As filed with the Securities and Exchange Commission on October 15, 1996
Registration Statement No. _________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Banc One ABS Corporation
(Depositor of the Trusts described herein)
(Exact names of registrants as specified in governing instruments)
Ohio
(States or other jurisdictions of incorporation or organization)
None Available
(I.R.S. Employer Identification Number)
100 East Broad Street
Columbus, Ohio 43271-0158
(614) 248-5700
(Address of principal executive offices)
Steven Alan Bennett, Esq.
BANC ONE CORPORATION
100 East Broad Street
Columbus, Ohio 43271-0158
(614) 248-5700
(Name and address of agent for service)
Copies to:
Joshua E. Raff, Esq. Kenneth L. Wagner, Esq. Robert C. Wipperman, Esq
Orrick, Herrington BANC ONE CORPORATION Stroock & Stroock & Lavan
& Sutcliffe LLP 100 East Broad Street Seven Hanover Square
666 Fifth Avenue Columbus, Ohio 43271-0158 New York, New York 10004
New York, New York 10103
Approximate date of commencement of proposed sale to public: As soon as
practicable on or after the effective date of this Registration Statement.
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
plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|____________
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Proposed maximum
Title to securities being Amount being offering per price per Propose maximum Amount of
registered registered unit (1) aggregate offering price registration fee
- ------------------------- ---------- -------- ------------------------ ----------------
Banc One Home Equity Loan
Asset Backed Securities $1,000,000 100% $1,000,000 $303.03
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as maybe necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 2(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED OCTOBER 15, 1996
PROSPECTUS SUPPLEMENT VERSION 1 -- INSURED
to Prospectus dated_______________
$________
Banc One Home Equity Loan Trust 199__
Banc One Home Equity Loan Asset Backed Certificates, Series 199__
$________ Class A Certificates, ____% Pass-Through Rate
Banc One ABS Corporation
Depositor
Bank One, Indianapolis, N.A.
Servicer
The Banc One Home Equity Loan Asset Backed Certificates, Series 199__ (the
"Certificates"), will consist of [two] classes of Certificates designated as the
Class A Certificates and Class R Certificates. Only the Class A Certificates
(the "Class A Certificates") are offered hereby. The Certificates represent
fractional undivided interests in a trust fund to be designated as Banc One Home
Equity Loan Trust 199__ (the "Trust" or the "Trust Fund"), consisting primarily
of (i) a pool (the "Mortgage Pool") of [fixed-rate] mortgage loans (each, a
"Mortgage Loan") secured by mortgages, deeds of trust or other instruments
(each, a "Mortgage") creating a first, second or more junior lien on one- to
four-family dwellings (each, a "Mortgaged Property") to be deposited into the
Trust Fund by the Depositor and originated by [Originator] (each, an
"Originator") for the benefit of the holders of the Certificates (the
"Certificateholders"), (ii) all monies received on the Mortgage Loans on and
after the Cut-off Date (as defined (continues on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospective investors should consider, among other things, the information set
forth in "Risk Factors" commencing on page S-[ ] herein and commencing on page
[ ] in the Prospectus.
_____________ (the "Underwriters") have agreed to purchase from the
Depositors the Class A Certificates at ____% of the principal amount thereof
($________ aggregate proceeds to the Depositors, before deducting expenses
payable by the Depositors estimated at $________ ), plus accrued interest in
each case from ____________, ____________, subject to the terms and conditions
set forth in the Underwriting Agreement referred to herein under "Underwriting".
The Underwriters propose to offer the Class A Certificates from time to
time for sale in negotiated transactions or otherwise, at prices to be
determined at the time of such sale. For further information with respect to the
plan of distribution, and any discounts, commissions or profits that may be
deemed underwriting discounts or commissions, see "Underwriting".
The Class A Certificates are offered by the Underwriters, when, as and if
issued and accepted by the Underwriters and subject to the Underwriters' right
to reject orders in whole or in part. It is expected that the Class A
Certificates will be delivered in book-entry form, on or about __________,
________, through the facilities of The Depository Trust Company ("DTC").
[After the initial distribution of the Class A Certificates by the Underwriters,
this Prospectus Supplement and the Prospectus may be used by Banc One Capital
Corporation in connection with offers and sales relating to market-making
transactions in the Class A Certificates. Banc One Capital Corporation may act
as principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. Certain information in
this Prospectus Supplement and Prospectus will be updated from time to time as
described in "Incorporation of Certain Documents by Reference" in the
Prospectus.]
____________, 199__
(continuation of cover page)
herein) (other than amounts received on and after the Cut-off Date in respect of
interest accrued on the Mortgage Loans prior to the Cut-off Date), (iii) the
Certificate Insurance Policy described herein, and (iv) certain other property.
The Mortgage Loans will be serviced by Bank One, Indianapolis, N.A. (in its
capacity as servicer, the "Servicer"). The Certificates will be issued pursuant
to a Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") to
be entered into among the Servicer, the Depositor and ___________________, as
trustee (the "Trustee"). Distributions on the Certificates will be made, to the
extent of funds available therefor, on the ____ day of each month, or, if such
day is not a business day, then on the next business day, commencing on
_____________, 199 (each, a "Payment Date").
On or before the issuance of the Certificates, the Servicer will obtain from
________ (the "Insurer") a certificate guaranty surety bond in favor of the
Trustee relating to the Class A Certificates (the "Certificate Insurance
Policy"). The Certificate Insurance Policy will provide for 100% coverage of the
Class A Remittance Amount (each as defined herein) due on the Class A
Certificates on each Payment Date.
