loan. The Servicer's right to reimbursement for
Servicing Advances is limited to late collections on the related Mortgage Loan,
including liquidation proceeds, condemnation proceeds, released mortgaged
property proceeds, insurance proceeds and such other amounts as may be collected
by the Servicer from the related mortgagor or otherwise relating to the Mortgage
Loan in respect of which such unreimbursed amounts are owed, unless such amounts
are deemed to be nonrecoverable by the Servicer from the proceeds of the related
Mortgage Loan, in which event reimbursement will be made to the Servicer from
general funds in the Collection Account.
The Pooling Agreement provides that the Servicer may enter into a
facility with any person which provides that such person (an "Advancing Person")
may fund Advances and/or Servicing Advances, although no such facility will
reduce or otherwise affect the Servicer's obligation to fund such Advances
and/or Servicing Advances. Any Advances and/or Servicing Advances made by an
Advancing Person will be reimbursed to the Advancing Person in the same manner
as reimbursements would be made to the Servicer.
SERVICING ADVANCES
In the course of performing its servicing obligations, the Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
(including reasonable attorneys' fees and disbursements) incurred in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration, inspection and protection of the
Mortgaged Properties, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of Mortgaged Properties
acquired in satisfaction of the related mortgage and (iv) certain insurance
premiums and certain ongoing expenses associated with the Loan Pool and incurred
by the Servicer in connection with its responsibilities under the Pooling
Agreement. Each such expenditure will constitute a "Servicing Advance."
Servicing Advances are required to be made on each Mortgage Loan only
to the extent they are deemed by the Servicer to be recoverable from related
late collections, insurance proceeds, condemnation proceeds and liquidation
proceeds on each Mortgage Loan. The Servicer's right to reimbursement for
Servicing Advances is limited to late collections on the related Mortgage Loan,
including liquidation proceeds, condemnation proceeds, released mortgaged
property proceeds, insurance proceeds and such other amounts as may be collected
by the Servicer from the related mortgagor or otherwise relating to the Mortgage
Loan in respect of which such unreimbursed amounts are owed, unless such amounts
are deemed to be nonrecoverable by the Servicer from the proceeds of the related
Mortgage Loan, in which event reimbursement will be made to the Servicer from
general funds in the Collection Account.
LIMITATION ON SERVICER LIABILITY
Neither the Servicer nor any of the directors or officers or employees
or agents of the Servicer shall be under any liability to the Trust or the
Certificateholders or Residual Certificateholders for any action taken or for
refraining from the taking of any action by the Servicer in good faith pursuant
to the Pooling Agreement, or for errors in judgment; provided, however, that the
Servicer or any such person is still liable for any breach of representations
and warranties made, or liable for any specific liability imposed on the
Servicer for a breach of its servicing under the Pooling Agreement or for
willful misfeasance, bad faith or negligence in the performance of duties of the
Servicer or by reason of reckless disregard of obligations and duties of the
Servicer under the Pooling Agreement. The Servicer and any director or officer
or employee or agent of the Servicer may rely in good faith on any document of
any kind PRIMA FACIE properly executed and submitted by any Person respecting
any matters arising hereunder. The Servicer and any director or officer or
employee or agent of the Servicer shall be entitled to be indemnified by
[__________] Trust [200_-___] and shall be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Pooling Agreement or the Certificates, other than any loss, liability or
expense related to any specific Mortgage Loan (except as any such loss,
liability or expense shall be otherwise reimbursable) and any loss, liability or
expense incurred by reason of its willful misfeasance, bad faith or negligence,
breach of representations and warranties made, or against any specific liability
imposed on the Servicer for a breach of its servicing under the Pooling
Agreement or against in the performance of duties or by reason of its reckless
disregard of obligations and duties under the Pooling Agreement.
SERVICING OF DELINQUENT MORTGAGE LOANS
The Servicer will be required to act with respect to delinquent
Mortgage Loans in accordance with procedures set forth in the Pooling Agreement.
These procedures, as followed with respect to any delinquent Mortgage Loan, may,
among other things, result in (i) foreclosing on such Mortgage Loan, (ii)
accepting the deed to the related Mortgaged Property in lieu of foreclosure,
(iii) granting the borrower under such Mortgage Loan a modification or
forbearance or (iv) accepting payment from the borrower under such Mortgage Loan
of an amount less than the Principal Balance of such Mortgage Loan in final
satisfaction of such Mortgage Loan. These procedures are intended to lead to the
alternative that would result in the recovery by the Trust of the highest net
present value of proceeds on such Mortgage Loan. However, there can be no
assurance that following such procedures will have that result or that following
such procedures will lead to the alternative that is in the best interests of
the Certificateholders. If the Servicer extends the payment period or accepts a
lesser amount than stated in the mortgage note in satisfaction of the mortgage
note, your yield may be affected.
MODIFICATIONS
In instances in which a mortgage loan is in default or if default is
reasonably foreseeable, and if determined by the [master servicer][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 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.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Servicer in respect of its
servicing activities (the "Servicing Fee") for the Mortgage Loans will be at the
"Servicing Fee Rate" of [__]% per annum on the Principal Balance of each
Mortgage Loan. As additional servicing compensation, the Servicer is entitled to
retain all service-related fees, including assumption fees, modification fees,
extension fees, late payment charges and Prepayment Interest Excess (as defined
in the Pooling Agreement), non-sufficient fund fees and other ancillary fees
(but not prepayment charges, which will be distributed to the holders of the
Class [__] Certificates), to the extent collected from mortgagors, together with
any interest or other income earned on funds held in the Collection Account and
any servicing accounts. The Servicer is obligated to deposit into the Collection
Account the amount of any Prepayment Interest Shortfall (payments made by the
Servicer in satisfaction of such obligation, "Compensating Interest") but only
in an amount up to its Servicing Fee for the related Distribution Date.
With respect to any Determination Date and each Mortgage Loan as to
which a principal prepayment in full was applied during the portion of the
related Prepayment Period (as defined below) occurring in the month preceding
the month of such Determination Date, the "Prepayment Interest Shortfall" is an
amount equal to interest at the applicable Mortgage Rate (net of the Servicing
Fee) on the amount of such principal prepayment for the number of days
commencing on the date such principal prepayment was applied and ending on the
last day of the month in which the related Prepayment Period began.
THE TRUSTEE AND THE CUSTODIAN
[__], a [__], will be named Trustee pursuant to the Pooling Agreement.
The Trustee will make available a monthly statement to Certificateholders
containing information regarding the Certificates. The Trustee may make such
statement available each month, to any interested party, via the Trustee's
website. See "Description of the Certificates--Reports to Certificateholders" IN
THIS PROSPECTUS SUPPLEMENT.
The principal compensation to be paid to the Trustee in respect of its
obligations under the Pooling Agreement will be equal to certain investment
earnings on the amounts on deposit in the Distribution Account. The principal
compensation to be paid to the Trustee in respect of its obligations under the
Pooling Agreement will be equal to certain earnings on the amounts on deposit in
the Distribution Account. The Pooling Agreement will provide that the Trustee
and any director, officer, employee or agent of the Trustee will be indemnified
by the Trust 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 Pooling Agreement) incurred by the Trustee
arising out of or in connection with the acceptance or administration of its
obligations and duties under the Pooling Agreement, other than any loss,
liability or expense (i) resulting from a breach of the Servicer's obligations
and duties under the Pooling Agreement for which the Trustee is indemnified by
the Servicer under the Pooling Agreement or (ii) incurred by reason of willful
misfeasance, bad faith or negligence in the performance of the Trustee's duties
under the Pooling Agreement or as a result of a breach, or by reason of reckless
disregard, of the Trustee's obligations and duties under the Pooling Agreement.
The Pooling Agreement will provide that the Trustee may withdraw amounts owing
to it under the Pooling Agreement prior to distributions to Certificateholders.
[__] will act as custodian (the "Custodian") for the Trustee with
respect to certain Mortgage Loans under the Pooling Agreement pursuant to a
Custodial Agreement, dated as of the Closing Date, among the Servicer, the
Trustee and the Custodian. The Custodian will be paid a fee as set forth in the
Pooling Agreement in respect of its duties as custodian (the "Custodial Fee")
expressed as a per annum rate (the "Custodial Fee Rate") on the Principal
Balance of the Mortgage Loans. The Custodial Fee Rate will not exceed of [__]%
per annum.
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
Offered 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
-------------------- ------- ----------------------------------
Servicing Fee(1)(2) ___bp Mortgage Loan Interest Collections
Trustee Fee ___bp Servicing Fee
Trust Expenses N/A Mortgage Loan Interest Collections
Liquidation Expenses N/A Mortgage Loan Interest Collections
(1) Servicing fee including securities administrator, paying agent
and note registrar fees. The Servicer receives a single
combined fee that covers all of these functions. The Servicer
performs these functions.
(2) Servicer pays trustee fees out of its fee.
(3) The servicing fee is paid on a first priority basis from
collections allocable to interest on the mortgage loans, prior
to distributions to noteholders.
THE CREDIT RISK MANAGER
The [__________], a [_________], as credit risk manager for
[__________] Trust [200_-___] (the "Credit Risk Manager") will monitor the
performance of the Servicer, and make recommendations to the Servicer regarding
certain delinquent and defaulted Mortgage Loans and will report to the Depositor
on the performance of such Mortgage Loans, pursuant to a Credit Risk Management
Agreement to be entered into by the Credit Risk Manager and the Servicer on or
prior to the Closing Date. The Credit Risk Manager will rely upon mortgage loan
data that is provided to it by the Servicer in performing its advisory and
monitoring functions. The Credit Risk Manager will be entitled to receive a
"Credit Risk Manager Fee" until the redemption of the Notes or until its removal
by a vote of at least 66 2/3% of the noteholders. Such fee will be paid by
[__________] Trust [200_-___] and will be equal to a per annum percentage of the
then current aggregate principal balance of the Mortgage Loans.
VOTING RIGHTS
At all times 98% of all voting rights will be allocated among the
holders of the Offered Certificates, the Class B Certificates and the Class C
Certificates in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates. At all times 1% of all voting rights
will be allocated among the holders of the Class P Certificates and 1% of all
voting rights will be allocated among the holders of the Residual Certificates.
The voting rights allocated to any class of Certificates will be allocated among
all holders of the Certificates of such class in proportion to the outstanding
percentage interests of such holders in such class.
AMENDMENT
The Pooling Agreement may be amended under the circumstances set forth
under "The Agreements --Amendment" in the prospectus but only with the consent
of the NIMS Insurer, if any.
TERMINATION
The Servicer (in such capacity, the "Terminator") will have the right
to purchase all of the Mortgage Loans and REO properties and thereby effect the
early retirement of the Certificates, on any Distribution Date on which the
aggregate Principal Balance of the Mortgage Loans (after giving effect to
scheduled payments of principal due during the related Due Period, to the extent
received or advanced, and unscheduled collections of principal received during
the related Prepayment Period) and REO properties is equal to or less than [__]%
of the sum of the aggregate Cut-off Date Principal Balance of the Initial
Mortgage Loans and the Original Pre-Funded Amounts. The first Distribution Date
on which such option could be exercised is referred to herein as the "Optional
Termination Date." In the event that the option is exercised, the purchase will
be made at a price (the "Termination Price") generally equal to the greater of
(i) the aggregate Principal Balance of the Mortgage Loans and the appraised
value of the REO properties and (ii) the fair market value of the Mortgage Loans
and the REO properties, in each case plus accrued and unpaid interest for each
Mortgage Loan at the related Mortgage Rate to but not including the first day of
the month in which such repurchase price is paid plus unreimbursed Servicing
Advances, Advances, any unpaid Servicing Fees allocable to such Mortgage Loans
and REO properties, any accrued and unpaid Net WAC Rate Carryover Amounts and
any Swap Termination Payment payable to the Swap Provider. However, this option
may only be exercised if the Termination Price is sufficient to pay all interest
accrued on, as well as amounts necessary to retire the note balance of, the
notes issued pursuant to any indenture which are secured by all or a portion of
the Class C Certificates, the Class P Certificates and/or the Residual
Certificates and any amounts owed to the NIMS Insurer, if any, at the time the
option is exercised. In the event the Terminator exercises this option, the
portion of the purchase price allocable to the Offered Certificates and the
Class B Certificates will be, to the extent of available funds:
(i) 100% of the then outstanding Certificate Principal Balance of
the Offered Certificates and the Class B Certificates, plus
(ii) interest for the final Accrual Period on the then outstanding
Certificate Principal Balance of the Offered Certificates and
the Class B Certificates at the then applicable Pass-Through
Rate for the class, plus
(iii) any previously accrued but unpaid interest thereon to which
the holders of the Offered Certificates and the Class B
Certificates are entitled, together with the amount of any Net
WAC Rate Carryover Amounts (payable to and from the Net WAC
Rate Carryover Reserve Account or the Swap Account), plus
(iv) in the case of the Mezzanine Certificates and the Class B
Certificates, any previously unpaid Allocated Realized Loss
Amount.
SERVICING OF DELINQUENT MORTGAGE LOANS
The Servicer will be required to act with respect to delinquent
Mortgage Loans in accordance with procedures set forth in the Pooling Agreement.
These procedures, as followed with respect to any delinquent Mortgage Loan, may,
among other things, result in (i) foreclosing on such Mortgage Loan, (ii)
accepting the deed to the related Mortgaged Property in lieu of foreclosure,
(iii) granting the borrower under such Mortgage Loan a modification or
forbearance or (iv) accepting payment from the borrower under such Mortgage Loan
of an amount less than the Principal Balance of such Mortgage Loan in final
satisfaction of such Mortgage Loan. These procedures are intended to lead to the
alternative that would result in the recovery by the Trust of the highest net
present value of proceeds on such Mortgage Loan. However, there can be no
assurance that following such procedures will have that result or that following
such procedures will lead to the alternative that is in the best interests of
the Certificateholders. If the Servicer extends the payment period or accepts a
lesser amount than stated in the mortgage note in satisfaction of the mortgage
note, your yield may be affected.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement. Set
forth below are summaries of the specific terms and provisions pursuant to which
the Offered Certificates will be issued. The following summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, the provisions of the Pooling Agreement. When particular
provisions or terms used in the Pooling Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference.
The Trust will issue (i) the Class [__] Certificates, the Class [__]
Certificates, the Class [__] Certificates, (ii) the Class [__] Certificates, the
Class [__] Certificates (collectively, the "Mezzanine Certificates"), (iii) the
Class [__] Certificates, the Class [__] Certificates and the Class [__]
Certificates, (collectively, the "Class B Certificates), (iv) the Class [__]
Certificates (together with the Mezzanine Certificates and the Class B
Certificates, the "Subordinate Certificates"), (iv) the Class [__] Certificates
and (v) the Class [__] Certificates and the Class [__] Certificates (together,
the "Residual Certificates"). The Class A Certificates, the Mezzanine
Certificates, the Class B Certificates, the Class C Certificates, the Class P
Certificates and the Residual Certificates are collectively referred to herein
as the "Certificates." Only the Class A Certificates and the Mezzanine
Certificates are offered hereby (together, the "Offered Certificates").
The Offered Certificates will have the Original Certificate Principal
Balances specified on the cover hereof, subject to a permitted variance of plus
or minus five percent. The Class [__] Certificates will have an Original
Certificate Principal Balance equal to $[__]. The Class [__] Certificates will
have an Original Certificate Principal Balance equal to $[__]. The Class [__]
Certificates will have an Original Certificate Principal Balance equal to $[__].
The Class [__] Certificates will have an Original Certificate Principal Balance
equal to the excess of the sum of the aggregate Cut-off Date Principal Balance
of the Initial Mortgage Loans and the Original Pre-Funded Amounts over the
Original Certificate Principal Balances of the Offered Certificates, the Class
[__] Certificates and the Class [__] Certificates. The Class [__] Certificates
will have an Original Certificate Principal Balance of $100 and will not bear
interest. The Class [__] Certificates will be entitled to all prepayment charges
received in respect of the Mortgage Loans and such amounts will not be available
for distribution to the holders of the Offered Certificates. The Residual
Certificates will not have Original Certificate Principal Balances and will not
bear interest.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates and the Class B Certificates will be issued in
minimum dollar denominations of $25,000 and integral multiples of $1.00 in
excess thereof; provided that such Certificates must be purchased in minimum
total investments of $100,000 per class. The assumed final maturity date (the
"Assumed Final Distribution Date") for the Offered Certificates is the
Distribution Date in [__].
Distributions on the Offered Certificates will be made by the Trustee
on the 25th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing in [__] (each, a "Distribution Date"),
to the persons in whose names such Certificates are registered at the close of
business on the Record Date. The "Record Date" for any Certificate issued in
book-entry form is the business day immediately preceding such Distribution Date
and the "Record Date" for any physical Certificate or any book-entry Certificate
that becomes a Definitive Certificate (as defined herein), will be the last
business day of the month immediately preceding the month in which the related
Distribution Date occurs.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (for so long
as they are registered in the name of the applicable depository or its nominee,
the "Book-Entry Certificates"). Persons acquiring beneficial ownership interests
in the Book-Entry Certificates ("Certificate Owners") will hold such
Certificates through The Depository Trust Company ("DTC") in the United States,
or upon request through Clearstream Banking Luxembourg, formerly known as
Cedelbank SA ("Clearstream"), or the Euroclear System ("Euroclear") (in Europe)
if they are participants of such systems, or indirectly through organizations
which are participants in such systems. The Book-Entry Certificates will be
issued in one or more certificates which equal the aggregate Certificate
Principal Balance of such Certificates and will initially be registered in the
name of Cede & Co., 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
depositories which in turn will hold such positions in customers' securities
accounts in the depositories' names on the books of DTC. Citibank will act as
depositary for Clearstream and JPMorgan Chase Bank, N.A. will act as depositary
for Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Investors may hold such beneficial
interests in the Book-Entry Certificates in minimum denominations of $25,000 and
integral multiples of $1.00 in excess thereof; provided that Offered
Certificates must be purchased in minimum total investments of $100,000 per
class. Except as described below, no Certificate Owner acquiring a Book-Entry
Certificate (each, a "beneficial owner") will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Offered Certificates will be Cede & Co., as nominee
of DTC. Certificate Owners will not be Certificateholders as that term is used
in the Pooling Agreement. Certificate Owners are only permitted to exercise
their rights indirectly through DTC and participants of DTC ("DTC
Participants").