[LOGO OF INSURER]
There is currently no secondary market for the Class A Certificates. The
Underwriters intend to make a secondary market in the Class A Certificates, but
are not obligated to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if one does develop, that it will
continue. None of the Class A Certificates will be listed on any securities
exchange.
It is a condition to the issuance of the Class A Certificates that they be rated
["_____" by Moody's Investors Service, Inc. and "_____" by Standard & Poor's
Corporation and Fitch Investors Service, Inc.]
[The Class A Certificates initially will be represented by certificates
registered in the name of Cede & Co., the nominee of DTC. The interests of
owners of the Class A Certificates will be represented by book-entries on the
records of DTC and participating members thereof. See "Description of the
Certificates--Registration of the Class A Certificates" herein.]
As described herein [an election], [two separate elections] will be made to
treat the interests in the Trust Fund as "real estate mortgage investment
conduit[s]" ([each,] a "REMIC") for federal income tax purposes. The Class A
Certificates will constitute "regular interests" in a REMIC. For a description
of certain tax consequences of owning the Class A Certificates, including,
without limitation, original issue discount, see "Federal Income Tax
Consequences" herein.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE CLASS A CERTIFICATES. THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE SERVICER, THE DEPOSITOR, ANY ORIGINATOR OR ANY OF THEIR
AFFILIATES. NONE OF THE CLASS A CERTIFICATES OR THE UNDERLYING MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE SERVICER, THE DEPOSITOR, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES.
This Prospectus Supplement does not contain complete information about the
offering of the Class A Certificates. Additional information is contained in the
Prospectus dated ___________, 199__ of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. Purchasers are urged to
read both this Prospectus Supplement and the Prospectus in full. Sales of the
Class A Certificates may not be consummated unless the purchaser has received
both this Prospectus Supplement and the Prospectus.
S-2
SUMMARY OF TERMS
The following Summary of Terms is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used but not otherwise defined shall have
the meanings ascribed to such terms in the Prospectus.
Issuer............................. Banc One Home Equity Loan Trust 199__.
Securities Offered................. $________ aggregate principal amount of
____% Banc One Home Equity Loan Asset
Backed Certificates, Series 199__, Class
A (the "Class A Certificates").
Depositor.......................... Banc One ABS Corporation, a corporation
organized under the laws of the State of
Ohio, and a subsidiary of BANC ONE
CORPORATION ("BANC ONE").
Originators........................ [Originators] (each an "Originator").
See "The Depositor, the Servicer and the
Originators" in the Prospectus and
"Origination, Foreclosure and
Delinquency Experience" herein.
Servicer........................... Bank One, Indianapolis, N.A., a national
banking association and an indirect
subsidiary of BANC ONE (the "Servicer").
See "The Depositors, the Servicer and
the Originators" in the Prospectus.
Trustee............................ ______________, a ___________________
organized under the laws of
______________ and having its principal
place of business in the State of
____________ (the "Trustee"). See "The
Trustee" herein.
Cut-off Date....................... ___________, 199__ (the "Cut-off Date").
Closing Date....................... The date on which the Certificates are
initially issued (the "Closing Date").
Payment Date....................... The ____ calendar day of each month or,
if such day is not a business day, the
first business day following such _____
calendar day, commencing on ___________,
199__ (each, a "Payment Date").
S-3
Determination Date................. The _____ business day of the month in
which the related Payment Date occurs
(each, a "Determination Date").
Record Date........................ The calendar day immediately preceding
each Payment Date (or, if Definitive
Certificates are issued, the ___
calendar day of the month in which each
such Payment Date occurs) (each, a
"Record Date").
Description of the Certificates;
The Mortgage Pool................ The Banc One Home Equity Loan Asset
Backed Certificates, Series 199__ (the
"Certificates"), represent interests in
a trust fund to be designated as Banc
One Home Equity Loan Trust 199__ (the
"Trust" or the "Trust Fund"), consisting
primarily of (i) a pool (the "Mortgage
Pool") of [fixed-rate] mortgage loans
originated by the Originators and
evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage
Loans") secured by mortgages, deeds of
trust or other instruments (each, a
"Mortgage") creating a first or second
lien on one- to four-family dwellings,
units in condominium developments, units
in planned unit developments, units in
cooperatives or manufactured housing
units (each, a "Mortgaged Property"),
with an aggregate principal balance of
$________ as of the Cut-off Date, after
giving effect to payments received prior
to the Cut-off Date (the "Original Pool
Principal Balance"), (ii) all monies
received with respect to the Mortgage
Loans on and after the Cut-off Date
(other than amounts received on and
after the Cut-off Date in respect of
interest accrued on the Mortgage Loans
prior to the Cut-off Date), (iii) an
irrevocable certificate guaranty surety
bond (the "Certificate Insurance
Policy") to be issued on or before the
Closing Date by (the "Insurer") in favor
of the Trustee for the benefit of the
Class A Certificateholders, (iv) certain
rights of the Depositor under the
Transfer Agreement and (v) certain other
property. The Certificates will be
issued pursuant to a Pooling and
Servicing Agreement to be dated as of
the Cut-off Date among the Servicer, the
Depositor and the
S-4
Trustee (the "Pooling and Servicing
Agreement"). See "Description of the
Certificates -- General" herein.
The Certificates will consist of [two]
classes of Certificates (each, a
"Class"), designated as the Class A
Certificates and the Class R
Certificates (the "Class R
Certificates"). Distributions on the
Class R Certificates will be subordinate
to distributions on the Class A
Certificates, to the extent described
herein. Only the Class A Certificates
are offered hereby. See "Description of
the Certificates -- General" herein.
Unless otherwise specified herein,
references herein to percentages of
Mortgage Loans refer in each case to the
percentage of the aggregate principal
balance of the Mortgage Loans in the
Mortgage Pool as of the Cut-off Date,
and giving effect to principal payments
received prior to the Cut-off Date.
As of the Cut-off Date, the Mortgage
Pool will consist of _____ Mortgage
Loans (of which approximately ____% are
secured by first Mortgages and
approximately ____% are secured by
second Mortgages) having an aggregate
outstanding principal balance of
$________, a weighted average Mortgage
Interest Rate (as defined below) of
approximately ____%, minimum and maximum
outstanding principal balances of
approximately $________ and $________,
respectively, minimum and maximum
Mortgage Interest Rates of ____% and
____%, respectively, a weighted average
original term to maturity of
approximately ___ months, a weighted
average remaining term to maturity of
approximately ___ months, minimum and
maximum remaining terms to maturity of
___ months and ___ months, respectively,
and origination dates between ________
and ________. See "Description of the
Mortgage Pool -- General" herein.
The Class A Certificates........... The Class A Certificates will have an
aggregate principal balance of $________
(the "Original Class
S-5
A Principal Balance") as of the date of
issuance, and will accrue interest at
the rate of ____% per annum (the "Class
A Pass-Through Rate"). The Class A
Certificates represent an undivided
ownership interest in the Mortgage Pool
that is senior to the ownership interest
represented by the Class R Certificates
to the extent described herein.
Denominations...................... The Class A Certificates will be issued
in minimum denominations of $________
and integral multiples thereof
[; provided, however, that one Class A
Certificate is issuable in a
denomination equal to an amount such
that the aggregate denomination of all
Class A Certificates is equal to the
Original Class A Principal Balance].
Each Class A Certificate will represent
a percentage interest (a "Percentage
Interest") in the respective Class
determined by dividing the original
dollar amount represented by such
Certificate by the Original Class A
Principal Balance.
[Registration of the Class A
Certificates..................... [The] [Each Class of] Class A
Certificates will initially be
represented by one or more certificates
registered in the name of Cede & Co.
("Cede"), the nominee of The Depository
Trust Company ("DTC"), and will be
available only in the form of
book-entries on the records of DTC,
participating members thereof
("Participants") and other entities,
such as banks, brokers, dealers and
trust companies, that clear through or
maintain custodial relationships with a
Participant, either directly or
indirectly ("Indirect Participants").
Certificates representing the Class A
Certificates will be issued in
definitive form only under the limited
circumstances described herein. All
references herein to "holders" or
"Certificateholders" shall reflect the
rights of owners of the Class A
Certificates (the "Certificate Owners")
as they may indirectly exercise such
rights through DTC and Participants,
except as otherwise specified herein.
See "Risk Factors" and "Description of
the Securities -- Registration of the
Book-Entry Securities" in the
Prospectus.]
S-6
Distributions on the Class A
Certificates
A. General.................... As more fully described herein,
distributions will be made on the Class
A Certificates on each Payment Date to
the extent available, if and to the
extent such Certificates are then
entitled to such distributions, first,
to pay interest on the Class A
Certificates and then to reduce the
principal amount of Class A
Certificates. As described herein, after
payment of such amounts to the Class A
Certificateholders, certain amounts may
be distributed on the Class R
Certificates. Any distributions on the
Class A Certificates will be made on
each Payment Date to Certificateholders
of record on the related Record Date in
an amount equal to the product of such
Certificateholder's Percentage Interest
and the amount available for
distribution on such Payment Date to the
Certificateholders of the related Class
in accordance with the priorities
described in "Description of the
Certificates -- Distributions" herein.
On any Payment Date, the amount
available for distribution to
Certificateholders generally will be the
excess of (a) the sum of (i) the
Available Payment Amount (as defined
below) and (ii) any amount (the "Spread
Account Draw") deposited in the
[Collection] Account from the Spread
Account and any Insured Payments
(defined below), less (b) the sum of (i)
the amount of the monthly premium
payable to the Insurer during the
related Due Period and (ii) the amount
of fees payable to the provider of any
Letter of Credit (defined below) during
the related Due Period. The term
"Available Payment Amount" generally
means with respect to any Payment Date,
the result of (a) collections on or with
respect to the Mortgage Loans received
by the Servicer during the related Due
Period, net of the related Servicing Fee
(defined below) paid to the Servicer
during the related Due Period and
reimbursements for accrued unpaid
Servicing Fees and certain expenses paid
by the Servicer, plus (b)
S-7
the amount of any Advances made by the
Servicer, less (c) the amount of any
Excess Spread.
B. Interest Distributions...... Interest on the Class A Certificates
will accrue from the ____ calendar day
of each month (whether or not such day
is a Business Day) to, but excluding,
the __th calendar day of the next
succeeding month (whether or not such
day is a Business Day) (each, an
"Accrual Period"). Interest shall accrue
on each Class A Certificate at the Class
A Pass-Through Rate and shall be
distributed, to the extent available, on
each Payment Date. Interest with respect
to the Class A Certificates will accrue
on the basis of a 360-day year
consisting of twelve 30-day months. With
respect to each Payment Date, interest
accrued during the related Accrual
Period at the Class A Pass-Through Rate
on the Class A Principal Balance (as
defined below) outstanding on the
immediately preceding Payment Date
(after giving effect to all payments of
principal made on such Payment Date) or,
in the case of the initial Accrual
Period, ___________, is referred to
herein as the "Class A Interest
Remittance Amount". See "Description of
the Certificates -- Distributions"
herein and in the Prospectus.