The Certificate Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Certificate Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC Participant and on
the records of Clearstream or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While the Book-Entry Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among DTC Participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates. DTC
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Book-Entry Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Book-Entry Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Book-Entry
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Certificate Owners who are not DTC
Participants may transfer ownership of Book-Entry Certificates only through DTC
Participants and indirect participants by instructing such DTC Participants and
indirect participants to transfer Book-Entry Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Book-Entry
Certificates, which account is maintained with their respective DTC
Participants. Under the Rules and in accordance with DTC's normal procedures,
transfers of ownership of Book-Entry Certificates will be executed through DTC
and the accounts of the respective DTC Participants at DTC will be debited and
credited. Similarly, the DTC Participants and indirect participants will make
debits or credits, as the case may be, on their records on behalf of the selling
and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a DTC Participant
will be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear Participants or Clearstream Participants (each, as defined
below) on such 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 DTC 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.
For information with respect to tax documentation procedures relating to the
Certificates, see "Federal Income Tax Consequences--REMICS--Backup Withholding
With Respect to REMIC Certificates" and "--Foreign Investors in REMIC
Certificates" in the prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between DTC 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, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to 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.
DTC which is a New York-chartered limited purpose trust company,
performs services for its DTC Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the Rules, as in effect from time to time.
Clearstream, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, a
Luxembourg limited liability company, was formed in January 2000 through the
merger of Cedel International and Deutsche Boerse Clearing, the shareholders of
which comprise 93 of the world's major financial institutions.
Clearstream is registered as a bank in Luxembourg, and as such is
subject to regulation by the Institute Monetaire Luxembourgeois, "IML," the
Luxembourg Monetary Authority, which supervises Luxembourg banks.
Clearstream holds securities for its customers ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions by electronic book-entry transfers between their accounts.
Clearstream provides various services, including safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream also deals with domestic securities markets
in several countries through established depository and custodial relationships.
Clearstream has established an electronic bridge with the Euroclear Operator (as
defined below) in Brussels to facilitate settlement of trades between systems.
Clearstream currently accepts over 70,000 securities issues on its books.
Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream's United States customers are limited to
securities brokers and dealers and banks. Currently, Clearstream has
approximately 3,000 customers located in over 60 countries, including all major
European countries, Canada, and the United States. Indirect access to
Clearstream is available to other institutions which clear through or maintain a
custodial relationship with an account holder of Clearstream.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between its
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash. The
Euroclear System is owned by Euroclear plc and operated through a license
agreement by Euroclear Bank S.A./N.V., a bank incorporated under the laws of the
Kingdom of Belgium (the "Euroclear Operator"). The Euroclear Operator is
regulated and examined by the Belgian Banking and Finance Commission and the
National Bank of Belgium.
The Euroclear Operator holds securities and book-entry interests in
securities for participating organizations and facilitates the clearance and
settlement of securities transactions between Euroclear Participants, and
between Euroclear Participants and participants of certain other securities
intermediaries through electronic book-entry changes in accounts of such
participants or other securities intermediaries. The Euroclear Operator provides
Euroclear Participants, among other things, with safekeeping, administration,
clearance and settlement, securities lending and borrowing, and related
services.
Non-Participants of Euroclear may hold and transfer book-entry
interests in the Book-Entry Certificates through accounts with a Euroclear
Participant or any other securities intermediary that holds a book-entry
interest in the Book-Entry Certificates through one or more securities
intermediaries standing between such other securities intermediary and the
Euroclear Operator.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to Cede & Co. DTC will be responsible for
crediting the amount of such distributions to the accounts of the applicable DTC
Participants in accordance with DTC's normal procedures. Each DTC Participant
will be responsible for disbursing such distributions to the Certificate Owners
of the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Certificate Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Certificate Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede & Co. Distributions with
respect to Certificates 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. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences--REMICS--Backup Withholding With Respect to
REMIC Certificates" and "--Foreign Investors in REMIC Certificates" in the
prospectus. Because DTC can only act on behalf of Financial Intermediaries, the
ability of a Certificate Owner to pledge Book-Entry Certificates to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due to the
lack of physical certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain potential
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust will be provided to Cede & Co.,
as nominee of DTC, and may be made available by Cede & Co. to Certificate Owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Certificate Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. Clearstream or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Certificateholder under the
Pooling Agreement on behalf of a Clearstream Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect such actions on its
behalf through DTC. DTC may take actions, at the direction of the related DTC
Participants, with respect to some Book-Entry Certificates which conflict with
actions taken with respect to other Book-Entry Certificates.
Definitive Certificates will be issued to Certificate Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC or its nominee,
only if (a) DTC or the Depositor advises the Trustee in writing that DTC is no
longer willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor or (b) after
the occurrence of a Servicer Event of Termination (as defined in the Pooling
Agreement), Certificate Owners having percentage interests aggregating not less
than 51% of the Book-Entry Certificates advise the Trustee and DTC through the
Financial Intermediaries and the DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interests of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Pooling Agreement.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Book-Entry Certificates among DTC
Participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of the Depositor, the Servicer, the Sponsor or the Trustee will
have any responsibility for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Book-Entry Certificates
held by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
ALLOCATION OF AVAILABLE FUNDS
Distributions to holders of each class of Certificates will be made on
each Distribution Date from Available Funds. With respect to any Distribution
Date, "Available Funds" will be equal to the sum of the following amounts with
respect to the Mortgage Loans, net of amounts reimbursable therefrom to the
Servicer, the Trustee or the Swap Provider (other than any Swap Termination
Payment owed to the Swap Provider resulting from a Swap Provider Trigger Event):
(i) the aggregate amount of monthly payments on the Mortgage Loans due on the
related Due Date and received by the Servicer by the Determination Date, after
deduction of the Servicing Fee for such Distribution Date, the Custodial Fee for
such Distribution Date, the Credit Risk Manager fee for such Distribution Date
and any accrued and unpaid Servicing Fees and Custodial Fees in respect of any
prior Distribution Dates, (ii) certain unscheduled payments in respect of the
Mortgage Loans, including prepayments, Insurance Proceeds, Net Liquidation
Proceeds, Subsequent Recoveries and proceeds from repurchases of and
substitutions for such Mortgage Loans occurring during the related Prepayment
Period, excluding prepayment charges (iii) payments from the Servicer in
connection with Advances and Prepayment Interest Shortfalls for such
Distribution Date, (iv) at the end of the Funding Period, any excess amounts
transferred from the Pre-Funding Accounts, exclusive of any investment income
thereon and (v) with respect to each Distribution Date during the Funding Period
and on the Distribution Date immediately following the end of the Funding
Period, any amounts required to be withdrawn by the Trustee from the Interest
Coverage Accounts for distribution on the Certificates. The holders of the Class
P Certificates will be entitled to all prepayment charges received on the
Mortgage Loans and such amounts will not be available for distribution to the
holders of the Offered Certificates.
The Group I Certificates generally represent an interest in the Group I
Mortgage Loans and the Group II Certificates generally represent an interest in
the Group II Mortgage Loans.
INTEREST DISTRIBUTIONS
I. On each Distribution Date the Trustee will withdraw from the Distribution
Account that portion of Available Funds for such Distribution Date consisting of
the Group I Interest Remittance Amount for such Distribution Date, and make the
following disbursements and transfers in the order of priority described below,
in each case to the extent of the Group I Interest Remittance Amount remaining
for such Distribution Date.
(i) to the holders of the Group I Certificates, the Monthly Interest
Distributable Amount and the Unpaid Interest Shortfall Amount, if any, for such
Certificates; and
(ii) concurrently, to the holders of the Group II Certificates, on a PRO RATA
basis based on the entitlement of each such class, an amount equal to the
excess, if any, of (x) the amount required to be distributed pursuant to clause
II(i) below for such Distribution Date over (y) the amount actually distributed
pursuant to such clause from the Group II Interest Remittance Amount.
II. On each Distribution Date the Trustee will withdraw from the Distribution
Account that portion of Available Funds for such Distribution Date consisting of
the Group II Interest Remittance Amount for such Distribution Date, and make the
following disbursements and transfers in the order of priority described below,
in each case to the extent of the Group II Interest Remittance Amount remaining
for such Distribution Date.
(i) concurrently, to the holders of the Group II Certificates, on a PRO RATA
basis based on the entitlement of each such class, the Monthly Interest
Distributable Amount and the Unpaid Interest Shortfall Amount, if any, for such
Certificates; and
(ii) to the holders of the Group I Certificates, an amount equal to the excess,
if any, of (x) the amount required to be distributed pursuant to clause I(i)
above for such Distribution Date over (y) the amount actually distributed
pursuant to such clause from the Group I Interest Remittance Amount.
III. On each Distribution Date, distributions to the extent of the sum of the
Group I Interest Remittance Amount and the Group II Interest Remittance Amount
remaining undistributed for such Distribution Date will be distributed
sequentially, to the holders of the Class [__] Certificates, Class [__]
Certificates, Class [__] Certificates, Class [__] Certificates and Class [__]
Certificates, in that order, in an amount equal to the Monthly Interest
Distributable Amount for each such class.
On any Distribution Date, any shortfalls resulting from the application
of the Relief Act or any similar state law and any Prepayment Interest
Shortfalls to the extent not covered by Compensating Interest paid by the
Servicer will be allocated, first, to the interest distribution amount with
respect to the Class C Certificates, and thereafter, to the Monthly Interest
Distributable Amounts with respect to the Offered Certificates and the Class B
Certificates on a PRO RATA basis based on the respective amounts of interest
accrued on such Certificates for such Distribution Date. THE HOLDERS OF THE
OFFERED CERTIFICATES AND SUCH CLASS B CERTIFICATES WILL NOT BE ENTITLED TO
REIMBURSEMENT FOR ANY SUCH INTEREST SHORTFALLS.
PRINCIPAL DISTRIBUTIONS
I. On each Distribution Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, distributions in respect of principal to the extent
of the Group I Principal Distribution Amount will be distributed in the
following amounts and order of priority:
(i) first, to the holders of the Group I Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; and
(ii) second, after taking into account the amount distributed to the holders of
the Group II Certificates pursuant to clause II(i) below on such Distribution
Date, to the holders of the Group II Certificates (allocated among the Group II
Certificates in the priority described below) until the Certificate Principal
Balances thereof have been reduced to zero.
II. On each Distribution Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, distributions in respect of principal to the extent
of the Group II Principal Distribution Amount will be distributed in the
following amounts and order of priority:
(i) first, to the holders of the Group II Certificates (allocated among the
Group II Certificates in the priority described below), until the Certificate
Principal Balances thereof have been reduced to zero; and
(ii) second, after taking into account the amount distributed to the holders of
the Group I Certificates pursuant to clause I(i) above on such Distribution
Date, to the holders of the Group I Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
III. On each Distribution Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, distributions in respect of principal to the extent
of the sum of the Group I Principal Distribution Amount and the Group II
Principal Distribution Amount remaining undistributed for such Distribution Date
will be distributed, sequentially, to the holders of the Class [__]
Certificates, Class [__] Certificates, Class [__] Certificates, Class [__]
Certificates and Class [__] Certificates, in that order, in each case, until the
Certificate Principal Balance thereof has been reduced to zero.
IV. On each Distribution Date (a) on or after the Stepdown Date and (b) on which
a Trigger Event is not in effect, distributions in respect of principal to the
extent of the Group I Principal Distribution Amount will be distributed in the
following amounts and order of priority:
(i) first, to the holders of the Group I Certificates, the Group I Senior
Principal Distribution Amount until the Certificate Principal Balance thereof
has been reduced to zero; and
(ii) second, to the holders of the Group II Certificates (allocated among the
Group II Certificates in the priority described below), an amount equal to the
excess, if any, of (x) the amount required to be distributed pursuant to clause
V(i) below for such Distribution Date over (y) the amount actually distributed
pursuant to clause V(i) below from the Group II Principal Distribution Amount on
such Distribution Date.
V. On each Distribution Date (a) on or after the Stepdown Date and (b) on which
a Trigger Event is not in effect, distributions in respect of principal to the
extent of the Group II Principal Distribution Amount will be distributed in the
following amounts and order of priority:
(i) first, to the holders of the Group II Certificates (allocated among the
Group II Certificates in the priority described below), the Group II Senior
Principal Distribution Amount until the Certificate Principal Balances thereof
have been reduced to zero; and
(ii) second, to the holders of the Group I Certificates, an amount equal to the
excess, if any, of (x) the amount required to be distributed pursuant to clause
IV(i) above for such Distribution Date over (y) the amount actually distributed
pursuant to clause IV(i) above from the Group I Principal Distribution Amount on
such Distribution Date.
VI. On each Distribution Date (a) on or after the Stepdown Date and (b) on which
a Trigger Event is not in effect, distributions in respect of principal to the
extent of the sum of the Group I Principal Distribution Amount and the Group II
Principal Distribution Amount remaining undistributed for such Distribution Date
will be distributed in the following amounts and order of priority:
(i) first, to the holders of the Class [__] Certificates, the Class [__]
Principal Distribution Amount until the Certificate Principal Balance thereof
has been reduced to zero;
(ii) second, to the holders of the Class [__] Certificates, the Class [__]
Principal Distribution Amount, until the Certificate Principal Balance thereof
has been reduced to zero;
(iii) third, to the holders of the Class [__] Certificates, the Class [__]
Principal Distribution Amount until the Certificate Principal Balance thereof
has been reduced to zero;
(iv) fourth, to the holders of the Class [__] Certificates, the Class [__]
Principal Distribution Amount until the Certificate Principal Balance thereof
has been reduced to zero; and
(v) fifth, to the holders of the Class [__] Certificates, the Class [__]
Principal Distribution Amount until the certificate Principal Balance thereof
has been reduced to zero.
With respect to the Group II Certificates, all principal distributions
will be distributed to the holders of the Class [__] Certificates until the
Certificate Principal Balances thereof have been reduced to zero; provided,
however, on any distribution date on which the aggregate Certificate Principal
Balance of the Subordinate Certificates has been reduced to zero, all principal
distributions will be distributed concurrently to the holders of the Class [__]
Certificates on a PRO RATA basis based on the Certificate Principal Balance of
such class.
The allocation of distributions in respect of principal to the Class A
Certificates on each Distribution 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 Certificates while, in the absence of Realized
Losses, increasing the respective percentage interest in the aggregate Principal
Balance of the Mortgage Loans evidenced by the Subordinate Certificates.
Increasing the respective percentage interest in the Trust of the Subordinate
Certificates relative to that of the Class A Certificates is intended to
preserve the availability of the subordination provided by the Subordinate
Certificates.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the
Class A Certificates consists of subordination, as described under
"--Subordination" below, allocation of Realized Losses on the Mortgage Loans, as
described under "--Allocation of Losses" below, excess interest and
overcollateralization, as described under "--Overcollateralization Provisions"
below and cross-collateralization as described under "--Allocation of Available
Funds" above and the Interest Rate Swap Agreement, as described under
"--Interest Rate Swap Agreement, the Swap Provider and the Swap Account" herein.
[Additional information with respect to credit enhancement providers,
required pursuant to Item 1114(b) of Regulation AB, will be provided if
applicable.]
SUBORDINATION
The rights of the holders of the Subordinate Certificates to receive
distributions will be subordinated, to the extent described herein, to the
rights of the holders of the Class A Certificates. This subordination is
intended to enhance the likelihood of regular receipt by the holders of the
Class A Certificates of the full amount of their scheduled monthly payments of
interest and principal and to afford such holders protection against Realized
Losses.
The protection afforded to the holders of the Class A Certificates by
means of the subordination of the Subordinate Certificates will be accomplished
by (i) the preferential right of the holders of the Class A Certificates to
receive on any Distribution Date, prior to distribution on the Subordinate
Certificates, distributions in respect of interest and principal, subject to
funds available for such distributions and (ii) if necessary, the right of the
holders of the Class A Certificates to receive future distributions of amounts
that would otherwise be payable to the holders of the Subordinate Certificates.
In addition, the rights of the holders of the Mezzanine Certificates
with lower numerical class designations will be senior to the rights of holders
of Mezzanine Certificates with higher numerical class designations, and the
rights of the holders of the Mezzanine Certificates to receive distributions in
respect of the Mortgage Loans will be senior to the rights of the holders of the
Class B Certificates and the rights of the holders of the Mezzanine Certificates
and Class B Certificates to receive distributions will be senior to the rights
of the holders of the Class C Certificates, in each case to the extent described
herein. This subordination is intended to enhance the likelihood of regular
receipt by the holders of more senior Certificates of distributions in respect
of interest and principal and to afford such holders protection against Realized
Losses.
ALLOCATION OF LOSSES
Any Realized Losses on the Mortgage Loans will be allocated on any
Distribution Date, first, to Net Monthly Excess Cashflow, second, to Net Swap
Payments received under the Interest Rate Swap Agreement, third, to the Class
[__] Certificates, until the Certificate Principal Balance thereof has been
reduced to zero, fourth, to the Class [__] Certificates, until the Certificate
Principal Balance thereof has been reduced to zero, fifth, to the Class [__]
Certificates, until the Certificate Principal Balance thereof has been reduced
to zero, sixth, to the Class [__] Certificates, until the Certificate Principal
Balance thereof has been reduced to zero, fifteenth, to the Class [__]
Certificates until the Certificate Principal Balance thereof has been reduced to
zero and sixteenth to the Class [__] Certificates until the Certificate
Principal Balance thereof has been reduced to zero.
The Pooling Agreement does not permit the allocation of Realized Losses
to the Class A Certificates, the Class [__] Certificates or the Residual
Certificates. Investors in the Class A Certificates should note that although
Realized Losses cannot be allocated to the Class A Certificates, under certain
loss scenarios there will not be enough interest and principal on the Mortgage
Loans to distribute to the Class A Certificates all interest and principal
amounts to which they are then entitled.
Any allocation of a Realized Loss to a Mezzanine Certificate or Class B
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. Notwithstanding
anything to the contrary described herein, in no event will the Certificate
Principal Balance of any Mezzanine Certificate or Class B Certificate be reduced
more than once in respect of any particular amount both (i) allocable to such
Certificate in respect of Realized Losses and (ii) distributable as principal to
the holder of such Certificate from Net Monthly Excess Cashflow.
Once Realized Losses have been allocated to the Mezzanine Certificates
or the Class B Certificates, such amounts with respect to such Certificates will
no longer accrue interest nor will such amounts be reinstated thereafter (except
in the case of Subsequent Recoveries). However, Allocated Realized Loss Amounts
may be paid to the holders of the Mezzanine Certificates and the Class B
Certificates from Net Monthly Excess Cashflow, according to the priorities set
forth under "--Overcollateralization Provisions" below or from the Swap Account,
according to the priorities set forth under "--Interest Rate Swap Agreement, the
Swap Provider and the Swap Account" below.