C. Principal Distributions..... Holders of the Class A Certificates will
be entitled to receive on each Payment
Date, to the extent available (but not
more than the Class A Principal Balance
then outstanding), a distribution
allocable to principal which will
generally equal the sum of (a)(i) the
principal portion of all scheduled
payments ("Monthly Payments") received
on the Mortgage Loans during the
calendar month preceding the calendar
month in which such Payment Date occurs
(the "Due Period"), (ii) any principal
prepayments of any such Mortgage Loans
in full ("Principal Prepayments")
received during the related Due Period
and partial prepayments of principal on
any such Mortgage Loan that were
received during the related Due Period
payment that are not Principal
Prepayments (each, a "Curtailment"),
(iii) the principal portion of (A) the
S-8
proceeds of any insurance policy
relating to a Mortgage Loan, a Mortgaged
Property (as defined below) or a REO
Property (as defined below), net of
proceeds to be applied to the repair of
the Mortgaged Property or released to
the Mortgagor (as defined herein) and
net of expenses reimbursable therefrom
("Insurance Proceeds"), (B) proceeds
received in connection with the
liquidation of any defaulted Mortgage
Loans, whether by trustee's sale,
foreclosure sale or otherwise
("Liquidation Proceeds"), net of fees
and advances reimbursable therefrom
("Net Liquidation Proceeds") and (C)
proceeds received in connection with a
taking of a related Mortgaged Property
by condemnation or the exercise of
eminent domain or in connection with a
release of part of any such Mortgaged
Property from the related lien
("Released Mortgaged Property
Proceeds"), (iv) the principal portion
of all amounts paid by the Depositor
(which are limited to amounts paid by an
Originator pursuant to the obligation to
purchase or substitute Mortgage Loans
contained in the Transfer Agreement) in
connection with the repurchase of, or
the substitution of a substantially
similar mortgage loan for, a Mortgage
Loan as to which there is defective
documentation or a breach of a
representation or warranty contained in
the Pooling and Servicing Agreement, and
(v) the principal balance of each
defaulted Mortgage Loan or REO Property
(as defined below) as to which the
Servicer has determined that all amounts
expected to be recovered have been
recovered (each, a "Liquidated Mortgage
Loan") to the extent not included in the
amounts described in clauses (i) through
(iv) above (the sum of (i), (ii), (iii),
(iv) and (v) above, the "Basic Principal
Amount"), and (b) the sum of (i) the
amount, if any, by which (A) the amount
required to be distributed to Class A
Certificateholders as of the preceding
Payment Date exceeded (B) the amount of
the actual distribution to Class A
Certificateholders on such preceding
Payment Date, exclusive of any portion
of any Insured Payment made to the Class
A Certificateholders and (ii) if any
portion of the
S-9
amount in the preceding clause (i)
represents Insured Payments made by the
Insurer, interest on such portion at the
Class A Pass-Through Rate from such
immediately preceding Payment Date (the
"Class A Carry-Forward Amount" and,
together with the Basic Principal
Amount, the "Class A Principal
Remittance Amount").
On each Payment Date, the lesser of (i)
the Class A Principal Balance then
outstanding and (ii) the Class A
Principal Remittance Amount (which,
together with the Class A Interest
Remittance Amount, constitutes the
"Class A Remittance Amount" for such
Payment Date) is payable to the Class A
Certificateholders.
As of any Payment Date, the "Class A
Principal Balance" will equal the
Original Class A Principal Balance
reduced by the sum of all amounts
previously distributed to Class A
Certificateholders in respect of
principal on all previous Payment Dates.
D. The Certificate
Insurance Policy......... On or before the Closing Date, the
[Servicer] will obtain the Certificate
Insurance Policy, which is
noncancelable, in favor of the Trustee
on behalf of the Class A
Certificateholders. The Certificate
Insurance Policy will provide for 100%
coverage of the Class A Remittance
Amounts due on the Class A Certificates
on each Payment Date. On each Payment
Date, the Insurer will make available to
the Trustee the amount of any
insufficiency in the amount available as
of such Payment Date which is necessary
to distribute to the Class A
Certificateholders the Class A
Remittance Amounts on such Payment Date
(each, an "Insured Payment"). The
Certificate Insurance Policy does not
guarantee to the Class A
Certificateholders any specified rate of
prepayments. See "Description of the
Certificates -- The Certificate
Insurance Policy" herein.
Spread Account and
S-10
Subordinated Amount.............. The Trustee will establish a separate
trust account (the "Spread Account")
into which it will deposit upon receipt
from the Servicer on each Payment Date,
prior to making any distributions to
Certificateholders, the excess, if any,
of the aggregate interest accrued during
the related Due Period on all of the
Mortgage Notes at their respective
annual rates of interest (each such
annual rate of interest hereinafter
referred to as the "Mortgage Interest
Rate" for the applicable Mortgage Note)
over the sum of the Class A Interest
Remittance Amount, the Monthly Premium
(as defined below) due to the Insurer,
the Letter of Credit Fee Amount (as
defined below) due to the issuers of any
Letters of Credit (as defined below) and
the Servicing Fee (such excess, the
"Excess Spread"). Unless otherwise
specified by the Insurer, the Trustee is
required to retain [100]% of the Excess
Spread (the "Monthly Excess Spread
Amount") in the Spread Account until the
amount on deposit therein is equal to an
amount specified by the Insurer in the
Pooling and Servicing Agreement (the
"Base Spread Account Requirement")[;
provided, that for the initial period
set forth in the Pooling and Servicing
Agreement, the Periodic Excess Spread
Amount will be zero]. After the amount
on deposit in the Spread Account is
equal to the Base Spread Account
Requirement, the amount required to be
on deposit in the Spread Account at any
time (the "Specified Spread Account
Requirement") may be reduced over time
as specified by the Insurer. The
percentage used in determining the
Monthly Excess Spread Amount may be
reduced at the sole discretion of the
Insurer with the consent of each person
obligated to reimburse issuers of any
Letters of Credit (as defined below) on
deposit in the Spread Account for
outstanding drawings thereunder (each
such person, an "Account Party"), and
the Base Spread Account Requirement may
be reduced at the sole discretion of the
Insurer.
The Pooling and Servicing Agreement
permits the Spread Account to be funded
in part by one or
S-11
more letters of credit (each, a "Letter
of Credit") issued by banks or trust
companies having on the date of delivery
of such Letter of Credit long term debt
ratings of at least by Moody's Investors
Service, Inc. ("Moody's") and "_____" by
Standard & Poor's Corporation ("S&P"),
or short term debt ratings of ___ by
Moody's and "_____" by S&P, and having
certain other qualifications set forth
in the Pooling and Servicing Agreement.
Amounts available to be drawn under any
Letter of Credit will be deemed to be on
deposit in the Spread Account.
On each Payment Date amounts, if any, on
deposit in the Spread Account will be
available to fund any shortfall between
the available funds for distributions to
Certificateholders and the Class A
Remittance Amount provided that, on and
after the date (the "Cross-Over Date")
on which the aggregate withdrawals from
the Spread Account to cover shortfalls
in amounts distributable on the Class A
Certificates attributable to Mortgage
Loan Losses ("Cumulative Spread Account
Receipts") equal an amount specified in
the Pooling and Servicing Agreement (the
"Subordinated Amount"), no further
withdrawals with respect to shortfalls
in the amounts required to be
distributed on the Class A Certificates,
may be made from the Spread Account, and
the Specified Spread Account Requirement
will thereafter be zero. In addition,
the Pooling and Servicing Agreement
provides that the Specified Spread
Account Requirement for any date shall
in no event be greater than the
Subordinated Amount as of such date.
On each Payment Date, any amounts
constituting (i) Excess Spread in excess
of the Monthly Excess Spread Amount (the
"Remainder Excess Spread Amount"), (ii)
amounts in the Spread Account in excess
of the Specified Spread Account
Requirement as of such Payment Date (any
such amount, a "Spread Account Excess")
and (iii) after the Cross-Over Date, the
entire Excess Spread, will be
distributed to the holders of the Class
R
S-12
Certificates after repayment of
outstanding draws under any Letters of
Credit and of unreimbursed Servicing
Advances to the Servicer.
Neither the Class R Certificateholders
nor the Servicer will be required to
refund any amounts properly distributed
to them, regardless of whether there are
sufficient funds on a subsequent Payment
Date to make a full distribution to
Class A Certificateholders of the amount
required to be distributed to such
Certificateholders.
The funding and maintenance of the
Spread Account is intended to enhance
the likelihood of timely payment to
Class A Certificateholders of the Class
A Remittance Amount; however, in certain
circumstances, the Spread Account could
be depleted and shortfalls could result.
The Spread Account will be funded with
Excess Spread from all Mortgage Loans
and will be available to the Class A
Certificates.
Notwithstanding the depletion or
reduction of the Spread Account, the
Insurer will be obligated to make
Insured Payments on each Payment Date to
fund the full amount of the Class A
Remittance Amounts on any Payment Date.
Payment of Certain Expenses........ In order to provide for the payment of
the fees of the Insurer, the Trustee is
required to establish and maintain one
or more trust accounts (the "Insurance
Account") into which the Trustee is
required to deposit on each Payment
Date, from amounts on deposit in the
Collection Account and before making any
required deposits into the Spread
Account and any required distributions
to the Class A Certificateholders, an
amount that is sufficient to pay the
monthly fee of the Insurer (the "Monthly
Premium"). In addition, in order to
provide for the payment of the fees of
the issuers of any Letters of Credit on
deposit in the Spread Account, the
Trustee is required to establish and
maintain a trust account (the "Letter of
Credit Fee Account") into which the
Trustee is required to deposit on each
S-13
Payment Date, from amounts on deposit in
the Collection Account and after making
any required deposits into the Insurance
Account and the Spread Account, an
amount that is sufficient to pay any
monthly fees due the issuers of such
Letters of Credit (the "Letter of Credit
Fee Amount"). [The Servicer is required
to pay to the Trustee from time to time
the fees of the Trustee and the
reasonable expenses, disbursements and
advances incurred or made by the Trustee
in accordance with the Pooling and
Servicing Agreement.] The Trustee is
permitted on each Payment Date to pay to
itself, from amounts on deposit in the
Collection Account and after making any
required deposits into the Spread
Account, any required distributions to
Class A Certificateholders and any
required deposits into the Insurance
Account and Letter of Credit Fee
Account, any amounts then due and owing
representing fees of the Trustee that
have not been paid by the Servicer after
written demand therefor.