OVERCOLLATERALIZATION PROVISIONS
The weighted average net Mortgage Rate for the Mortgage Loans is
generally expected to be higher than the weighted average of the Pass-Through
Rates on the Offered Certificates and the Class B Certificates and the amount
needed to pay certain fees and expenses of the Trust. As a result, interest
collections on the Mortgage Loans are expected to exceed the amount of interest
distributable to the holders of the Offered Certificates and the Class B
Certificates and the fees and expenses payable by the Trust (including any Net
Swap Payment owed to the Swap Provider and any Swap Termination Payment owed to
the Swap Provider, other than any Swap Termination Payment resulting from a Swap
Provider Trigger Event). The Pooling Agreement requires that, on each
Distribution Date, the Net Monthly Excess Cashflow, if any, be distributed as
follows:
(i) to the holders of the class or classes of Certificates then entitled to
receive distributions in respect of principal, in an amount equal to any Extra
Principal Distribution Amount, without taking into account amounts, if any,
received under the Interest Rate Swap Agreement, distributable to such holders
as part of the Group I Principal Distribution Amount and/or the Group II
Principal Distribution Amount as described under "--Allocation of Available
Funds--Principal Distributions" above;
(ii) sequentially, to the holders of the Class [__] Certificates, Class [__]
Certificates, Class [__] Certificates, Class [__] Certificates and Class [__]
Certificates, in that order, in each case, first up to the Unpaid Interest
Shortfall Amount for each such class and second up to the Allocated Realized
Loss Amount, for each such class;
(iii) to make payments to the Net WAC Rate Carryover Reserve Account, to the
extent any Net WAC Rate Carryover Amounts are required to be distributed to the
holders of the Offered Certificates and Class B Certificates , after taking into
account amounts received under the cap contracts but without taking into account
amounts, if any, received under the Interest Rate Swap Agreement;
(iv) to the Swap Provider, any Swap Termination Payments resulting from a Swap
Provider Trigger Event;
(v) to the holders of the Class C Certificates as provided in the Pooling
Agreement;
(vi) if such Distribution Date follows the Prepayment Period during which occurs
the latest date on which a prepayment charge may be required to be paid in
respect of any Mortgage Loan, to the holders of the Class P Certificates, in
reduction of the Certificate Principal Balance thereof, until the Certificate
Principal Balance thereof is reduced to zero; and
(vii) any remaining amounts to the holders of the Residual Certificates as
provided in the Pooling Agreement.
On each Distribution Date, after making the distributions of the
Available Funds as described above, the Trustee will withdraw from the Net WAC
Rate Carryover Reserve Account the amount deposited therein pursuant to
subclause (iv) above and will distribute these amounts to the holders of the
Offered Certificates in the order and priority set forth under "--Pass-Through
Rates" below.
On each Distribution Date, the Trustee will withdraw from the
Distribution Account all amounts representing prepayment charges, if any, in
respect of the Mortgage Loans received during the related Prepayment Period and
will distribute these amounts to the holders of the Class P Certificates.
DEFINITIONS
Many of the defined terms listed below may apply to both Loan
Groups/Certificate Groups and are sometimes used in this prospectus supplement
to refer to a particular Loan Group/Certificate Group by the use of the words
"Group I" and "Group II."
The "Accrual Period" for the Offered Certificates and the Class B
Certificates for a given Distribution Date will be the actual number of days
based on a 360-day year included in the period commencing on the immediately
preceding Distribution Date (or, in the case of the first such Accrual Period,
commencing on the Closing Date) and ending on the day immediately preceding such
Distribution Date.
An "Allocated Realized Loss Amount" with respect to any class of
Mezzanine Certificates or Class B Certificates and any Distribution Date is an
amount equal to the sum of any Realized Losses allocated to that class of
Certificates on the Distribution Date and any Allocated Realized Loss Amounts
for that class remaining undistributed from the previous Distribution Date minus
any Subsequent Recoveries applied to that Allocated Realized Loss Amount.
The "Certificate Principal Balance" of any Offered Certificate, Class B
Certificate or Class P Certificate immediately prior to any Distribution Date
will be equal to the Certificate Principal Balance thereof on the Closing Date
(the "Original Certificate Principal Balance") reduced by the sum of all amounts
actually distributed in respect of principal of such class and, in the case of a
Mezzanine Certificate or Class B Certificate, Realized Losses allocated thereto
on all prior Distribution Dates (taking into account any increases in the
Certificate Principal Balance thereof by any Subsequent Recoveries allocated to
that class). The "Certificate Principal Balance" of the Class C Certificates as
of any date of determination is equal to the excess, if any, of (a) the sum of
the then aggregate Principal Balance of the Mortgage Loans and any amounts
remaining in the Pre-Funding Accounts over (b) the then aggregate Certificate
Principal Balance of the Offered Certificates, the Class B Certificates and the
Class [__] Certificates.
The " Class [__] Principal Distribution Amount" is an amount equal to
the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of
the Class A Certificates (after taking into account the distribution of the
Senior Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class [__] Certificates (after taking into
account the distribution of the Class [__] Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class [__]
Certificates (after taking into account the distribution of the Class [__]
Principal Distribution Amount on such Distribution Date), and (iv) the
Certificate Principal Balance of the Class [__] Certificates immediately prior
to such Distribution 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 (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate Principal Balance of the Mortgage Loans as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus approximately $[__].
The " Class [__] Principal Distribution Amount" is an amount equal to
the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of
the Class A Certificates (after taking into account the distribution of the
Senior Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class [__] Certificates (after taking into
account the distribution of the Class [__] Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class [__]
Certificates (after taking into account the distribution of the Class [__]
Principal Distribution Amount on such Distribution Date) and (iv) the
Certificate Principal Balance of the Class B-1 Certificates (after taking into
account the distribution of the Class [__] Principal Distribution Amount on such
Distribution Date) and (xiii) the Certificate Principal Balance of the Class
[__] Certificates immediately prior to such Distribution 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 (after giving
effect to scheduled payments of principal due during the related Due Period, to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) and (B) the aggregate Principal
Balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) minus approximately
$[__].
The "Class [__] Principal Distribution Amount" is an amount equal to
the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of
the Class A Certificates (after taking into account the distribution of the
Senior Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class [__] Certificates (after taking into
account the distribution of the Class [__] Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class [__]
Certificates (after taking into account the distribution of the Class [__]
Principal Distribution Amount on such Distribution Date) and (iv) the
Certificate Principal Balance of the Class [__] Certificates (after taking into
account the distribution of the Class [__] Principal Distribution Amount on such
Distribution Date), (xiii) the Certificate Principal Balance of the Class [__]
Certificates (after taking into account the distribution of the Class [__]
Principal Distribution Amount on such Distribution Date), and (xiv) the
Certificate Principal Balance of the Class [__] Certificates immediately prior
to such Distribution 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 (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate Principal Balance of the Mortgage Loans as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus approximately $[__].
The "Class [__] Principal Distribution Amount" is an amount equal to
the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of
the Class A Certificates (after taking into account the distribution of the
Senior Principal Distribution Amount on such Distribution Date) and (ii) the
Certificate Principal Balance of the Class [__] Certificates immediately prior
to such Distribution 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 (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate Principal Balance of the Mortgage Loans as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus approximately $[__].
The "Class [__] Principal Distribution Amount" is an amount equal to
the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of
the Class A Certificates (after taking into account the distribution of the
Senior Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class [__] Certificates (after taking into
account the distribution of the Class [__] Principal Distribution Amount on such
Distribution Date) and (iii) the Certificate Principal Balance of the Class [__]
Certificates immediately prior to such Distribution 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 (after giving effect
to scheduled payments of principal due during the related Due Period, to the
extent received or advanced, and unscheduled collections of principal received
during the related Prepayment Period) and (B) the aggregate Principal Balance of
the Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period, to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) minus approximately $[__].
"Credit Risk Manager Fee" for any Distribution Date is the premium
payable to the Credit Risk Manager at the Credit Risk Manager Fee Rate on the
then current aggregate principal balance of the Mortgage Loans. Such fee will be
paid monthly from the trust in accordance with the Pooling Agreement.
"Credit Risk Manager Fee Rate" for any Distribution Date is [__]% per
annum.
A Mortgage Loan is "Delinquent" if any monthly payment due on a Due
Date is not made by the close of business on the next scheduled Due Date for
such Mortgage Loan.
The "Delinquency Percentage" means the percentage obtained by dividing
(x) aggregate Principal Balance of Mortgage Loans Delinquent 60 days or more
(including Mortgage Loans that are REO properties, in foreclosure or bankruptcy
and that are also 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.
The "Determination Date" with respect to any Distribution Date will be
the 15th day of the calendar month in which such Distribution Date occurs or, if
such 15th day is not a Business Day, the Business Day immediately preceding such
15th day.
The "Downgrade Provisions" of the Interest Rate Swap Agreement will be
triggered if the Swap Provider's short-term or long-term credit ratings fall
below the levels specified in the Interest Rate Swap Agreement.
A "Due Period" with respect to any Distribution Date is the period
commencing on the second day of the month preceding the month in which such
Distribution Date occurs and ending on the first day of the month in which such
Distribution Date occurs.
The "Extra Principal Distribution Amount" for any Distribution Date, is
the lesser of (x) the sum of (A) Net Monthly Excess Cashflow for such
Distribution Date and (B) any amounts received under the Interest Rate Swap
Agreement for this purpose and (y) the Overcollateralization Deficiency Amount
for such Distribution Date.
"Events of Default" under the Interest Rate Swap Agreement (each a
"Swap Default") include the following standard events of default under the ISDA
Master Agreement:
o "Failure to Pay or Deliver,"
o "Bankruptcy" (as amended in the Interest Rate Swap Agreement)
and
o "Merger without Assumption" (but only with respect to the Swap
Provider), as described in Sections 5(a)(i), 5(a)(vii) and
5(a)(viii) of the ISDA Master Agreement.
The "Group I Allocation Percentage" for any Distribution Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group I
Principal Remittance Amount for such Distribution Date, and the denominator of
which is (ii) the Principal Remittance Amount for such Distribution Date.
The "Group I Basic Principal Distribution Amount" means with respect to
any Distribution Date, the excess of (i) the Group I Principal Remittance Amount
for such Distribution Date over (ii) the Overcollateralization Release Amount,
if any, for such Distribution Date multiplied by the Group I Allocation
Percentage.
The "Group I Interest Remittance Amount" with respect to any
Distribution Date is that portion of the Available Funds for such Distribution
Date attributable to interest received or advanced, or withdrawn from the
Interest Coverage Account, with respect to the Group I Mortgage Loans.
The "Group I Principal Distribution Amount" with respect to any
Distribution Date is the sum of (i) the Group I Basic Principal Distribution
Amount for such Distribution Date and (ii) the Extra Principal Distribution
Amount for such Distribution Date multiplied by the Group I Allocation
Percentage.
The "Group I Principal Remittance Amount" means with respect to any
Distribution Date, that portion of Available Funds equal to the sum of (i) all
scheduled payments of principal collected or advanced on the Group I Mortgage
Loans by the Servicer that were due during the related Due Period, (ii) the
principal portion of all partial and full principal prepayments of the Group I
Mortgage Loans applied by the Servicer during the related Prepayment Period,
(iii) the principal portion of all related Net Liquidation Proceeds, Insurance
Proceeds and Subsequent Recoveries received during the related Prepayment Period
with respect to the Group I Mortgage Loans, (iv) that portion of the Purchase
Price, representing principal of any repurchased Group I Mortgage Loan,
deposited to the Collection Account during the related Prepayment Period, (v)
the principal portion of any related Substitution Adjustments deposited in the
Collection Account during the related Prepayment Period with respect to the
Group I Mortgage Loans, (vi) on the Distribution Date on which the Trust is to
be terminated in accordance with the Pooling Agreement, that portion of the
Termination Price, representing principal with respect to the Group I Mortgage
Loans and (vii) on the Distribution Date immediately following the end of the
Funding Period, any amounts remaining in the Group I Pre-Funding Accounts
(exclusive of any investment income therein) after giving effect to any purchase
of Subsequent Group I Mortgage Loans.
The "Group I Senior Principal Distribution Amount" is an amount equal
to the excess of (x) the aggregate Certificate Principal Balance of the Group I
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) [__]% and (ii) the aggregate Principal Balance of the
Group I Mortgage Loans as of the last day of the related Due Period (after
giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) and (B) the aggregate
Principal Balance of the Group I Mortgage Loans as of the last day of the
related Due Period (after giving effect to scheduled payments of principal due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) minus approximately $[__].
The "Group II Allocation Percentage" for any Distribution Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group II
Principal Remittance Amount for such Distribution Date, and the denominator of
which is (ii) the Principal Remittance Amount for such Distribution Date.
The "Group II Basic Principal Distribution Amount" means with respect
to any Distribution Date, the excess of (i) the Group II Principal Remittance
Amount for such Distribution Date over (ii) the Overcollateralization Release
Amount, if any, for such Distribution Date multiplied by the Group II Allocation
Percentage.
The "Group II Interest Remittance Amount" with respect to any
Distribution Date is that portion of the Available Funds for such Distribution
Date attributable to interest received or advanced, or withdrawn from the
Interest Coverage Account with respect to the Group II Mortgage Loans.
The "Group II Principal Distribution Amount" with respect to any
Distribution Date is the sum of (i) the Group II Basic Principal Distribution
Amount for such Distribution Date and (ii) the Extra Principal Distribution
Amount for such Distribution Date multiplied by the Group II Allocation
Percentage.
The "Group II Principal Remittance Amount" means with respect to any
Distribution Date, that portion of Available Funds equal to the sum of (i) all
scheduled payments of principal collected or advanced on the Group II Mortgage
Loans by the Servicer that were due during the related Due Period, (ii) the
principal portion of all partial and full principal prepayments of the Group II
Mortgage Loans applied by the Servicer during such Prepayment Period, (iii) the
principal portion of all related Net Liquidation Proceeds, Insurance Proceeds
and Subsequent Recoveries received during the related Prepayment Period with
respect to the Group II Mortgage Loans, (iv) that portion of the Purchase Price,
representing principal of any repurchased Group II Mortgage Loan, deposited to
the Collection Account during the related Prepayment Period, (v) the principal
portion of any related Substitution Adjustments deposited in the Collection
Account during the related Prepayment Period with respect to the Group II
Mortgage Loans, (vi) on the Distribution Date on which the Trust is to be
terminated in accordance with the Pooling Agreement, that portion of the
Termination Price, representing principal with respect to the Group II Mortgage
Loans and (vii) on the Distribution Date immediately following the end of the
Funding Period, any amounts remaining in the Group II Pre-Funding Accounts
(exclusive of any investment income therein) after giving effect to any purchase
of Subsequent Group II Mortgage Loans.
The "Group II Senior Principal Distribution Amount" is an amount equal
to the excess of (x) the aggregate Certificate Principal Balance of the Group II
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) [__]% and (ii) the aggregate Principal Balance of the
Group II Mortgage Loans as of the last day of the related Due Period (after
giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) and (B) the aggregate
Principal Balance of the Group II Mortgage Loans as of the last day of the
related Due Period (after giving effect to scheduled payments of principal due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) minus approximately $[__].
"Insurance Proceeds" means the proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the mortgagor in accordance with the procedures that the
Servicer would follow in servicing mortgage loans held for its own account,
subject to the terms and conditions of the related mortgage note and Mortgage.
The "Monthly Interest Distributable Amount" for any Distribution Date
and each class of Offered Certificates and the Class B Certificates equals the
amount of interest accrued during the related Accrual Period at the related
Pass-Through Rate on the Certificate Principal Balance of such class immediately
prior to such Distribution Date, in each case, reduced by any Prepayment
Interest Shortfalls allocated to such class and shortfalls resulting from the
application of the Relief Act or any state law providing for similar relief
(allocated to each Certificate based on its respective entitlements to interest
irrespective of any Prepayment Interest Shortfalls or shortfalls resulting from
the application of the Relief Act for such Distribution Date).
The "Net Monthly Excess Cashflow" for any Distribution Date is equal to
the sum of (a) any Overcollateralization Release Amount and (b) the excess of
(x) the Available Funds for such Distribution Date over (y) the sum for such
Distribution Date of (A) the Monthly Interest Distributable Amounts for the
Offered Certificates and the Class B Certificates , (B) the Unpaid Interest
Shortfall Amounts for the Class A Certificates and (C) the Principal Remittance
Amount.
An "Overcollateralization Deficiency Amount" with respect to any
Distribution Date equals the amount, if any, by which the Overcollateralization
Target Amount exceeds the Overcollateralized Amount on such Distribution Date
(assuming that 100% of the Principal Remittance Amount is applied as a principal
payment on such Distribution Date).
An "Overcollateralization Release Amount" means, with respect to any
Distribution Date, the lesser of (x) the Principal Remittance Amount for such
Distribution Date and (y) the excess, if any, of (i) the Overcollateralized
Amount for such Distribution Date (assuming that 100% of the Principal
Remittance Amount is applied as a principal payment on such Distribution Date)
over (ii) the Overcollateralization Target Amount for such Distribution Date.
The "Overcollateralization Target Amount" means, with respect to any
Distribution Date, an amount equal to (i) prior to the Stepdown Date, 2.10% of
the sum of (a) the aggregate Cut-off Date Principal Balance of the Initial
Mortgage Loans and (b) the Original Pre-Funded Amounts; (ii) on or after the
Stepdown Date so long as a Trigger Event is not in effect, the greater of (a)
[__]% of the then current aggregate outstanding Principal Balance of the
Mortgage Loans as of the last day of the related Due Period (after giving effect
to scheduled payments of principal received during the related Due Period and
unscheduled collections of principal received during the related Prepayment
Period) and (b) 0.50% of the sum of (x) the aggregate Cut-off Date Principal
Balance of the Initial Mortgage Loans and (y) the Original Pre-Funded Amounts;
or (iii) on or after the Stepdown Date and if a Trigger Event is in effect, the
Overcollateralization Target Amount for the immediately preceding Distribution
Date. Notwithstanding the foregoing, on and after any Distribution Date
following the reduction of the aggregate Certificate Principal Balance of the
Class A Certificates, the Mezzanine Certificates and the Class B Certificates to
zero, the Overcollateralization Target Amount will be zero.
The "Overcollateralized Amount" for any Distribution Date is an amount
equal to (i) the sum of the aggregate Principal Balance of the Mortgage Loans as
of the last day of the related Due Period (after giving effect to scheduled
payments of principal due during the related Due Period, to the extent received
or advanced, and unscheduled collections of principal received during the
related Prepayment Period) and any funds on deposit in the Pre-Funding Accounts
minus (ii) the sum of the aggregate Certificate Principal Balance of the Offered
Certificates, the Class B Certificates and the Class P Certificates as of such
Distribution Date (after giving effect to distributions to be made on such
Distribution Date).