Advances from the Principal and
Interest Account................. The Servicer is required to withdraw
from the Principal and Interest Account
amounts on deposit therein and held for
future distribution to make advances
(each, an "Advance") on each Payment
Date in respect of interest on the
Mortgage Loans accrued but uncollected
as of the end of the related Due Period
(net of the Servicing Fee). The Servicer
generally shall not be required to make
such Advance from its own funds or be
liable for the recovery thereof from
collections on the related Mortgage
Loans or otherwise. See "Description of
the Certificates -- Advances from the
Principal and Interest Account" herein
and "Description of the Offered
Certificates; Servicing Advances" in the
Prospectus.
Servicing Fee...................... The Servicer will be entitled to a fee
of ____% per annum of the outstanding
principal balance of each Mortgage Loan
(the "Servicing Fee"), calculated and
payable monthly from the interest
portion of monthly payments on such
Mortgage Loan, Liquidation Proceeds,
Released Mortgaged
S-14
Property Proceeds and certain other
sources as provided in the Pooling and
Servicing Agreement.
Ratings............................ It is a condition to the issuance of the
Class A Certificates that the Class A
Certificates each be rated [___ by
Moody's and "___" by S&P and Fitch
Investors Service, Inc. ("Fitch" and
each of Fitch, Moody's and S&P, a
"Rating Agency")]. A security rating is
not a recommendation to buy, sell or
hold securities and may be subject to
revision or withdrawal at any time. No
person is obligated to maintain any
rating on any Class A Certificate, and,
accordingly, there can be no assurance
that the ratings assigned to the Class A
Certificates upon initial issuance
thereof will not be lowered or withdrawn
by a Rating Agency at any time
thereafter. In the event any rating is
revised or withdrawn, the liquidity of
the Class A Certificates may be
adversely affected. In general, the
ratings address credit risk and do not
represent any assessment of the
likelihood or rate of principal
prepayments. See "Risk Factors --
Liquidity" and "Ratings" herein.
Optional Termination .............. The [Servicer] may, at its option,
terminate the Pooling and Servicing
Agreement on any date on which the Pool
Principal Balance is less than [5]% of
the Original Pool Principal Balance by
purchasing from the Trust, on the next
succeeding Payment Date [(but in no
event earlier than the Payment Date
occurring in ____)] all of the Mortgage
Loans and all Mortgaged Properties
acquired by foreclosure or deed in lieu
of foreclosure ("REO Properties") then
remaining in the Trust at a price (the
"Termination Price") equal to (i) the
sum of (x) 100% of the aggregate
outstanding principal balances of the
Mortgage Loans and REO Properties, (y)
interest on such amount computed at a
rate equal to the weighted average
Mortgage Interest Rate and (z) the
aggregate amount of any outstanding
draws under the Letters of Credit, if
any, minus (ii) any amounts representing
collections on the Mortgage Loans and
REO Properties not yet applied to
S-15
reduce the principal balance thereof or
interest related thereto. In connection
with such purchase, the Servicer is
required to pay any unpaid fees and
expenses of the Trustee and the Insurer.
See "Description of the Certificates --
Termination; Purchase of Mortgage Loans"
herein and in the Prospectus.
[Certain Legal Aspects
of the Mortgage Loans............ Approximately ____% of the Mortgage
Loans are secured by second or more
junior Mortgages which are subordinate
to a mortgage lien on the related
Mortgaged Property prior to the lien of
such Mortgage Loan (such senior lien, if
any, a "First Lien"). A primary risk
with respect to second Mortgages is that
foreclosure funds received in connection
therewith will not be sufficient to
satisfy fully both the First Lien and
the second Mortgage. See "Risk Factors"
and "Certain Legal Aspects of the
Mortgage Loans" herein.]
REMIC Election and Tax Status ..... An election will be made to treat the
assets of the Trust as a "real estate
mortgage investment conduit" (a "REMIC")
for federal income tax purposes (the
"[Subsidiary] REMIC")[, and a separate
election will be made to treat the pool
of assets represented by the regular
interests in the Subsidiary REMIC as a
REMIC (the "Master REMIC").]
The Class A Certificates will be regular
interests in the [Master] REMIC. As
regular interests in a REMIC, the Class
A Certificates generally will be treated
as debt instruments issued by the REMIC.
The Class A Certificates may be treated
as having been issued with original
issue discount. As a result, holders of
the Class A Certificates may be required
to include amounts in income with
respect to such Certificates in advance
of the receipt of cash attributable to
that income. The prepayment assumption
that will be used in computing the
amount of original issue discount
includible periodically will be ____%
[CPR], as described herein. See "Certain
Yield and Prepayment
S-16
Considerations" herein and in the
Prospectus. No representation is made
that either prepayments on the Mortgage
Loans or payments on the Class A
Certificates will occur at that rate or
any other rate. Based on final
regulations relating to the treatment of
original issue discount, the Internal
Revenue Service could assert that all of
the interest payments on the Class A
Certificates should be treated as
original issue discount regardless of
their issue price. If such an assertion
were successful, any otherwise de
minimis discount would be treated as
original issue discount. See "Certain
Federal Income Tax Consequences for
REMIC Certificates -- Original Issue
Discount" in the Prospectus.