The "Prepayment Period" for any Distribution Date is the period
commencing on the 16th day of the month preceding the month in which such
Distribution Date falls (or, in the case of the first Distribution Date, from
[__]) and ending on the 15th day of the calendar month in which such
Distribution Date occurs.
The "Principal Remittance Amount" for any Distribution Date is the sum
of the Group I Principal Remittance Amount and the Group II Principal Remittance
Amount.
"Realized Loss" means, with respect to any defaulted Mortgage Loan that
is finally liquidated (a "Liquidated Mortgage Loan"), the amount of loss
realized equal to the portion of the Principal Balance remaining unpaid after
application of all liquidation proceeds, insurance proceeds or condemnation
proceeds net of amounts reimbursable to the Servicer for related Advances,
Servicing Advances and Servicing Fees (such amount, the "Net Liquidation
Proceeds") in respect of such Mortgage Loan.
The "Senior Principal Distribution Amount" is an amount equal to the
sum of (i) the Group I Senior Principal Distribution Amount and (ii) the Group
II Senior Principal Distribution Amount.
The "Stepdown Date" means the earlier to occur of (i) the first
Distribution Date on which the aggregate Certificate Principal Balance of the
Class A Certificates has been reduced to zero and (ii) the later to occur of (A)
the Distribution Date occurring in [__] and (B) the first Distribution Date on
which the Credit Enhancement Percentage (calculated for this purpose only after
taking into account distributions of principal on the Mortgage Loans and
distribution of the Group I Principal Distribution Amount and the Group II
Principal Distribution Amount to the holders of the Certificates then entitled
to distributions of principal on such Distribution Date) is greater than or
equal to [__]%.
"Subsequent Recoveries" are unanticipated amounts received on a
Liquidated Mortgage Loan that resulted in a Realized Loss in a prior month. If
Subsequent Recoveries are received, they will be included (net of any amounts
due the Servicer) as part of the Principal Remittance Amount for the following
Distribution Date and distributed in accordance with the priorities described
herein. In addition, after giving effect to all distributions on a Distribution
Date, if any Allocated Realized Loss Amounts are outstanding, the Allocated
Realized Loss Amount for the class of Mezzanine Certificates or Class B
Certificates then outstanding with the highest distribution priority will be
decreased by the amount of such Subsequent Recoveries until reduced to zero
(with any remaining Subsequent Recoveries applied to reduce the Allocated
Realized Loss Amount of the class of Mezzanine Certificates or Class B
Certificates with the next highest distribution priority), and the Certificate
Principal Balance of such class or classes of Mezzanine Certificates or Class B
Certificates will be increased by the same amount. Thereafter, such class or
classes of Mezzanine Certificates or Class B Certificates will accrue interest
on the increased Certificate Principal Balance.
A "Swap Default" means an Event of Default under the Interest Rate Swap
Agreement.
A "Swap Early Termination" means the occurrence of an Early Termination
Date under the Interest Rate Swap Agreement.
The "Swap Provider" means [________].
A "Swap Provider Trigger Event" means a Swap Termination Payment that
is triggered upon: (i) an Event of Default under the Interest Rate Swap
Agreement with respect to which the Swap Provider is a Defaulting Party (as
defined in the Interest Rate Swap Agreement), (ii) a Termination Event under the
Interest Rate Swap Agreement with respect to which the Swap Provider is the sole
Affected Party (as defined in the Interest Rate Swap Agreement) or (iii) an
Additional Termination Event under the Interest Rate Swap Agreement with respect
to which the Swap Provider is the sole Affected Party.
The "Swap Termination Payment" means the amount, if any, owed by the
trust or the Swap Provider upon a Swap Early Termination.
A "Termination Event" under the Interest Rate Swap Agreement consists
of the following standard events under the ISDA Master Agreement:
o "Illegality" (which generally relates to changes in law
causing it to become unlawful for either party to perform its
obligations under the Interest Rate Swap Agreement),
o "Tax Event" (which generally relates to either party to the
Interest Rate Swap Agreement receiving a payment under the
Interest Rate Swap Agreement from which an amount has been
deducted or withheld for or on account of taxes) and
o "Tax Event Upon Merger" (solely with respect to the Swap
Provider as merging party) (which generally relates to the
Swap Provider's receiving a payment under the Interest Rate
Swap Agreement from which an amount has been deducted or
withheld for or on account of taxes resulting from a merger),
as described in Sections 5(b)(i), 5(b)(ii) and 5(b)(iii) of the ISDA
Master Agreement. In addition, there are "Additional Termination Events" (as
defined in the Interest Rate Swap Agreement) including if the trust should
terminate, if the Pooling Agreement or other transaction documents are amended
or modified without the prior written consent of the Swap Provider where written
consent is required or if, pursuant to the terms of the Pooling Agreement, the
majority holder of the Class C Certificates or the NIMS Insurer, if any,
exercise the option to purchase the Mortgage Loans. With respect to the Swap
Provider, an Additional Termination Event will occur if the Swap Provider fails
to comply with the Downgrade Provisions.
A "Trigger Event" is in effect with respect to any Distribution Date on
or after the Stepdown Date if either:
(a)(i) on any Distribution Date on which the Class A Certificates
remain outstanding, and the Delinquency Percentage exceeds [__]% of the Credit
Enhancement Percentage; or (ii) on any Distribution Date on which the aggregate
Certificate Principal Balance of the Class A Certificates has been reduced to
zero, and the Delinquency Percentage exceeds [__]% of the Credit Enhancement
Percentage; or
(b) the aggregate amount of Realized Losses incurred since the Cut-off
Date through the last day of the related Due Period (reduced by the aggregate
amount of Subsequent Recoveries received since the Cut-off Date through the last
day of the related Due Period) divided by the sum of the aggregate Cut-off Date
Principal Balance of the Initial Mortgage Loans and the Original Pre-Funded
Amounts exceeds the applicable percentages set forth below with respect to such
Distribution Date:
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
-------------------------------------- -----------------
[__] through [__]
[__] through [__]
[__] through [__]
[__] through [__]
[__] through [__]
[__] and thereafter
The "Unpaid Interest Shortfall Amount" means (i) for each class of
Offered Certificates and the Class B Certificates and the first Distribution
Date, zero, and (ii) with respect to each class of Offered Certificates and the
Class B Certificates and any Distribution Date after the first Distribution
Date, the amount, if any, by which (a) the sum of (1) the Monthly Interest
Distributable Amount for such class for the immediately preceding Distribution
Date and (2) the outstanding Unpaid Interest Shortfall Amount, if any, for such
class for such preceding Distribution Date exceeds (b) the aggregate amount
distributed on such class in respect of interest pursuant to clause (a) of this
definition on such preceding Distribution Date, plus interest on the amount of
interest due but not paid on the Certificates of such class on such preceding
Distribution Date, to the extent permitted by law, at the Pass-Through Rate for
such class for the related Accrual Period.
PASS-THROUGH RATES
The "Pass-Through Rate" on any Distribution Date with respect to the
Offered Certificates and the Class B Certificates will equal the lesser of (a)
the related Formula Rate and (b) the Net WAC Rate for such Distribution Date.
With respect to the Offered Certificates and the Class B Certificates , interest
in respect of any Distribution Date will accrue during the related Accrual
Period on the basis of a 360-day year and the actual number of days elapsed.
The "Formula Rate" for the Offered Certificates and the Class B
Certificates is the lesser of (a) the Base Rate for such class or (b) the
related Maximum Cap Rate.
The "Base Rate" for the Offered Certificates and the Class B
Certificates is the sum of the interbank offered rate for one-month United
States dollar deposits in the London market (the "Certificate Index") as of the
related LIBOR Determination Date (as defined herein) plus a related margin (the
"Certificate Margin"). The Certificate Margin with respect to the each class of
Offered Certificates and the Class B Certificates will be the percentages set
forth below.
Margin
---------------------
Class (1) (2)
---------- ------- -------
I-A1
II-A1
M-1
M-2
B-1
B-2
B-3
- ---------
(1) For each Distribution Date up to and including the Optional Termination
Date, as defined in this prospectus supplement under "Pooling
Agreement--Termination."
(2) On each Distribution Date after the Optional Termination Date.
The "Net WAC Rate" for any Distribution Date is a per annum rate
(subject to adjustment based on the actual number of days elapsed in the related
Accrual Period) equal to a fraction, expressed as a percentage, (1) the
numerator of which is equal to the product of (A) 12 multiplied by (B) the sum
of (i) the amount of interest which accrued on the Mortgage Loans in the prior
calendar month (after giving effect to principal prepayments) at their Adjusted
Net Mortgage Rates and (ii) any amounts withdrawn from the Interest Coverage
Accounts, if any, for such Distribution Date minus the amount of any Net Swap
Payment or Swap Termination Payment (only if such Swap Termination Payment was
not due to a Swap Provider Trigger Event) made to the Swap Provider and (2) the
denominator of which is equal to the sum of (i) the aggregate principal balance
of the Mortgage Loans as of the first day of the month preceding the month in
which such Distribution Date occurs, after giving effect to principal
prepayments received during the related Prepayment Period and (ii) the amounts
on deposit in the Pre-Funding Accounts.
The "Adjusted Net Mortgage Rate" for any Mortgage Loan for any
Distribution Date will be a per annum rate equal to the applicable Mortgage Rate
for such Mortgage Loan as of the first day of the month preceding the month in
which such Distribution Date occurs minus the sum of (i) the Servicing Fee Rate,
(ii) the Custodial Fee Rate and (iii) the Credit Risk Manager Fee Rate.
The "Maximum Cap Rate" for any Distribution Date is a per annum rate
(subject to adjustment based on the actual number of days elapsed in the related
Accrual Period) equal to the weighted average of the Adjusted Net Maximum
Mortgage Rates of the Mortgage Loans, plus an amount, expressed as a per annum
rate, equal to the product of (i) any Net Swap Payment made by the Swap Provider
divided by the outstanding Aggregate Principal Balance of the Mortgage Loans and
(ii) 12.
The "Adjusted Net Maximum Mortgage Rate" for any Mortgage Loan for any
Distribution Date will be a per annum rate equal to the applicable Maximum
Mortgage Rate for such Mortgage Loan (or the Mortgage Rate in the case of any
fixed-rate Mortgage Loan) as of the first day of the month preceding the month
in which such Distribution Date occurs minus the sum of (i) the Servicing Fee
Rate, (ii) the Custodial Fee Rate and (iii) the Credit Risk Manager Fee Rate.
If on any Distribution Date, the Pass-Through Rate for a class of
Offered Certificates or the Class B Certificates is the Net WAC Rate, then the
"Net WAC Rate Carryover Amount" for such class for such Distribution Date is an
amount equal
to the sum of (i) the excess of (x) the amount of interest such class of
Certificates would have accrued on such Distribution Date had such Pass-Through
Rate been the related Formula Rate, over (y) the amount of interest such class
of Certificates accrued for such Distribution Date at the Net WAC Rate and (ii)
the unpaid portion of any related Net WAC Rate Carryover Amount from the prior
Distribution Date together with interest accrued on such unpaid portion for the
most recently ended Accrual Period at the Formula Rate applicable for such class
for such Accrual Period. Any Net WAC Rate Carryover Amount on the Offered
Certificates and the Class B Certificates will be distributed on such
Distribution Date or future Distribution Dates from and to the extent of funds
available therefor in accordance with the priorities described above under
"Overcollateralization Provisions" after taking into account any amounts
received under the cap contract as described below and "--Interest Rate Swap
Agreement, the Swap Provider and the Swap Account."
On the Closing Date, the Trustee will establish an account (the "Net
WAC Rate Carryover Reserve Account") from which payments in respect of Net WAC
Rate Carryover Amounts on the Offered Certificates will be made. The Net WAC
Rate Carryover Reserve Account will be an asset of the Trust but not of any
REMIC. On each Distribution Date, to the extent required following the
distribution of Available Funds as described under "--Overcollateralization
Provisions" above, and after deposit in the Net WAC Rate Carryover Reserve
Account of any payments received under the cap contract, the Trustee will
withdraw from amounts in the Net WAC Rate Carryover Reserve Account to
distribute to the Offered Certificates and the Class B Certificates any Net WAC
Rate Carryover Amounts in the following order of priority, in each case to the
extent of amounts remaining in the Net WAC Rate Carryover Reserve Account:
(i) concurrently, to each class of Class A Certificates, the related Cap Amount,
from payments made under the cap contract, in each case up to a maximum amount
equal to the related Net WAC Rate Carryover Amount for such Distribution Date;
(ii) sequentially, to the Class [__], Class [__], Class [__], Class [__] and
Class [__] Certificates, in that order, the related Cap Amount, from payments
made under the cap contract, in each case up to a maximum amount equal to the
related Net WAC Rate Carryover Amount for such Distribution Date;
(iii) concurrently, to each class of Class A Certificates, the related Net WAC
Rate Carryover Amount remaining undistributed pursuant to clause (i) above, on a
PRO RATA basis based on such respective remaining Net WAC Rate Carryover
Amounts; and
(iv) sequentially, to the Class [__], Class [__], Class [__], Class [__] and
Class [__] Certificates, in that order, the related Net WAC Rate Carryover
Amount.
The "Cap Amount" for the Offered Certificates and the Class B
Certificates is equal to (i) the aggregate amount received by the Trust from the
cap contract multiplied by (ii) a fraction equal to (a) the Certificate
Principal Balance of such class immediately prior to the applicable Distribution
Date divided by (b) the aggregate Certificate Principal Balance of the Offered
Certificates and the Class B Certificates immediately prior to the applicable
Distribution Date.
INTEREST COVERAGE ACCOUNTS
The Trustee may establish for the benefit of the Certificateholders one
or more trust accounts (the "Interest Coverage Accounts"), as required in the
Pooling Agreement and on the Closing Date, the Depositor may deliver to the
Trustee for deposit in the Interest Coverage Accounts cash amounts as specified
in the Pooling Agreement. On each Distribution Date during, and the Distribution
Date immediately following, the Funding Period, funds on deposit in the Interest
Coverage Accounts, if any, will be applied by the Trustee to cover certain
shortfalls in the amount of interest generated by the assets of the Trust
attributable to the pre-funding feature. Such shortfall may exist during the
Funding Period because the interest accruing on the aggregate Principal Balance
of the related Mortgage Loans during such period will be less than the amount of
interest which would have accrued on the Mortgage Loans if the related
Subsequent Mortgage Loans were included in the Trust as of the Closing Date. On
the first Distribution Date following the termination of the Funding Period
(after the distribution on the Certificates to be made on such Distribution
Date), funds on deposit in the related Interest Coverage Account, if any, to the
extent not needed to fund any shortfall of the kind described above, will be
released by the Trustee to the Depositor or its designee. The Interest Coverage
Accounts will not be assets of any REMIC.
THE CAP CONTRACT
The Offered Certificates and the Class B Certificates will have the
benefit of an interest rate cap contract. Pursuant to the cap contract,
[________] (together with any successor, the "Counterparty") will agree to pay
to the Trust a monthly payment in an amount equal to the product of: (1) the
excess, if any, of one-month LIBOR (as set forth in the cap contract) over the
rate set forth below for the Distribution Dates set forth below, up to a maximum
one-month LIBOR of [__]%; (2) the lesser of (i) the notional amount set forth
below for the related Distribution Date and (ii) the aggregate Certificate
Principal Balance of the Offered Certificates and the Class B Certificates for
the related Distribution Date; and (3) a fraction, the numerator of which is the
actual number of days elapsed from the previous Distribution Date to but
excluding the current Distribution Date (or, for the first Distribution Date,
the actual number of days elapsed from the Closing Date to but excluding the
first Distribution Date), and the denominator of which is 360.
CAP STRIKE CAP CEILING
DISTRIBUTION DATE NOTIONAL AMOUNT ($) RATE (%) RATE (%)
--------------------- ---------------------- ------------ -------------
THE COUNTERPARTY
[Information required pursuant to Item 1115 of Regulation AB with
respect to the cap contract counterparty will be provided fi applicable.]
INTEREST RATE SWAP AGREEMENT, THE SWAP PROVIDER AND THE SWAP ACCOUNT
THE INTEREST RATE SWAP AGREEMENT
On or before the Closing Date, the Trustee (in its capacity as trustee
of the supplemental interest trust created under the Pooling Agreement) will
enter into an Interest Rate Swap Agreement with the Swap Provider. On each
Distribution Date, the Trustee (in its capacity as trustee of the supplemental
interest trust created under the Pooling Agreement) will deposit into the Swap
Account certain amounts, if any, received from the Swap Provider from which
distributions in respect of Unpaid Interest Shortfall Amounts, Net WAC Rate
Carryover Amounts, amounts necessary to maintain the applicable
Overcollateralization Target Amount and Allocated Realized Loss Amounts on the
Mezzanine Certificates will be made. The Swap Account will be an asset of the
Trust but not of any REMIC.
Under the Interest Rate Swap Agreement, on each Distribution Date, the
Trust will be obligated to pay to the Swap Provider from amounts available
therefor pursuant to the Pooling Agreement, a Fixed Swap Payment equal to the
product of (x) [__]%, (y) the Base Calculation Amount for that Distribution Date
multiplied by 250 and (z) a fraction, the numerator of which is 30 (or, for the
first Distribution Date, the number of days elapsed from the Closing Date to but
excluding the first Distribution Date on a 30/360 basis), and the denominator of
which is 360, and the Swap Provider will be obligated to pay to the Trustee (in
its capacity as trustee of the supplemental interest trust created under the
Pooling Agreement) a floating amount equal to the product of (x) one-month LIBOR
(as determined pursuant to the Interest Rate Swap Agreement), (y) the Base
Calculation Amount for that Distribution Date multiplied by 250, and (z) a
fraction, the numerator of which is the actual number of days elapsed from the
previous Distribution Date to but excluding the current Distribution Date (or,
for the first Distribution Date, the actual number of days elapsed from the
Closing Date to but excluding the first Distribution Date), and the denominator
of which is 360. A net payment will be required to be made on each Distribution
Date (each such net payment, a "Net Swap Payment") (a) by the Trust, to the Swap
Provider, to the extent that the fixed amount exceeds the corresponding floating
amount, or (b) by the Swap Provider to the Trust to the extent that the floating
amount exceeds the corresponding fixed amount.
The initial Base Calculation Amount (for the Distribution Date in
[___]) will be $[__]. The Interest Rate Swap Agreement will terminate
immediately after the [__] Distribution Date unless terminated earlier upon the
occurrence of a Swap Default, an Early Termination Event or an Additional
Termination Event.