The Class A Certificates will be treated
as (i) qualifying real property loans
within the meaning of Section 593(d)(1)
of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) assets
described in Section 7701(a)(19)(C) of
the Code and (iii) "real estate assets"
within the meaning of Section
856(c)(5)(A) of the Code, in each case
to the extent describe herein. See
"Certain Federal Income Tax
Consequences" [herein and] in the
Prospectus.
ERISA Considerations............... A fiduciary or other person
contemplating purchasing the Class A
Certificates on behalf of or with "plan
assets" of any employee benefit plan or
other retirement arrangement subject to
the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code should
carefully review with its legal advisors
whether the purchase or holding of Class
A Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or Section 4975
of the Code and the application of the
fiduciary responsibility provisions of
ERISA. The U.S. Department of Labor has
issued an individual exemption,
Prohibited Transaction Exemption ___ to
___ (the "Exemption"). The Exemption
generally exempts from the application
of certain of the prohibited transaction
provisions of ERISA and the excise
S-17
taxes and penalties imposed on such
prohibited transactions by Section
4975(a) and (b) of the Code transactions
relating to the purchase, sale and
holding of pass-through certificates
such as the Class A Certificates and the
servicing and operation of asset pools
such as the Mortgage Pool, provided that
certain conditions are satisfied. See
"ERISA Considerations" [herein and] in
the Prospectus.
Legal Investment................... Although upon their initial issuance the
Class A Certificates will be rated [___
by Moody's and "___" by S&P and Fitch],
the Class A Certificates will not
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 because the
Mortgage Pool includes Mortgage Loans
that are secured by second Mortgages.
Investors should consult their own legal
advisers in determining whether and to
what extent the Class A Certificates
constitute legal investments for such
investors. See "Legal Investment"
herein.
Use of Proceeds.................... Substantially all of the net proceeds to
be received from the sale of the Class A
Certificates will be received by the
Depositor. [The Originators have, in the
aggregate, transferred the Mortgage
Loans to the Depositor in return for
such proceeds.]
S-18
RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus and the following factors in connection with
the purchase of the Class A Certificates:
Risks of the Mortgage Loans [insert any appropriate considerations with respect
to Mortgage Loans.]
Geographic Concentration. In addition to the foregoing, certain geographic
regions of the United States from time to time will experience weaker regional
economic conditions and housing markets, and, consequently, will experience
higher rates of loss and delinquency on mortgage loans generally. Any
concentration of the Mortgage Loans in such a region may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. In particular,
approximately ____%, ____%, ____% and ____% of the Mortgage Loans in the
Mortgage Pool are secured by Mortgaged Properties located in ___________,
___________, __________ and ___________, respectively. There has been a
contraction of economic activity and a deterioration of the real estate market
in many states and uncertainty exists with respect to the economy and the real
estate market in _______________, __________ and other regions of the United
States. See "Description of the Mortgage Pool" herein for further information
regarding the geographic concentration of the Mortgage Loans in the Mortgage
Pool.
Nature of Security. Approximately ____% of the Mortgage Loans in the
Mortgage Pool, by aggregate principal balance as of the Cut-off Date, are
secured by second or more junior Mortgages, and the related First Liens are not
included in the Mortgage Pool. Although little data is available, the rate of
default of junior mortgage loans may be greater than that of mortgage loans
secured by First Liens on comparable properties. See "Risk Factors -- Risks of
the Mortgage Loans -- Nature of Security" in the Prospectus.
Risk of Early Defaults. Approximately ____% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date were originated within ___
months prior to the Cutoff Date. The weighted average remaining term to maturity
of the Mortgage Loans in the Mortgage Pool as of the Cut-off Date is
approximately ___ months. Although little data is available, defaults on
mortgage loans are generally expected to occur with greater frequency in their
early years.
Balloon Mortgage Loans. Approximately ____% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date provide for the payment of
the unamortized principal balance of the Mortgage Loan in a single payment at
the maturity of the Mortgage Loan that is greater than the preceding monthly
payment ("Balloon Loans"). See "Description of the Mortgage Pool" and "Risk
Factors -- Risks of the Mortgage Loans -- Balloon Loans" in the Prospectus.
S-19
Yield and Prepayment Considerations
The yield to maturity of the Class A Certificates will depend on the rate
and timing of payment of principal on the Mortgage Loans in the Mortgage Pool
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. The rate of prepayment of the
Mortgage Loans may also be influenced by programs offered by the Originators to
encourage refinancing through the Originators to those customers who are
targeted for such solicitations. See "Certain Yield and Prepayment
Considerations" herein and in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool consists of ___ Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after giving effect to
payments received prior to such date, of $________ (the "Original Pool Principal
Balance"). This subsection describes generally certain characteristics of the
Mortgage Loans in the Mortgage Pool. Unless otherwise specified herein,
references herein to percentages of Mortgage Loans refer in each case to the
approximate percentage of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date, based on the outstanding balances of the Mortgage Loans
as of the Cut-off Date, and giving effect to principal payments received prior
to the Cut-off Date. The Mortgage Pool consists of [fixed-rate] Mortgage Loans
with remaining terms to maturity of not more than months (including both fully
amortizing Mortgage Loans and Balloon Loans). All of the Mortgage Loans were
originated by the Originators. The Mortgage Loans have the characteristics set
forth below as of the Cut-off Date. Percentages expressed herein based on
principal balances and number of Mortgage Loans have been rounded, and in the
tables set forth herein the sum of the percentages may not equal the respective
totals due to such rounding.