The respective obligations of the Swap Provider and the Trustee (in its
capacity as trustee of the supplemental interest trust created under the Pooling
Agreement) to pay specified amounts due under the Interest Rate Swap Agreement
will be subject to the following conditions precedent: (1) no Swap Default or
event that with the giving of notice or lapse of time or both would become a
Swap Default, in each case, in respect of the other party, shall have occurred
and be continuing with respect to the Interest Rate Swap Agreement and (2) no
"Early Termination Date" (as defined in the ISDA Master Agreement) has occurred
or been effectively designated with respect to the Interest Rate Swap Agreement.
Upon the occurrence of any Swap Default under the Interest Rate Swap
Agreement, the non-defaulting party will have the right to designate an Early
Termination Date. With respect to Termination Events (including Additional
Termination Events), an Early Termination Date may be designated by one of the
parties (as specified in the Interest Rate Swap Agreement) and will occur only
after notice has been given of the Termination Event, all as set forth in the
Interest Rate Swap Agreement.
Upon any Swap Early Termination, the Trust or the Swap Provider may be
liable to make a Swap Termination Payment to the other (regardless, if
applicable, of which of the parties has caused the termination). The Swap
Termination Payment will be based on the value of the Interest Rate Swap
Agreement computed in accordance with the procedures set forth in the Interest
Rate Swap Agreement taking into account the present value of the unpaid amounts
that would have been owed to and by the Swap Provider under the remaining
scheduled term of the Interest Rate Swap Agreement. In the event that the Trust
is required to make a Swap Termination Payment, that payment will be paid from
the trust on the related Distribution Date, and on any subsequent Distribution
Dates until paid in full, generally prior to distributions to
certificateholders.
Upon a Swap Early Termination, the Trustee (in its capacity as trustee
of the supplemental interest trust created under the Pooling Agreement), at the
direction of the Depositor and with the consent of the NIMS Insurer, if any,
will seek a replacement swap provider to enter into a replacement interest rate
swap agreement or similar agreement. To the extent the Trust receives a Swap
Termination Payment from the Swap Provider, the Trustee will apply, as set forth
in the Pooling Agreement, all or such portion of such Swap Termination Payment
as may be required to the payment of amounts due to a replacement swap provider
under a replacement interest rate swap agreement or similar agreement.
Furthermore, to the extent the Trust is required to pay a Swap Termination
Payment to the Swap Provider, the Trustee will apply all or a portion of such
amount received from a replacement swap provider upon entering into a
replacement interest rate swap agreement or similar agreement to the Swap
Termination Payment amount owing to the Swap Provider.
Upon the occurrence of a Downgrade Provision, the Swap Provider will be
required to (1) post collateral securing its obligations under the Interest Rate
Swap Agreement or (2) obtain a substitute Swap Provider acceptable to the Rating
Agencies and the NIMS Insurer, if any (such consent by the NIMS Insurer not to
be unreasonably withheld), that will assume the obligations of the Swap Provider
under the Interest Rate Swap Agreement.
THE SWAP PROVIDER
[_________] was founded in [_______] and is [_________]. It is the
principal subsidiary of [_________], one of the largest bank holding companies
in the United States. The senior debt of [_________] is rated "[__]" by [__],
"[__]" by [__] and "[__]" by [__].
[Further information required to Item 1115 of Regulation AB with
respect to the swap provider will be provided if applicable.]
THE SWAP ACCOUNT
Any Net Swap Payments made by the Swap Provider will be distributed in
accordance with the Pooling Agreement. The Trustee will be required to deposit
into the Swap Account all amounts received from the Swap Provider. Any amounts
received from the Swap Provider and not distributed to the Offered Certificates
and Class B Certificates will be paid to the majority holder of the Class C
Certificates or its designee.
Net Swap Payments and Swap Termination Payments (other than any Swap
Termination Payment resulting from a Swap Provider Trigger Event) payable by the
Trust will be deducted from Available Funds before distributions to
Certificateholders and will first be deposited into the Swap Account before
payment to the Swap Provider.
On each Distribution Date, to the extent required, following the
distribution of the Net Monthly Excess Cashflow as described in
"--Overcollateralization Provisions" and withdrawals from the Net WAC Rate
Carryover Reserve Account as described in "--Pass-Through Rates", the Trustee
will withdraw from amounts in the Swap Account to distribute to the Offered
Certificates and the Class B Certificates in the following order of priority:
FIRST, to the Swap Provider, any Net Swap Payment owed to the Swap
Provider pursuant to the Swap Agreement for such Distribution Date;
SECOND, to the Swap Provider, any Swap Termination Payment owed to the
Swap Provider not resulting from a Swap Provider Trigger Event pursuant to the
Swap Agreement;
THIRD, concurrently, to each class of Class A Certificates, the related
Monthly Interest Distributable Amount and Unpaid Interest Shortfall Amount
remaining undistributed after the distributions of the Group I Interest
Remittance Amount and the Group II Interest Remittance Amount, on a PRO RATA
basis based on such respective remaining Monthly Interest Distributable Amount
and Unpaid Interest Shortfall Amount,
FOURTH, sequentially, to the Class [__], Class [__], Class [__], Class
[__] and Class [__] Certificates, in that order, the related Monthly Interest
Distributable Amount and Unpaid Interest Shortfall Amount, to the extent
remaining undistributed after the distributions of the Group I Interest
Remittance Amount, the Group II Interest Remittance Amount and the Net Monthly
Excess Cashflow;
FIFTH, to the holders of the class or classes of Certificates then
entitled to receive distributions in respect of principal, in an amount
necessary to maintain the applicable Overcollateralization Target Amount after
taking into account distributions made pursuant to clause FIRST under
"--Overcollateralization Provisions;"
SIXTH, sequentially to the Class [__], Class [__], Class [__], Class
[__] and Class [__] Certificates, in that order, in each case up to the related
Allocated Realized Loss Amount related to such Certificates for such
Distribution Date remaining undistributed after distribution of the Net Monthly
Excess Cashflow;
SEVENTH, concurrently, to each class of Class A Certificates, the
related Net WAC Rate Carryover Amount, to the extent remaining undistributed
after distributions are made from the Net WAC Rate Carryover Reserve Account, on
a PRO RATA basis based on such respective Net WAC Rate Carryover Amounts
remaining; and
EIGHTH, sequentially, to the Class [__], Class [__], Class [__], Class
[__] and Class [__] Certificates, in that order, the related Net WAC Rate
Carryover Amount, to the extent remaining undistributed after distributions are
made from the Net WAC Rate Carryover Reserve Account.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Offered Certificates and Class B
Certificates (each such date, a "LIBOR Determination Date"), the Trustee will
determine the Certificate Index for such Accrual Period for the Offered
Certificates and the Class B Certificates on the basis of the London interbank
offered rate for one-month United States dollar deposits, as such rates appear
on the Telerate Page 3750, as of 11:00 a.m. (London time) on such LIBOR
Determination Date. If such 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 herein) for one-month United States dollar deposits,
as of 11:00 a.m. (London time) on such LIBOR Determination Date. The Trustee
will request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If on such LIBOR Determination Date two or more
Reference Banks provide such offered quotations, the Certificate Index for the
related Accrual Period will be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole multiple of 0.0625%). If on
such LIBOR Determination Date fewer than two Reference Banks provide such
offered quotations, the Certificate Index for the related Accrual Period shall
be the higher of (x) the Certificate Index as determined on the previous LIBOR
Determination Date and (y) the Reserve Interest Rate (as defined herein).
As used in this section, "LIBOR Business Day" means a day on which
banks are open for dealing in foreign currency and exchange in London and New
York City; "Telerate Page 3750" means the display page currently so designated
on the Dow Jones Telerate Capital Markets Report (or such other page as may
replace that page on that service for the purpose of displaying comparable rates
or prices); "Reference Banks" means leading banks selected by the Trustee, after
consultation with the Depositor, 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 Trustee
and (iii) not controlling, controlled by or under common control with, the
Servicer or any successor Servicer or the Originator; and "Reserve Interest
Rate" shall be the rate per annum that the 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 United States dollar lending rates which New York
City banks selected by the Trustee are quoting on the relevant LIBOR
Determination Date to the principal London offices of leading banks in the
London interbank market or (ii) in the event that the Trustee can determine no
such arithmetic mean, the lowest one-month United States dollar lending rate
which New York City banks selected by the Trustee are quoting on such LIBOR
Determination Date to leading European banks.
The establishment of the Certificate Index on each LIBOR Determination
Date by the Trustee and the Trustee's calculation of the rate of interest
applicable to the Offered Certificates and the Class B Certificates for the
related Accrual Period will (in the absence of manifest error) be final and
binding.
MANDATORY PRINCIPAL DISTRIBUTIONS ON CLASS A CERTIFICATES
The Class A Certificates will receive a principal distribution on the
Distribution Date immediately following the end of the Funding Period to the
extent of any amounts remaining on deposit in either Pre-Funding Account on such
Distribution Date. Although no assurance can be given, it is anticipated by the
Depositor that the aggregate Principal Balance of Subsequent Mortgage Loans sold
to the Trust will require the application of substantially all of the Original
Pre-Funded Amounts and that there will be no material amount of principal
distribution to the holders of the related classes of Class A Certificates from
the Pre-Funding Accounts. It is unlikely, however, that the Depositor will be
able to deliver Subsequent Mortgage Loans with an aggregate Principal Balance
identical to the Original Pre-Funded Amounts. Accordingly, a small amount of
principal representing the related unused Original Pre-Funded Amounts is likely
to be distributed on the related Class A Certificates on the Distribution Date
immediately following the end of the Funding Period.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will provide or make available
to each holder of a Certificate and the rating agencies a statement (based in
part on information received from the Servicer) setting forth, among other
things, the information set forth in the prospectus under "Description of the
Securities--Reports to Securityholders." The Trustee will make the statement
(and, at its option, any additional files containing the same information in an
alternative format) available each month via the Trustee's internet website.
Parties that are unable to use the above distribution options are entitled to
have a paper copy mailed to them via first class mail by calling the customer
service desk and indicating such. The Trustee shall have the right to change the
way statements are distributed in order to make such distribution more
convenient and/or more accessible to the above parties and the Trustee shall
provide timely and adequate notification to all above parties regarding any such
changes.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each holder of a
Certificate of record during the previous calendar year a statement containing
information necessary to enable holders of the Certificates to prepare their tax
returns. Such statements will not have been examined and reported upon by an
independent public accountant.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Defaults and Realized Losses
The yield to maturity of the Offered Certificates will be sensitive to
defaults on the Mortgage Loans. If a purchaser of an Offered Certificate
calculates its anticipated yield based on an assumed rate of default and amount
of losses that is lower than the default rate and amount of losses actually
incurred, its actual yield to maturity may be lower than that so calculated. In
general, the earlier a loss occurs, the greater is the effect on an investor's
yield to maturity. There can be no assurance as to the delinquency, foreclosure
or loss experience with respect to the Mortgage Loans. Because the Mortgage
Loans were underwritten in accordance with standards less stringent than those
generally acceptable to Fannie Mae and Freddie Mac with regard to a borrower's
credit standing and repayment ability, the risk of delinquencies with respect
to, and losses on, the Mortgage Loans will be greater than that of mortgage
loans underwritten in accordance with Fannie Mae and Freddie Mac standards.
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments, the aggregate amount of distributions
and the yields to maturity of the Offered Certificates will be affected by 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 (including for this purpose prepayments resulting from refinancing,
liquidations of the Mortgage Loans due to defaults, casualties or condemnations
and repurchases by the Servicer). Because certain of the Mortgage Loans contain
prepayment charges, the rate of principal payments may be less than the rate of
principal payments for mortgage loans that do not have prepayment charges. The
Mortgage Loans are subject to the "due-on-sale" provisions included therein and
each adjustable-rate Mortgage Loan provides that the Mortgage Loan is assumable
by a creditworthy purchaser of the related Mortgaged Property. See "The Mortgage
Pool" in this prospectus supplement.
Prepayments, liquidations and purchases of the Mortgage Loans
(including any optional purchase) will result in distributions on the Offered
Certificates of principal amounts which would otherwise be distributed over the
remaining terms of the Mortgage Loans. Since the rate of payment of principal on
the Mortgage Loans will depend on future events and a variety of other factors,
no assurance can be given as to such rate or the rate of principal prepayments.
The extent to which the yield to maturity of a class of Offered Certificates may
vary from the anticipated yield will depend upon the degree to which such class
of Certificates is purchased at a discount or premium. Further, an investor
should consider the risk that, in the case of any Offered Certificate purchased
at a discount, a slower than anticipated rate of principal payments (including
prepayments) on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of any
Offered Certificate purchased at a premium, a faster than anticipated rate of
principal payments on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. In general, if prevailing
interest rates were to fall significantly below the Mortgage Rates on the
Mortgage Loans, such Mortgage Loans could be subject to higher prepayment rates
than if prevailing interest rates were to remain at or above the Mortgage Rates
on such Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on such Mortgage Loans would generally be
expected to decrease. The Mortgage Loans may be subject to a greater rate of
principal prepayments in a low interest rate environment. For example, if
prevailing interest rates were to fall, mortgagors with adjustable-rate Mortgage
Loans may be inclined to refinance their adjustable-rate Mortgage Loans with a
fixed-rate loan to "lock in" a lower interest rate or to refinance their
adjustable-rate Mortgage Loans with other more competitive adjustable-rate
mortgage loans. The existence of the applicable Periodic Rate Cap and Maximum
Mortgage Rate with respect to the adjustable-rate Mortgage Loans also may affect
the likelihood of prepayments resulting from refinancings. No assurances can be
given as to the rate of prepayments on the Mortgage Loans in stable or changing
interest rate environments. In addition, the delinquency and loss experience of
the fixed-rate Mortgage Loans may differ from that on the adjustable-rate
Mortgage Loans because the amount of the monthly payments on the adjustable-rate
Mortgage Loans are subject to adjustment on each Adjustment Date. Furthermore,
substantially all of the adjustable-rate Mortgage Loans will not have their
initial Adjustment Date for one, two, three or five years after the origination
thereof. The prepayment experience of the Delayed First Adjustment Mortgage
Loans may differ from that of the other Mortgage Loans. The Delayed First
Adjustment Mortgage Loans may be subject to greater rates of prepayments as they
approach their initial Adjustment Dates even if market interest rates are only
slightly higher or lower than the Mortgage Rates on the Delayed First Adjustment
Mortgage Loans as mortgagors seek to avoid changes in their monthly payments.
The interest-only feature of the Interest Only Mortgage Loans may
reduce the perceived benefits of refinancing to take advantage of lower market
interest rates or to avoid adjustments in the Mortgage Rates. However, as a
Mortgage Loan with such a feature nears the end of its interest-only period, the
borrower may be more likely to refinance the Mortgage Loan, even if market
interest rates are only slightly less than the Mortgage Rate in order to avoid
the increase in the monthly payments to amortize the Mortgage Loan over its
remaining life.
Except in the circumstances described in this prospectus supplement,
principal distributions on the Group I Certificates relate to principal payments
on the Group I Mortgage Loans and principal distributions on the Group II
Certificates relate to principal payments on the Group II Mortgage Loans.
Approximately [__]% of the Initial Group I Mortgage Loans and
approximately [__]% of the Initial Group II Mortgage Loans (in each case, by
aggregate Cut-off Date Principal Balance of the related Loan Group) and
approximately [__]% of the Initial Mortgage Loans (by aggregate Cut-off Date
Principal Balance of the Initial Mortgage Loans), provide for payment by the
mortgagor of a prepayment charge in limited circumstances on certain
prepayments. The holders of the Class P Certificates will be entitled to all
prepayment charges received on the Mortgage Loans, and such amounts will not be
available for distribution on the other classes of Certificates. Under certain
circumstances, as described in the Pooling Agreement, the Servicer may waive the
payment of any otherwise applicable prepayment charge. Investors should conduct
their own analysis of the effect, if any, that the prepayment charges, and
decisions by the Servicer with respect to the waiver thereof, may have on the
prepayment performance of the Mortgage Loans. The Depositor makes no
representations as to the effect that the prepayment charges, and decisions by
the Servicer with respect to the waiver thereof, may have on the prepayment
performance of the Mortgage Loans.
YIELD CONSIDERATIONS RELATING TO INTEREST DISTRIBUTIONS
INTEREST MAY BE LIMITED BY THE NET WAC RATE. If the Pass-Through Rate
of any class of Offered Certificates is limited by the Net WAC Rate, such class
will accrue less interest than would otherwise be the case.
To the extent the Pass-Through Rate for any class of Offered
Certificates on any Distribution Date is limited to the Net WAC Rate, a
shortfall in interest equal to the Net WAC Rate Carryover Amount will occur.
Such shortfall will only be distributable from (i) payments received under cap
contract, (ii) payments received under the swap agreement or (iii) Net Monthly
Excess Cashflow to the extent that the Overcollateralization Target Amount has
been reached, in each case subject to the priorities described under
"Description of the Certificates--Overcollateralization Provisions" and
"--Pass-Through Rates" in this prospectus supplement and from payments received
under the cap contract.
The Net WAC Rate for the Offered Certificates will be lower for Accrual
Periods that are longer than 30 days, and the Pass-Through Rates on the Offered
Certificates are more likely to be capped at the Net WAC Rate than they would if
all Accrual Periods were 30 days long.
For a discussion of other factors that could cause the Pass-Through
Rate on the Offered Certificates to be capped at the Net WAC Rate, see "Risk
Factors--Effect of Mortgage Rates on the Offered Certificates" herein.
PREPAYMENT INTEREST SHORTFALLS AND RELIEF ACT SHORTFALLS. On any
Distribution Date, any shortfalls resulting from the application of the Relief
Act or any similar state law and any Prepayment Interest Shortfalls to the
extent not covered by Compensating Interest paid by the Servicer will be
allocated, first, to the interest distribution amount with respect to the Class
C Certificates, and thereafter, to the Monthly Interest Distributable Amounts
with respect to the Offered Certificates and Class B Certificates on a PRO RATA
basis based on the respective amounts of interest accrued on such certificates
for such Distribution Date. THE HOLDERS OF THE OFFERED CERTIFICATES AND SUCH
CLASS B CERTIFICATES WILL NOT BE ENTITLED TO REIMBURSEMENT FOR ANY SUCH INTEREST
SHORTFALLS. IF THESE SHORTFALLS ARE ALLOCATED TO THE OFFERED CERTIFICATES AND
CLASS B CERTIFICATES THE AMOUNT OF INTEREST DISTRIBUTED TO THOSE CERTIFICATES
WILL BE REDUCED, ADVERSELY AFFECTING THE YIELD ON YOUR INVESTMENT. See "Risk
Factors--Prepayment Interest Shortfalls and Relief Act Shortfalls" in this
prospectus supplement.
ADDITIONAL INFORMATION
The Depositor has filed certain yield tables and other computational
materials with respect to the Offered Certificates with the Securities and
Exchange Commission (the "Commission") in a report on Form 8-K and may file
certain additional yield tables and other computational materials with respect
to the Offered Certificates with the Commission in a report on Form 8-K. Such
tables and materials were prepared by the Underwriter at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and assumptions
may be based on assumptions that differ from the Structuring Assumptions (as
defined herein). Accordingly, such tables and other materials may not be
relevant to or appropriate for investors other than those specifically
requesting them.
The Subsequent Mortgage Loans may have characteristics different from
the Initial Mortgage Loans. However, each Subsequent Mortgage Loan must satisfy
the eligibility criteria referred to herein under "The Mortgage Pool--Conveyance
of Subsequent Mortgage Loans and the Pre-Funding Accounts" at the time of its
conveyance to the Trust and be underwritten in accordance with the criteria set
forth under "The Originator--Underwriting Guidelines" in this prospectus
supplement.
WEIGHTED AVERAGE LIVES
The timing of changes in the rate of principal prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal prepayments is consistent with such
investor's expectation. In general, the earlier a principal prepayment on the
Mortgage Loans occurs, the greater the effect of such principal prepayment on an
investor's yield to maturity. The effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Certificates may not be offset by a subsequent like decrease (or increase) in
the rate of principal prepayments.
The weighted average life of an Offered Certificate is the average
amount of time that will elapse from the Closing Date, until each dollar of
principal is repaid to the investors in such Certificate. Because it is expected
that there will be prepayments and defaults on the Mortgage Loans, the actual
weighted average lives of these Certificates are expected to vary substantially
from the weighted average remaining terms to stated maturity of the Mortgage
Loans as set forth herein under "The Mortgage Pool."
The Assumed Final Distribution Date for the Offered Certificates is as
set forth herein under "Description of the Certificates--General." The final
Distribution Date with respect to the Offered Certificates could occur
significantly earlier than the related Assumed Final Distribution Date because
(i) prepayments are likely to occur, (ii) excess cashflow, if any, will be
applied as principal of the Offered Certificates as described herein and (iii)
an early a termination of the Trust may occur as provided herein.
Prepayments of mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement (the
"Prepayment Assumption") assumes a prepayment rate for the fixed-rate Mortgage
Loans of 100% of the Fixed-Rate Prepayment Vector and a prepayment rate for the
adjustable-rate Mortgage Loans of 100% of the Adjustable-Rate Prepayment Vector.
The "Fixed-Rate Prepayment Vector" assumes a constant prepayment rate ("CPR") of
4.6% per annum of the then unpaid principal balance of such mortgage loans in
the first month of the life of such mortgage loans and an additional
approximately 1.6727% (precisely 18.4%/11) per annum in each month thereafter
until the 12th month. Beginning in the 12th month and in each month thereafter
during the life of such mortgage loans, such prepayment vector assumes a CPR of
23%. The "Adjustable-Rate Prepayment Vector" assumes (a) a CPR of 2% per annum
of the then unpaid principal balance of such mortgage loans in the first month
of the life of such mortgage loans and an additional 2.4545 (precisely 28%/11)
per annum in each month thereafter until the 12th month, and then beginning in
the 12th month and in each month thereafter until the 22nd month, a CPR of 30%
per annum, (b) beginning in the 23rd month and in each month thereafter until
the 28th month, a CPR of 50% per annum and (c) beginning in the 29th month and
in each month thereafter during the life of such Mortgage Loans, a CPR of 30%
per annum. However, the prepayment rate will not exceed 90% CPR per annum in any
period for any percentage of the Adjustable-Rate Vector.
CPR is a prepayment assumption that represents a constant assumed rate
of prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such mortgage loans. The model does not
purport to be either an historical description of the prepayment experience of
any pool of mortgage loans or a prediction of the anticipated rate of prepayment
of any mortgage loans, including the Mortgage Loans to be included in the Trust.
Each of the Prepayment Scenarios in the table below assumes the
respective percentages of the Prepayment Assumption described thereunder.
The tables entitled "Percent of Original Certificate Principal Balance
Outstanding" were prepared on the basis of the assumptions in the following
paragraph and the table set forth below. There are certain differences between
the loan characteristics included in such assumptions and the characteristics of
the actual Mortgage Loans. Any such discrepancy may have an effect upon the
percentages of Original Certificate Principal Balances outstanding and weighted
average lives of the Offered Certificates set forth in the tables. In addition,
since the actual Mortgage Loans in the Trust will have characteristics that
differ from those assumed in preparing the tables set forth below, the
distributions of principal of the Offered Certificates may be made earlier or
later than indicated in the table.
The percentages and weighted average lives in the tables entitled
"Percent of Original Certificate Principal Balance Outstanding" were determined
assuming that (the "Structuring Assumptions"): (i) the Mortgage Loans have the
characteristics set forth in Annex II to this prospectus supplement, (ii) the
Closing Date for the Offered Certificates occurs on [__]and the Offered
Certificates were sold to investors on such date, (iii) distributions on the
Certificates are made on the 25th day of each month regardless of the day on
which the Distribution Date actually occurs, commencing in [__], in accordance
with the allocation of Available Funds set forth above under "Description of the
Certificates--Allocation of Available Funds," (iv) the prepayment rates are the
percentages of the respective Prepayment Assumption set forth in the "Percent of
Original Certificate Principal Balance Outstanding" tables below, (v)
prepayments include thirty days' interest thereon, (vi) the Sponsor is not
required to substitute or repurchase any of the Mortgage Loans pursuant to the
Mortgage Loan Purchase Agreement and no optional termination is exercised,
except with respect to the entries identified by the row captioned "Weighted
Average Life (years) to Optional Termination" in the tables below, (vii) the
Overcollateralization Target Amount is determined as set forth in this
prospectus supplement, (viii) scheduled payments for the Mortgage Loans are
received on the first day of each month commencing in [__], the principal
portion of such payments is computed prior to giving effect to prepayments
received in the previous month and there are no losses or delinquencies with
respect to such Mortgage Loans, (ix) all related Mortgage Loans prepay at the
same rate and all such payments are treated as prepayments in full of individual
Mortgage Loans, with no shortfalls in collection of interest, (x) such
prepayments are received on the last day of each month commencing in the month
of the Closing Date, (xi) the Certificate Index is at all times equal to [__]%,
(xii) the Pass-Through-Rates for the Offered Certificates and the Class B
Certificates are as set forth herein, (xiii) the Mortgage Rate for each
adjustable-rate Mortgage Loan is adjusted on its Next Adjustment date (and on
subsequent Adjustment Dates, if necessary) to equal the sum of (a) the assumed
level of the Index and (b) the respective Gross Margin (such sum being subject
to the applicable Initial Periodic Rate Caps, Periodic Rate Caps, Minimum
Mortgage Rates and Maximum Mortgage Rates), (xii) with respect to the
adjustable-rate Mortgage Loans, Six-Month LIBOR is equal to [__]%, (xiv) the sum
of the Servicing Fee Rate, the Custodian Fee Rate and the Credit Risk Manager
Fee Rate for each Mortgage Loan is equal to[__]% per annum and (xv) the Funding
Period ends on [__] and all Subsequent Mortgage Loans are added to the Mortgage
Pool on [__], (xvi) each Mortgage Loan with an interest only term greater than
zero does not amortize during the remaining interest only period but following
the interest only term, each such mortgage loan will amortize in amounts
sufficient to repay the current principal balance of such mortgage loan over the
remaining term to maturity calculated at the expiration of the interest only
term, (xvii) the balance of the Class P Certificates is $0 and (xviii) the Fixed
Swap Payment is calculated as described under "Description of the Certificates--
Interest Rate Swap Agreement, the Swap Provider and the Swap Account" and no
Swap Termination Payment is made. Nothing contained in the foregoing assumptions
should be construed as a representation that the Mortgage Loans will not
experience delinquencies or losses.
PREPAYMENT SCENARIOS(1)
SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
---------- ----------- ------------ ----------- ----------
Adjustable-Rate Mortgage Loans: 65% 85% 100% 125% 150%
Fixed-Rate Mortgage Loans: 65% 85% 100% 125% 150%
- -----------------
(1) Percentage of the Fixed-Rate Prepayment Vector or the Adjustable-Rate
Prepayment Vector, as applicable.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of the Offered Certificates, and set forth the
percentages of the Original Certificate Principal Balance of such Certificate
that would be outstanding after each of the dates shown, at various percentages
of the Prepayment Assumption.
PERCENT OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
CLASS [__]
PREPAYMENT SCENARIO
---------------------------------------------------------------------------------
DISTRIBUTION DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
- -------------------------------- ------------- ------------- --------------- -------------- --------------
Initial Percentage.............. 100% 100% 100% 100% 100%
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
(1) The weighted average life of any class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the Certificate Principal
Balance on each Distribution Date of such class of Certificates by the
number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the aggregate amount of the assumed net reductions in the
Certificate Principal Balance of such class of Certificates.
(2) Assumes an optional purchase of the Mortgage Loans on the earliest
Distribution Date on which it is permitted.
* If applicable, indicates a number that is greater than zero but less than
0.5%.
PERCENT OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
CLASS [__]
PREPAYMENT SCENARIO
---------------------------------------------------------------------------------
DISTRIBUTION DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
- -------------------------------- ------------- ------------- --------------- -------------- --------------
Initial Percentage.............. 100% 100% 100% 100% 100%
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
(1) The weighted average life of any class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the Certificate Principal
Balance on each Distribution Date of such class of Certificates by the
number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the aggregate amount of the assumed net reductions in the
Certificate Principal Balance of such class of Certificates.
(2) Assumes an optional purchase of the Mortgage Loans on the earliest
Distribution Date on which it is permitted.
* If applicable, indicates a number that is greater than zero but less than
0.5%.
PERCENT OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
CLASS [__]
PREPAYMENT SCENARIO
---------------------------------------------------------------------------------
DISTRIBUTION DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
- -------------------------------- ------------- ------------- --------------- -------------- --------------
Initial Percentage.............. 100% 100% 100% 100% 100%
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------------------
(1) The weighted average life of any class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the Certificate Principal
Balance on each Distribution Date of such class of Certificates by the
number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the aggregate amount of the assumed net reductions in the
Certificate Principal Balance of such class of Certificates.
(2) Assumes an optional purchase of the Mortgage Loans on the earliest
Distribution Date on which it is permitted.
* If applicable, indicates a number that is greater than zero but less than
0.5%.
PERCENT OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
CLASS [__]
PREPAYMENT SCENARIO
---------------------------------------------------------------------------------
DISTRIBUTION DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
- -------------------------------- ------------- ------------- --------------- -------------- --------------
Initial Percentage.............. 100% 100% 100% 100% 100%
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- ------------
(1) The weighted average life of any class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the Certificate Principal
Balance on each Distribution Date of such class of Certificates by the
number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the aggregate amount of the assumed net reductions in the
Certificate Principal Balance of such class of Certificates.
(2) Assumes an optional purchase of the Mortgage Loans on the earliest
Distribution Date on which it is permitted.
* If applicable, indicates a number that is greater than zero but less than
0.5%.
PERCENT OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
CLASS [__]
PREPAYMENT SCENARIO
---------------------------------------------------------------------------------
DISTRIBUTION DATE SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
- -------------------------------- ------------- ------------- --------------- -------------- --------------
Initial Percentage.............. 100% 100% 100% 100% 100%
Weighted Average Life (years) to
Maturity(1).....................
Weighted Average Life (years) to
Optional Termination(1)(2)......
- -------------
(1) The weighted average life of any class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the Certificate Principal
Balance on each Distribution Date of such class of Certificates by the
number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the aggregate amount of the assumed net reductions in the
Certificate Principal Balance of such class of Certificates.
(2) Assumes an optional purchase of the Mortgage Loans on the earliest
Distribution Date on which it is permitted.
* If applicable, indicates a number that is greater than zero but less than
0.5%.
YIELD SENSITIVITY OF THE MEZZANINE CERTIFICATES
If the Certificate Principal Balances of the Class C Certificates, the
Class B Certificates and each class of Mezzanine Certificates with a lower
distribution priority have been reduced to zero, the yield to maturity on any
remaining classes of Mezzanine 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 any Realized Losses (to the extent
not covered by Net Monthly Excess Cashflow or by amounts paid under the Interest
Rate Swap Agreement and available for that purpose), will be allocated to those
Certificates. The initial undivided interests in the Trust evidenced by the
Class [__] Certificates, the Class [__] Certificates, the Class [__]
Certificates, the Class [__] Certificates, the Class [__] Certificates and the
Class [__] Certificates are approximately [__]%, approximately [__]%,
approximately [__]%, approximately [__]%, approximately [__]%, approximately
[__]%, approximately respectively. Investors in the Mezzanine Certificates
should fully consider the risk that Realized Losses on the Mortgage Loans could
result in the failure of such investors to fully recover their investments. In
addition, once Realized Losses have been allocated to the Mezzanine
Certificates, such amounts with respect to such Certificates will no longer
accrue interest and will not be reinstated thereafter (except in the case of
Subsequent Recoveries). However, Allocated Realized Loss Amounts may be paid to
the holders of the Mezzanine Certificates from Net Monthly Excess Cashflow in
the priorities set forth under "Description of the
Certificates--Overcollateralization Provisions" and "Description of the
Certificates--Interest Rate Swap Agreement, the Swap Provider and the Swap
Account" in this prospectus supplement.
Unless the Certificate Principal Balance of the Class A Certificates
has been reduced to zero, the Mezzanine Certificates will not be entitled to any
principal distributions until the Stepdown Date or during any period in which a
Trigger Event is in effect. As a result, the weighted average lives of the
Mezzanine Certificates will be longer than would otherwise be the case if
distributions of principal were allocated on a PRO RATA basis among the Offered
Certificates. As a result of the longer weighted average lives of the Mezzanine
Certificates, the holders of such Certificates have a greater risk of suffering
a loss on their investments. Further, because a Trigger Event may be based on
delinquencies, it is possible for the Mezzanine Certificates to receive no
principal distributions (unless the Certificate Principal Balance of the Class A
Certificates has been reduced to zero) on and after the Stepdown Date even if no
losses have occurred on the Mortgage Pool. For additional considerations
relating to the yield on the Mezzanine Certificates, see "Yield and Prepayment
Considerations" in the prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates to the purchase of the Mortgage Loans transferred to the Trust and
to deposit funds into the Pre-Funding Accounts.
FEDERAL INCOME TAX CONSEQUENCES
One or more elections will be made to treat designated portions of the
Trust (exclusive of the Pre-Funding Accounts, the Interest Coverage Accounts, if
any, the Net WAC Rate Carryover Reserve Account, any Subsequent Mortgage Loan
Interest, the Swap Account, any Servicer Prepayment Charge Payment Amounts and
the cap contract and the Interest Rate Swap Agreement, as described more fully
herein or in the Pooling Agreement) as a real estate mortgage investment conduit
(a "REMIC") for federal income tax purposes. Upon the issuance of the Offered
Certificates, [__________], counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
Pooling Agreement, for federal income tax purposes, each REMIC elected by the
Trust will qualify as a REMIC under Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "Code").
For federal income tax purposes, (i) the Residual Certificates will
consist of components, each of which will represent the sole class of "residual
interests" in each REMIC elected by the Trust and (ii) the Offered Certificates,
Class B Certificates and Class C Certificates (exclusive of any right of the
holder of such Certificates to receive distributions from or obligation to make
payments to the Net WAC Rate Carryover Reserve Account in respect of the Net WAC
Rate Carryover Amount or the Swap Account) and the Class P Certificates will
represent the "regular interests" in, and which generally will be treated as
debt instruments of, a REMIC. See "Certain Material Federal Income Tax
Considerations--General" in the prospectus.
Each holder of an Offered Certificate and a Class B Certificate is
deemed to own an undivided beneficial ownership interest in two assets, a REMIC
regular interest and the right to receive payments from the Net WAC Rate
Carryover Reserve Account or the Swap Account in respect of the Net WAC Rate
Carryover Amount or the obligation to make payments to the Swap Account. The Net
WAC Rate Carryover Reserve Account, the Swap Account and the Interest Rate Swap
Agreement are not assets of any REMIC. The treatment of amounts received by a
holder of an Offered Certificate under such Certificateholder's right to receive
the Net WAC Rate Carryover Amount will depend on the portion, if any, of such
Certificateholder's purchase price allocable thereto. Under the REMIC
Regulations, each holder of an Offered Certificate must allocate its purchase
price for the Offered Certificate between its undivided interest in the regular
interest of the related REMIC and its undivided interest in the right to receive
distributions in respect of the Net WAC Rate Carryover Amount in accordance with
the relative fair market values of each property right. The Trust intends to
treat distributions made to the holders of the Offered Certificates with respect
to the Net WAC Rate Carryover Amount as includible in income based on the
regulations relating to notional principal contracts (the "Notional Principal
Contract Regulations"). The OID Regulations provide that the Trust's allocation
of the issue price is binding on all holders of the applicable class unless the
holder explicitly discloses on its tax return that its allocation is different
from the Trust's allocation. For tax reporting purposes, the right to receive
distributions in respect of Net WAC Rate Carryover Amounts may have more than a
DE MINIMIS value. The value of such amount, if any, may be obtained from the
Trustee upon request, provided that the Trustee has received such information
from the Underwriter. Under the REMIC Regulations, the Trust is required to
account for the REMIC regular interest and the right to receive distributions in
respect of the Net WAC Rate Carryover Amount as discrete property rights.
Holders of the Offered Certificates are advised to consult their own tax
advisors regarding the allocation of issue price, timing, character and source
of income and deductions resulting from the ownership of such Certificates.
Treasury regulations have been promulgated under Section 1275 of the Code
generally providing for the integration of a "qualifying debt instrument" with a
hedge if the combined cash flows of the components are substantially equivalent
to the cash flows on a variable rate debt instrument. However, such regulations
specifically disallow integration of debt instruments subject to Section
1272(a)(6) of the Code. Therefore, holders of the Offered Certificates will be
unable to use the integration method provided for under such regulations with
respect to those Certificates. If the Trust's treatment of distributions of the
Net WAC Rate Carryover Amount is respected, ownership of the right to the Net
WAC Rate Carryover Amount will entitle the owner to amortize the separate price
paid for the right to the Net WAC Rate Carryover Amount under the Notional
Principal Contract Regulations.
Any payments made to a beneficial owner of an Offered Certificate or a
Class B Certificate in excess of the amounts payable on the corresponding REMIC
regular interest will be treated as having been received as a payment on a
notional principal contract. To the extent the sum of such periodic payments for
any year exceeds that year's amortized cost of any Net WAC Rate Carryover
Amounts, such excess represents net income for that year. Conversely, to the
extent that the amount of that year's amortized cost exceeds the sum of the
periodic payments, such excess will represent a net deduction for that year. In
addition, any amounts payable on such REMIC regular interest in excess of the
amount of payments on the Offered Certificate or Class B Certificate to which it
relates will be treated as having been received by the beneficial owners of such
Certificates and then paid by such owners to the Swap Account pursuant to the
Pooling Agreement, and such excess should be treated as a periodic payment on a
notional principal contract that is made by the beneficial owner during the
applicable taxable year and that is taken into account in determining the
beneficial owner's net income or net deduction with respect to any Net WAC Rate
Carryover Amounts for such taxable year. Although not clear, net income or a net
deduction with respect to the Net WAC Rate Carryover Amount should be treated as
ordinary income or as an ordinary deduction. Holders of the Offered Certificates
and Class B Certificates are advised to consult their own tax advisors regarding
the tax characterization and timing issues relating to a Swap Termination
Payment.
Because a beneficial owner of any Net WAC Rate Carryover Amounts will
be required to include in income the amount deemed to have been paid by such
owner, but may not be able to deduct that amount from income, a beneficial owner
of an Offered Certificate or Class B Certificate may have income that exceeds
cash distributions on the Offered Certificate or Class B Certificate in any
period and over the term of such certificate. As a result, the Offered
Certificates and Class B Certificates may not be a suitable investment for any
taxpayer whose net deduction with respect to any Net WAC Rate Carryover Amounts
would be subject to the limitations described above.
Upon the sale of an Offered Certificate the amount of the sale
allocated to the selling Certificateholder's right to receive distributions in
respect of the Net WAC Rate Carryover Amount would be considered a "termination
payment" under the Notional Principal Contract Regulations allocable to the
related Offered Certificate. A holder of an Offered Certificate will have gain
or loss from such a termination of the right to receive distributions in respect
of the Net WAC Rate Carryover Amount equal to (i) any termination payment it
received or is deemed to have received minus (ii) the unamortized portion of any
amount paid (or deemed paid) by such Certificateholder upon entering into or
acquiring its interest in the right to receive distributions in respect of the
Net WAC Rate Carryover Amount. Gain or loss realized upon the termination of the
right to receive payments in respect of the Net WAC Rate Carryover Amount will
generally be treated as capital gain or loss. Moreover, in the case of a bank or
thrift institution, Code Section 582(c) would likely not apply to treat such
gain or loss as ordinary.
For federal income tax reporting purposes, the Offered Certificates may
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 the Prepayment Assumption. No
representation is made that the Mortgage Loans will prepay at such rate or at
any other rate. See "Certain Material Federal Income Tax
Considerations--Taxation of Debt Securities" in the prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Offered Certificates should be aware that the OID Regulations
do not adequately address certain issues relevant to, or are not applicable to,
prepayable securities such as the Offered Certificates. In addition, there is
considerable uncertainty concerning the application of the OID Regulations to
REMIC Regular Certificates that provide for payments based on an adjustable rate
such as the Offered Certificates. Because of the uncertainty concerning the
application of Section 1272(a)(6) of the Code to such Certificates and because
the rules of the OID Regulations relating to debt instruments having an
adjustable rate of interest are limited in their application in ways that could
preclude their application to such Certificates even in the absence of Section
1272(a)(6) of the Code, the IRS could assert that the Offered Certificates
should be treated as issued with original issue discount or should be governed
by the rules applicable to debt instruments having contingent payments or by
some other method not yet set forth in regulations. Prospective purchasers of
the Offered Certificates are advised to consult their tax advisors concerning
the tax treatment of such Certificates.
It appears that a reasonable method of reporting original issue
discount with respect to the Offered Certificates, if such Certificates are
required to be treated as issued with original issue discount, generally would
be to report all income with respect to such Certificates as original issue
discount for each period, computing such original issue discount (i) by assuming
that the value of the applicable index will remain constant for purposes of
determining the original yield to maturity of, and projecting future
distributions on such Certificates, thereby treating such Certificates as fixed
rate instruments to which the original issue discount computation rules
described in the prospectus can be applied, and (ii) by accounting for any
positive or negative variation in the actual value of the applicable index in
any period from its assumed value as a current adjustment to original issue
discount with respect to such period. See "Certain Federal Income Tax
Considerations--Taxation of Debt Securities" in the prospectus.
It is possible that the right to receive payments in respect of any Net
WAC Rate Carryover Amount could be treated as a partnership among the holders of
all of the Certificates, in which case holders of such Certificates potentially
would be subject to different timing of income and foreign holders of such
Certificates could be subject to withholding in respect of any related Net WAC
Rate Carryover Amount. Holders of the Offered Certificates are advised to
consult their own tax advisors regarding the allocation of issue price, timing,
character and source of income and deductions resulting from the ownership of
their Certificates.
Certain of the Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of a Certificate
will be treated as holding such Certificate with amortizable bond premium will
depend on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of such Certificates are encouraged to consult their
own tax advisors regarding the possibility of making an election to amortize
such premium. See "Certain Material Federal Income Tax Considerations--Taxation
of Debt Securities" in the prospectus.
The REMIC regular interest component of each Offered Certificate will
be treated as assets described in Section 7701(a)(19)(C) of the Code, and as
"real estate assets" under Section 856(c)(5)(B) of the Code, generally, in the
same proportion that the assets of the Trust, exclusive of the assets not
included in any REMIC, would be so treated. In addition, the interest derived
from the REMIC regular interest component of each Offered Certificate or Class B
Certificate will be interest on obligations secured by interests in real
property for purposes of section 856(c)(3) of the Code, subject to the same
limitation in the preceding sentence. The notional principal contract component
of each Offered Certificate or Class B Certificate will not qualify, however, as
an asset described in Section 7701(a)(19)(C) of the Code, as a real estate asset
under Section 856(c)(5)(B) of the Code or as a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code. As a result, the Offered Certificates
generally may not be a suitable investment for a REMIC, a real estate investment
trust or an entity intending to qualify under Section 7701(a)(19)(C) of the
Code.
The holders of the Offered Certificates and the Class B Certificates
will be required to include in income interest on such Certificates in
accordance with the accrual method of accounting. As noted above, each holder of
an Offered Certificate or Class B Certificate will be required to allocate a
portion of the purchase price paid for the Certificates to the right to receive
distributions in respect of the Net WAC Rate Carryover Amount. The value of the
right to receive any such Net WAC Rate Carryover Amount is a question of fact
which could be subject to differing interpretations. Because the Net WAC Rate
Carryover Amount is treated as a separate right of the Offered Certificates and
Class B Certificates not distributable by any REMIC elected by the Trust, such
right will not be treated as a qualifying asset for any Certificateholder that
is a mutual savings bank, domestic building and loan association, real estate
investment trust, or real estate mortgage investment conduit and any amounts
received from the Net WAC Rate Carryover Reserve Account and the Swap Account
will not be qualifying real estate income for real estate investment trusts.
It is not anticipated that any REMIC elected by the Trust 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 any REMIC elected by the Trust, such tax will be borne (i) by
the Trustee, if the Trustee has breached its obligations with respect to REMIC
compliance under the Pooling Agreement, (ii) by the Servicer, if the Servicer
has breached its obligations with respect to REMIC compliance under the Pooling
Agreement and (iii) otherwise by the Trust, with a resulting reduction in
amounts otherwise distributable to the holders of the Offered Certificates.
The responsibility for filing annual federal information returns and
other reports will be borne by the Trustee or the Servicer, as specified in the
Pooling Agreement.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Certain Material Federal Income
Tax Considerations" in the prospectus.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended, or ERISA, prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA from engaging in certain transactions involving
such plan and its assets unless a statutory, regulatory or administrative
exemption applies to the transaction. Section 4975 of the Code imposes certain
excise taxes on prohibited transactions involving "disqualified persons" and
employee benefit plans or other arrangements (including, but not limited to,
individual retirement accounts) described under that section (collectively, with
employee benefit plans subject to ERISA, referred to as Plans). ERISA authorizes
the imposition of civil penalties for prohibited transactions involving Plans
not covered under Section 4975 of the Code. Any Plan fiduciary which proposes to
cause a Plan to acquire Offered Certificates is 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 such Offered Certificates.
Certain employee benefit plans, including governmental plans and
certain church plans, are not subject to ERISA's requirements. Accordingly,
assets of such plans may be invested in Offered Certificates without regard to
the ERISA considerations described in this prospectus supplement and in the
prospectus, subject to the provisions of other applicable federal and state law.
Any such plan which is qualified and exempt from taxation under Sections 401(a)
and 501(a) of the Code may nonetheless be subject to the prohibited transaction
rules set forth in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in a class of Offered Certificates should consider,
among other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted to the Underwriter an
administrative exemption (Prohibited Transaction Exemption, or PTE, 90-59, as
amended by PTE 97-34, PTE 2000-58 and PTE 2002-41) (referred to as the
Exemption) from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
in pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption as
discussed in "ERISA Considerations" in the prospectus. The Exemption applies to
obligations such as the mortgage loans in the trust fund which have
loan-to-value ratios not in excess of 100 percent (100%), provided that the
certificates issued are rated at least "BBB-" or its equivalent, as more fully
described in "ERISA Considerations" in the prospectus.
[For so long as the holder of an Offered Certificate also holds an
interest in the Supplemental Interest Trust, the holder will be deemed to have
acquired and be holding the Offered Certificate without the right to receive
payments from the Supplemental Interest Trust and, separately, the right to
receive payments from the Supplemental Interest Trust. The Exemption is not
applicable to the acquisition, holding and transfer of an interest in the
Supplemental Interest Trust. In addition, while the Supplemental Interest Trust
is in existence, it is possible that not all of the requirements for the
Exemption to apply to the acquisition, holding and transfer of Offered
Certificates will be satisfied. However, if the Exemption is not available,
there may be other exemptions that apply.] Accordingly, no Plan or other person
using assets of a Plan may acquire or hold an Offered Certificate while the
Supplemental Interest Trust is in existence, unless (1) such Plan is an
accredited investor within the meaning of the Exemption and (2) such acquisition
or holding is eligible for the exemptive relief available under Department of
Labor Prohibited Transaction Class Exemption 84-14 (for transactions by
independent "qualified professional asset managers"), 91-38 (for transactions by
bank collective investment funds), 90-1 (for transactions by insurance company
pooled separate accounts), 95-60 (for transactions by insurance company general
accounts) or 96-23 (for transactions effected by "in-house asset managers").
[For so long as the Supplemental Interest Trust is in existence, each beneficial
owner of an Offered Certificate or any interest therein, shall be deemed to have
represented, by virtue of its acquisition or holding of the Offered Certificate,
or interest therein, that either (i) it is not a Plan or (ii) (A) it is an
accredited investor within the meaning of the Exemption and (B) the acquisition
and holding of such Certificate and the separate right to receive payments from
the Supplemental Interest Trust are eligible for the exemptive relief available
under one of the five prohibited transaction class exemptions enumerated above.]
[Each beneficial owner of a Mezzanine Certificate or any interest
therein that is acquired after the termination of the Supplemental Interest
Trust will be deemed to have represented, by virtue of its acquisition or
holding of that certificate or interest therein, that either (i) it is not a
plan investor, (ii) it has acquired and is holding such Mezzanine Certificate in
reliance on the Exemption, and that it understands that there are certain
conditions to the availability of the Exemption, including that the Mezzanine
Certificate must be rated, at the time of purchase, not lower than "BBB-" (or
its equivalent) by S&P, Moody's or Fitch or (iii) (1) it is an insurance
company, (2) the source of funds used to acquire or hold the certificate or
interest therein is an "insurance company general account", as such term is
defined in PTE 95 60, and (3) the conditions in Sections I and III of PTE 95 60
have been satisfied.]
Plan fiduciaries are encouraged to consult their legal counsel
concerning the availability of, and scope of relief provided by, the Exemption
and the enumerated class exemptions.
[If any Offered Certificate, or any interest therein, is acquired or
held in violation of the provisions of the preceding paragraph, the next
preceding permitted beneficial owner will be treated as the beneficial owner of
that certificate, retroactive to the date of transfer to the purported
beneficial owner. Any purported beneficial owner whose acquisition or holding of
an Offered Certificate, or interest therein, was effected in violation of the
provisions of the preceding paragraph shall indemnify to the extent permitted by
law and hold harmless the Depositor, the Trustee, the Servicer and any the NIMS
Insurer from and against any and all liabilities, claims, costs or expenses
incurred by such parties as a result of such acquisition or holding.]
Prospective Plan investors are encouraged to consult with their legal
advisors concerning the impact of ERISA and the Exemption or any other
exemption, and the potential consequences in their specific circumstances, prior
to making an investment in the certificates. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
prudence and diversification, an investment in the Offered Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates, the Class [__] Certificates, the Class [__]
Certificates and the Class [__] Certificates will [not] constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") until such time as the balances of the Pre-Funding
Accounts have been reduced to zero. At such time, such certificates will [not]
constitute "mortgage related securities" for purposes of SMMEA for so long as
they are rated [not] lower than the second highest rating category by one or
more nationally recognized statistical rating organizations and, as such, will
be legal investments for certain entities to the extent provided in SMMEA and
applicable state laws. SMMEA, however, provides for state limitation on the
authority of such entities to invest in "mortgage related securities" provided
that such restrictive legislation was enacted prior to October 3, 1991. Certain
states have enacted legislation which overrides the preemption provisions of
SMMEA. The Mezzanine Certificates (other than the Class [__] Certificates, the
Class [__] Certificates and the Class [__] Certificates) and the Class B
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.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated November 30, 2005 (the "Underwriting Agreement"), between the
Underwriter and the Depositor, the Depositor has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Depositor, the
Offered Certificates.
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 and
underwriting fees, will be approximately $[__]. The Underwriter's commission
will be any positive difference between the price it pays to the Depositor for
the Offered Certificates and the amount it receives from the sale of the Offered
Certificates to the public. 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 Depositor has been advised by the Underwriter that it proposes
initially to offer the Offered Certificates of each class to the public in
Europe and the United States.
Until the distribution of the Offered Certificates is completed, rules
of the SEC may limit the ability of the Underwriter and certain selling group
members to bid for and purchase the Offered Certificates. As an exception to
these rules, the Underwriter is permitted to engage in certain transactions that
stabilize the price of the Offered Certificates. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Offered Certificates. In addition,
neither the Depositor nor the Underwriter makes any representation that the
Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Depositor has been advised by the Underwriter that it intends to
make a market in the Offered Certificates but the Underwriter has no obligation
to do so. There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Act.
LEGAL MATTERS
Certain legal matters with respect to the Offered Certificates will be
passed upon for the Depositor and the Underwriter by [__________], New York, New
York.
LEGAL PROCEEDINGS
[There are no other material legal proceedings pending against the
Sponsor, the Depositor, the Indenture 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
other 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 other 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 Indenture 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 Indenture Trustee, [any 10%
concentration Originator], [any credit enhancement provider or derivatives
counterparty], the Securities Administrator or the Custodians. Notwithstanding
the affiliation of the Sponsor to the Depositor and Underwriter, 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 Certificates that the Offered
Certificates receive the following ratings at least as high as the following
ratings from Moody's Investors Service, Inc. ("Moody's") Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P") and Fitch Ratings ("Fitch"
and collectively with Moody's and S&P the "Rating Agencies"):
MOODY'S S&P FITCH
--------- -------- ----------
I-A1....... AAA NR AAA
II-A1...... AAA NR AAA
M-1........ Aa1 NR AA+
M-2........ Aa2 AA AA
A securities rating addresses the likelihood of the receipt by a
certificateholder of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the certificates. The ratings on the
Offered Certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the Mortgage Loans, the payment of the
Net WAC Rate Carryover Amount or the possibility that a holder of an Offered
Certificate might realize a lower than anticipated yield.
The Depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the Offered Certificates. However, there can be
no assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. Any rating on the Offered Certificates by another rating agency,
if assigned at all, may be lower than the ratings assigned to the Offered
Certificates by the Rating Agencies.
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 any of the Offered Certificates by the Rating Agencies are
subsequently lowered for any reason, no person or entity is obligated to provide
any additional support or credit enhancement with respect to such Offered
Certificates.
INDEX OF DEFINED TERMS
Accrual Period....................................
Adjustable-Rate Initial Group I Mortgage Loans....
Adjustable-Rate Initial Group II Mortgage Loans...
Adjustable-Rate Initial Mortgage Loans............
Adjustable-Rate Prepayment Vector.................
Adjusted Net Maximum Mortgage Rate................
Adjusted Net Mortgage Rate........................
Adjustment Date...................................
Advance...........................................
Advancing Person..................................
Allocated Realized Loss Amount....................
Assumed Final Distribution Date...................
Available Funds...................................
Bankruptcy........................................
Base Rate.........................................
beneficial owner..................................
Book-Entry Certificates...........................
Cap Amount........................................
Certificate Index.................................
Certificate Margin................................
Certificate Owners................................
Certificate Principal Balance.....................
Certificates......................................
Class A Certificates..............................
Class B-1 Principal Distribution Amount...........
Class B-2 Principal Distribution Amount...........
Class B-3 Principal Distribution Amount...........
Class M-1 Principal Distribution Amount...........
Class M-10 Principal Distribution Amount..........
Class M-2 Principal Distribution Amount...........
Class M-3 Principal Distribution Amount...........
Class M-4 Principal Distribution Amount...........
Class M-5 Principal Distribution Amount...........
Class M-6 Principal Distribution Amount...........
Class M-7 Principal Distribution Amount...........
Class M-8 Principal Distribution Amount...........
Class M-9 Principal Distribution Amount...........
Clearstream.......................................
Clearstream Participants..........................
Code..............................................
Collection Account................................
Commission........................................
Compensating Interest.............................
Counterparty......................................
CPR...............................................
Credit Bureau Risk Score..........................
Credit Risk Manager Fee...........................
Credit Risk Manager Fee Rate......................
Custodial Fee.....................................
Custodial Fee Rate................................
Custodian.........................................
Cut-off Date Principal Balance....................
Debt Ratio........................................
Definitive Certificate............................
Delayed First Adjustment Mortgage Loan:...........
Deleted Mortgage Loans............................
Delinquency Percentage............................
Delinquent........................................
Determination Date................................
Distribution Account..............................
Distribution Date.................................
Downgrade Provisions..............................
DTC...............................................
DTC Participants..................................
Due Date..........................................
Due Period........................................
ERISA.............................................
Euroclear.........................................
Euroclear Operator................................
Euroclear Participants............................
European Depositaries.............................
Events of Default.................................
Exemption.........................................
Extra Principal Distribution Amount...............
Failure to Pay or Deliver.........................
Fair, Isaac.......................................
Financial Intermediary............................
Fitch.............................................
Fixed-Rate Initial Group I Mortgage Loans.........
Fixed-Rate Initial Group II Mortgage Loans........
Fixed-Rate Initial Mortgage Loans.................
Fixed-Rate Prepayment Vector......................
Formula Rate......................................
Funding Period....................................
Global Securities.................................
Gross Margin......................................
Group I Allocation Percentage.....................
Group I Basic Principal Distribution Amount.......
Group I Interest Remittance Amount................
Group I Mortgage Loans............................
Group I Pre-Funding Account.......................
Group I Principal Distribution Amount.............
Group I Principal Remittance Amount...............
Group I Senior Principal Distribution Amount......
Group II Allocation Percentage....................
Group II Basic Principal Distribution Amount......
Group II Interest Remittance Amount...............
Group II Mortgage Loans...........................
Group II Pre-Funding Account......................
Group II Principal Distribution Amount............
Group II Principal Remittance Amount..............
Group II Senior Principal Distribution Amount.....
High Cost Loans...................................
Homeownership Act.................................
Illegality........................................
IML...............................................
Index.............................................
Initial Group I Mortgage Loans....................
Initial Group II Mortgage Loans...................
Initial Mortgage Loans............................
Initial Periodic Rate Cap.........................
Insurance Proceeds................................
Interest Coverage Accounts........................
Interest Only Period..............................
Interest Rate Swap Agreement......................
IRS...............................................
LIBOR Business Day................................
LIBOR Determination Date..........................
Liquidated Mortgage Loan..........................
LIV...............................................
Loan Group........................................
Maximum Mortgage Rate.............................
Maximum WAC Rate..................................
Merger without Assumption.........................
Mezzanine Certificates............................
Minimum Mortgage Rate.............................
Monthly Interest Distributable Amount.............
Moody's...........................................
Mortgage..........................................
Mortgage Loan Purchase Agreement:.................
Mortgage Loan Schedule............................
Mortgage Loans....................................
Mortgage Pool.....................................
Mortgage Rate.....................................
Mortgaged Property................................
Net Liquidation Proceeds..........................
Net Monthly Excess Cashflow.......................
Net Swap Payment..................................
Net WAC Rate Carryover Amount.....................
Net WAC Rate Carryover Reserve Account............
NIMS Insurer Default:.............................
NIMS Insurer:.....................................
NIV...............................................
Notional Principal Contract Regulations...........
Offered Certificates..............................
OID Regulations...................................
Optional Termination Date.........................
Original Certificate Principal Balance............
Original Group I Pre-Funded Amount................
Original Group II Pre-Funded Amount...............
Original Pre-Funded Amounts.......................
Originator........................................
Overcollateralization Deficiency Amount...........
Overcollateralization Release Amount..............
Overcollateralization Target Amount...............
Overcollateralized Amount.........................
Parity Act........................................
Pass-Through Rate.................................
Periodic Rate Cap.................................
Plans.............................................
Pool Balance......................................
Pooling Agreement:................................
Pre-Funding Accounts..............................
Prepayment Assumption.............................
Prepayment Interest Shortfall.....................
Prepayment Period.................................
Principal Balance.................................
Principal Remittance Amount.......................
PTE...............................................
Purchase Price....................................
Qualified Substitute Mortgage Loan................
Rating Agencies...................................
Realized Loss.....................................
Record Date.......................................
Reference Banks...................................
Related Documents.................................
Relevant Depositary...............................
Relief Act........................................
REMIC.............................................
Reserve Interest Rate.............................
Residual Certificates.............................
Rules.............................................
S&P...............................................
Senior Principal Distribution Amount..............
Servicing Advance.................................
Servicing Fee.....................................
Servicing Fee Rate................................
Six Month LIBOR...................................
SMMEA.............................................
Stepdown Date.....................................
Structuring Assumptions...........................
Subordinate Certificates..........................
Subsequent Cut-off Date...........................
Subsequent Group I Mortgage Loans.................
Subsequent Group II Mortgage Loans................
Subsequent Mortgage Loans.........................
Subsequent Recoveries.............................
Subsequent Transfer Dates.........................
Subsequent Transfer Instruments...................
Substitution Adjustment...........................
Swap Default......................................
Swap Early Termination............................
Swap Provider.....................................
Swap Provider Trigger Event.......................
Swap Termination Payment..........................
Tax Event.........................................
Tax Event Upon Merger.............................
Telerate Page 3750................................
Termination Event.................................
Termination Price.................................
Terminator........................................
Terms and Conditions..............................
Trigger Event.....................................
Trust.............................................
Underwriter.......................................
Underwriting Agreement............................
Unpaid Interest Shortfall Amount..................
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Offered Certificates will
be offered globally (the "Global Securities") and will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of DTC and upon request through Clearstream or Euroclear.
The Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream and Euroclear will be conducted in accordance with their
normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Clearstream and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no `lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset-backed certificates issues in same-day funds.
TRADING BETWEEN CLEARSTREAM AND/OR EUROCLEAR PARTICIPANTS.
Secondary market trading between Clearstream Participants or Euroclear
Participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
TRADING BETWEEN DTC SPONSOR AND CLEARSTREAM OR EUROCLEAR PURCHASER.
When Global Securities are to be transferred from the account of a DTC
Participant to the account of a Clearstream Participant or a Euroclear
Participant, the purchaser will send instructions to Clearstream or Euroclear
through a Clearstream Participant or Euroclear Participant at least one business
day prior to settlement. Clearstream or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date, on
the basis of the actual number of days in such accrual period and a year assumed
to consist of 360 days or a 360-day year consisting of twelve 30 day months, as
applicable. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Clearstream or Euroclear cash debt will be valued instead as
of the actual settlement date.
Clearstream Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Participants or Euroclear Participants can elect not
to preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Clearstream Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Clearstream Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Clearstream
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CLEARSTREAM OR EUROCLEAR SPONSOR AND DTC PURCHASER. Due
to time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days or a 360-day year consisting of twelve 30 day
months, as applicable. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the
Clearstream Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Clearstream Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Clearstream Participant
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a)......through Clearstream or Euroclear for one day (until the
purchase side of the day trade is reflected in their Clearstream or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b)......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 account in
order to settle the sale side of the trade; or
(c)......staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream
Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner who is an individual or corporation holding the
Global Securities on its own behalf through Clearstream or Euroclear (or through
DTC if the holder has an address outside the U.S.) will be subject to the 30%
U.S. withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. Persons, unless (i)
each clearing system, bank or other institution that holds customers' securities
in the ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner or a foreign partnership or trust and the U.S.
entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8BEN). Beneficial owners of
Global Securities that are non-U.S. Persons generally 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 such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Certificate of Foreign Person's Claim for
Exemption from Withholding on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM W-8BEN). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding). Form W-8BEN may be filed by the Certificate Owners or his agent.
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS SUBJECT TO SPECIAL U.S.
FEDERAL INCOME TAX RULES (FORM W-8EXP). A non-U.S. Person that is a foreign
government, international organization, foreign central bank of issue, foreign
tax-exempt organization, foreign private foundation or government of a U.S.
possession may obtain an exemption or reduced tax rate on certain income by
filing Form W-8EXP (Certificate of Foreign Government or Other Foreign
Organization for United States Tax Withholding).
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
Global Security files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8BEN, Form W-8EXP and Form W-8ECI are
generally effective until the third succeeding calendar year from the date such
form is signed. However, a Form W-8BEN or Form W-8ECI with a taxpayer
identification number will remain effective until a change in circumstances
makes any information on such form incorrect, provided that the withholding
agent reports at least annually to the beneficial owner of Form 1042-S.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a corporation
or partnership for United States federal income tax purposes organized in or
under the laws of the United States or any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise) or (iii) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to such
date, that elect to continue to be treated as United States persons will also be
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.
ANNEX II
ASSUMED MORTGAGE LOAN CHARACTERISTICS
ANNEX III
INTEREST RATE SWAP SCHEDULE
BASE CALCULATION
DISTRIBUTION DATE AMOUNT ($)
-------------------- ------------------
================================================================================
$[__] (APPROXIMATE)
[__________] TRUST [200_-___]
[DEPOSITOR]
DEPOSITOR
[SERVICER]
SERVICER
ASSET-BACKED CERTIFICATES, [SERIES]
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
RBS GREENWICH CAPITAL
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Asset-Backed Certificates, [Series] in any state where
the offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Asset-Backed Certificates, [Series] and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
Asset-Backed Certificates, [Series] will be required to deliver a prospectus
supplement and prospectus for ninety days following the date of this prospectus
supplement.
[Date]
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Securities, other than underwriting
discounts and commissions:
SEC Registration Fee................................$ 0.00
Trustee's Fees and Expenses......................... 5,000,000.00
Printing and Engraving.............................. 1,500,000.00
Legal Fees and Expenses............................. 10,000,000.00
Blue Sky Fees....................................... 500,000.00
Accounting Fees and Expenses........................ 3,500,000.00
Rating Agency Fees.................................. 35,000,000.00
Miscellaneous....................................... 6,000,000.00
------------------
Total...............................................$ 61,500,000.00
- -------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 8(b) of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Depositor against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Bylaws of Greenwich Capital Acceptance, Inc. ("GCA") provide for
indemnification of its directors and officers to the full extent permitted by
Delaware law.
The Bylaws of Financial Asset Securities Corp. ("FASCO") provide for
indemnification of its directors and officers to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the applicable depositor is liable to the Trust
Fund or the Certificateholders, except for such person's own willful
misfeasance, bad faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. The Pooling and Servicing
Agreements will provide further that, with the exceptions stated above, a
director, officer, employee or agent of the applicable depositor is entitled to
be indemnified against any loss, liability or expenses incurred in connection
with legal actions relating to such Pooling and Servicing Agreements and the
related Certificates, other than such expenses relating to particular Mortgage
Loans.
ITEM 16. EXHIBITS.
(a) Financial Statements:
None.
(b) Exhibits:
1.1 Form of Underwriting Agreement+++
3.1(a) Restated Certificate of Incorporation of GCA*
3.1(b) Restated Certificate of Incorporation of FASCO**
3.2(a) Bylaws of GCA* 3.2(b) Bylaws of FASCO***
4.1 Form of Pooling and Servicing Agreement #
4.2(a) Form of Trust Agreement in connection with resecuritization
trusts+++
4.2(b) Form of Trust Agreement in connection with issues of Notes++
4.3 Form of Indenture in connection with issues of Notes #
4.4 Form of Sale and Servicing Agreement for issues of Notes #
5.1(a) Opinion of McKee Nelson LLP as to legality of the Securities ##
5.1(b) Opinion of Thacher Proffitt & Wood LLP as to legality of the
Securitiessss
8.1(a) Opinion of McKee Nelson LLP as to certain tax matters ##
8.1(b) Opinion of Thacher Proffitt & Wood LLP as to certain tax matterssss
10.1 Form of Mortgage Loan Purchase Agreement between Seller and
Purchaser*
23.1(a) Consent of McKee Nelson LLP (included in Exhibits 5.1(a) and
8.1(a) hereto)
23.1(b) Consent of Thacher Proffitt & Wood LLP (included in Exhibits
5.1(b) and 8.1(b) hereto)
24.1 Powers of Attorney
24.2 Statement of Eligibility and Qualification of Trusteess
* Filed as an exhibit to Registration Statement No. 33-42443 on Form S-11
and incorporated herein by reference.
** Filed as an exhibit to Registration Statement No. 333-44067 on Form S-3
and incorporated herein by reference.
*** Filed as an exhibit to Registration Statement Nos. 333-60904 and
333-60904-01 on Form S-3 and incorporated herein by reference.
+ Filed as an exhibit to Registration Statement No. 33-52720 on Form S-11
and incorporated herein by reference.
++ Filed as an exhibit to Registration Statement No. 33-99018 on Form S-3
and incorporated herein by reference.
+++ Filed as an exhibit to Registration Statement Nos. 333-127352 and
333-127352-01 on Form S-3 and incorporated herein by reference.
ss To be filed on Form 8-K, as applicable.
sss Filed as an exhibit to Registration Statement Nos. 333-130961 and
No. 333-130961-01 on Form S-3 and incorporated herein by reference.
# Filed as an exhibit to Amendment No. 1 to Registration Statement
Nos. 333-130961 and No. 333-130961-01 on Form S-3/A and incorporated
herein by reference.
## Filed as an exhibit to Amendment No. 2 to Registration Statement No.
333-130961 and No. 333-130961-01 on Form S-3/A and incorporated herein
by reference.
ITEM 17. UNDERTAKINGS.
UNDERTAKINGS PURSUANT TO RULE 415.
Each of the undersigned Registrants hereby undertakes:
(a)(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
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 each of the undersigned Registrants pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 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 of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(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 of 1933 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 of 1933 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) Each of the undersigned Registrants hereby undertakes
that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrants has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of a 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 Registrants will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933,
as amended, and will be governed by the final adjudication of such
issue.
(d) Each of the undersigned Registrants 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 this Registration Statement
in accordance with Item 1100(c)(1) of Regulation AB (17 CFR
229.1100(c)(1)) 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) Each of the undersigned Registrants hereby undertakes
that, except as otherwise provided by Item 1105 of Regulation AB (17
CFR 229.1105) , information provided in response to that Item pursuant
to Rule 312 of Regulation S-T (17 CFR 229.312) through the specified
Internet address in the prospectus is deemed to be a part of the
prospectus included in the registration statement. In addition, each of
the undersigned Registrants 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each Registrant certifies with respect to itself that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-3 (except
that the Registrants have filed a waiver request on January 9, 2005) and has
duly caused this Amendment No. 3 to the Registration Statement on Form S-3 to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Greenwich, Connecticut, on the 31st day of March, 2006.
GREENWICH CAPITAL ACCEPTANCE, INC.
BY: /s/ Robert J. McGinnis
---------------------------------
Robert J. McGinnis
President
FINANCIAL ASSET SECURITIES CORP.
BY: /s/ Robert J. McGinnis
---------------------------------
Robert J. McGinnis
President
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Joseph N. Walsh III, Carol
P. Mathis, Robert J. McGinnis, John C. Anderson and James M. Esposito, whose
signatures appear below, constitutes and appoints each of Joseph N. Walsh III,
Carol P. Mathis, John C. Anderson, Robert J. McGinnis and James M. Esposito, or
any of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on behalf
of Greenwich Capital Acceptance, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert J. McGinnis Director and President March 31, 2006
- --------------------------
Robert J. McGinnis (Principal Executive Officer)
/s/ Carol P. Mathis Managing Director and Chief Financial Officer March 31, 2006
- -------------------------- (Principal Financial Officer and Principal
Carol P. Mathis Accounting Officer)
/s/ Joseph N. Walsh III Director and Managing Director March 31, 2006
- --------------------------
Joseph N. Walsh III
/s/ John C. Anderson Director and Managing Director March 31, 2006
- --------------------------
John C. Anderson
/s/ James M. Esposito Director, Managing Director, General Counsel March 31, 2006
- -------------------------- and Secretary
James M. Esposito
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Joseph N. Walsh III, Carol
P. Mathis, Robert J. McGinnis, John C. Anderson and James M. Esposito, whose
signatures appear below, constitutes and appoints each of Joseph N. Walsh III,
Carol P. Mathis, John C. Anderson, Robert J. McGinnis and James M. Esposito, or
any of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on behalf
of Financial Asset Securities Corp., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert J. McGinnis Director and President March 31, 2006
- --------------------------
Robert J. McGinnis (Principal Executive Officer)
/s/ Carol P. Mathis Managing Director and Chief Financial Officer March 31, 2006
- -------------------------- (Principal Financial Officer and Principal
Carol P. Mathis Accounting Officer)
/s/ Joseph N. Walsh III Director and Managing Director March 31, 2006
- --------------------------
Joseph N. Walsh III
/s/ John C. Anderson Director and Managing Director March 31, 2006
- --------------------------
John C. Anderson
/s/ James M. Esposito Director, Managing Director, General Counsel March 31, 2006
- -------------------------- and Secretary
James M. Esposito
EXHIBIT INDEX
NUMBER DESCRIPTION
1.1 Form of Underwriting Agreement+++
3.1(a) Restated Certificate of Incorporation of GCA*
3.1(b) Restated Certificate of Incorporation of FASCO**
3.2(a) Bylaws of GCA* 3.2(b) Bylaws of FASCO***
4.1 Form of Pooling and Servicing Agreement #
4.2(a) Form of Trust Agreement in connection with resecuritization
trusts+++
4.2(b) Form of Trust Agreement in connection with issues of Notes++
4.3 Form of Indenture in connection with issues of Notes #
4.4 Form of Sale and Servicing Agreement for issues of Notes #
5.1(a) Opinion of McKee Nelson LLP as to legality of the Securities ##
5.1(b) Opinion of Thacher Proffitt & Wood LLP as to legality of the
Securitiessss
8.1(a) Opinion of McKee Nelson LLP as to certain tax matters ##
8.1(b) Opinion of Thacher Proffitt & Wood LLP as to certain tax matterssss
10.1 Form of Mortgage Loan Purchase Agreement between Seller and
Purchaser*
23.1(a) Consent of McKee Nelson LLP (included in Exhibits 5.1(a) and
8.1(a) hereto)
23.1(b) Consent of Thacher Proffitt & Wood LLP (included in Exhibits
5.1(b) and 8.1(b) hereto)
24.1 Powers of Attorney
24.2 Statement of Eligibility and Qualification of Trusteess
* Filed as an exhibit to Registration Statement No. 33-42443 on Form S-11
and incorporated herein by reference.
** Filed as an exhibit to Registration Statement No. 333-44067 on Form S-3
and incorporated herein by reference.
*** Filed as an exhibit to Registration Statement Nos. 333-60904 and
333-60904-01 on Form S-3 and incorporated herein by reference.
+ Filed as an exhibit to Registration Statement No. 33-52720 on Form S-11
and incorporated herein by reference.
++ Filed as an exhibit to Registration Statement No. 33-99018 on Form S-3
and incorporated herein by reference.
+++ Filed as an exhibit to Registration Statement Nos. 333-127352 and
333-127352-01 on Form S-3 and incorporated herein by reference.
ss To be filed on Form 8-K, as applicable.
sss Filed as an exhibit to Registration Statement Nos. 333-130961 and
No. 333-130961-01 on Form S-3 and incorporated herein by reference.
# Filed as an exhibit to Amendment No. 1 to Registration Statement
Nos. 333-130961 and No. 333-130961-01 on Form S-3/A and incorporated
herein by reference.
## Filed as an exhibit to Amendment No. 2 to Registration Statement No.
333-130961 and No. 333-130961-01 on Form S-3/A and incorporated herein
by reference.