All of the Mortgage Loans were originated prior to ________, 199__ and have
a scheduled maturity date no later than ________. No Mortgage Loan has a
remaining term to maturity as of the Cut-off Date of less than ____ months. The
weighted average original term to maturity of the Mortgage Loans in the Mortgage
Pool as of the Cut-off Date is approximately ____ months. The weighted average
remaining term to maturity of the Mortgage Loans as of the Cut-off Date is
approximately ____ months.
The weighted average Mortgage Interest Rate of the Mortgage Loans as of the
Cut-off Date is approximately ____% per annum. All of the Mortgage Loans have
Mortgage Interest Rates
S-20
as of the Cut-off Date of at least ____% per annum but not more than ____% per
annum. The average principal balance outstanding of the Mortgage Loans as of the
Cut-off Date was $________ and the principal balances of the Mortgage Loans as
of the Cut-off Date ranged from $________ to $________. The original principal
balances of the Mortgage Loans ranged from $________ to $________.
Approximately ____% of the Mortgage Loans are secured by a second or more
junior Mortgage on the related Mortgaged Property that is junior to a First Lien
and approximately ____% are secured by a first Mortgage on the related Mortgage
Property. The First Liens related to the Mortgage Loans secured by second
Mortgages are not included in the Mortgage Pool.
Approximately ____% Mortgage Loan had a Combined Loan-to-Value Ratio
(defined below) in excess of ____%. The weighted average Combined Loan-to-Value
Ratio of the Mortgage Loans as of the Cut-off Date is approximately ____%. No
Mortgage Loan had a Home Equity Loan Ratio (defined below) in excess of ____%.
The weighted average Home Equity Loan Ratio of the Mortgage Loans as of the
Cut-off Date is approximately ____%.
At least ____% of the Mortgage Loans are secured by fee simple interests in
detached single-family dwelling units, including units in de minimis planned
unit developments, with the remaining Mortgage Loans secured by fee simple
interests in attached or detached two- to four-family dwelling units, units in
planned unit developments and condominiums on more than one parcel of real
property; provided, however, that approximately ____% of the Mortgage Loans are
secured by a leasehold interest in a one- to four-family residential dwelling
situated on property located in the State of Maryland; and further provided that
approximately ____% of the Mortgage Loans are secured by real property improved
with a single-family residence constituting a permanently affixed manufactured
housing unit. With respect to at least ____% of the Mortgage Loans, the
Mortgagor represented at the time of the origination of the Mortgage Loan that
the related Mortgaged Property would be occupied by the Mortgagor as a primary
or secondary residence (an "Owner Occupied Mortgaged Property").
No more than approximately ____% of the Mortgage Loans are secured by
Mortgaged Properties located in any one zip code area in the State of
__________, and no more than approximately ____% of the Mortgage Loans are
secured by Mortgaged Properties located in any one zip code area outside the
State of __________. Approximately ____%, ____%, ____% and ____% of the Mortgage
Loans are secured by Mortgaged Properties located in __________, __________,
__________and __________, respectively. Except as indicated in the preceding
sentence, no more than ____% of the Mortgage Loans are secured by Mortgaged
Properties located in any one state.
Approximately ____% of the Mortgage Loans are Balloon Loans. Approximately
____%, ____% and ____% of the Mortgage Loans are Balloon Loans based on a year
amortization
S-21
schedule and a single payment of the remaining loan balance approximately
_________, and ____ years after origination, respectively.
Approximately ____% of the Mortgage Loans are Bankruptcy Mortgage Loans. Of
the Mortgage Loans, ____% in principal amount are Bankruptcy Mortgage Loans
which are days or more contractually delinquent. Of the Mortgage Loans other
than Bankruptcy Mortgage Loans, representing ____% in aggregate principal amount
of all Mortgage Loans, ____% in principal amount are contractually delinquent
30-59 days and ____% in principal amount are contractually delinquent 60-89
days.
The following table sets forth the number and outstanding principal balance
as of the Cutoff Date of ____________, and the percentage of the Mortgage Pool
represented by Mortgage Loans in the Mortgage Pool having outstanding principal
balances as of the Cut-off Date in the ranges described therein:
Range of Cut-off Percent of Mortgage Percent of Mortgage
Date Principal Cut-Off Date Pool by Cut-off Date Number of Mortgage Pool by Number of
Balance Principal Balance Principal Balance Loans Mortgage Loans
------- ----------------- ----------------- ----- --------------
$ $ % %
Total:
The following table sets forth the geographic distribution of the Mortgaged
Properties in the Mortgage Pool by state or territory as of the Cut-off Date:
Percent of Mortgage Percent of Mortgage
Cut-off Date Pool by Cut-off Date Number of Mortgage Pool by Number of
State or Territory Principal Balance Principal Balance Loans Mortgage Loans
------------------ ----------------- ----------------- ----- --------------
$ % %
S-22
Total:
S-23
The following table sets forth the Combined Loan-to-Value Ratios of the
Mortgage Loans in the Mortgage Pool as of the Cut-off Date:
Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Combined Loan-to- Cut-off Date Cut-off Date Mortgage by Number of
Value Ratios Principal Balance Principal Balance Loans Mortgage Loans
------------ ----------------- ----------------- ----- --------------
_______% to ________% $ % %
The following table sets forth the Home Equity Ratios of Mortgage Loans in
the Mortgage Pool:
Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Home Equity Loan Cut-off Date Cut-off Date Mortgage by Number of
Ratios Principal Balance Principal Balance Loans Mortgage Loans
------ ----------------- ----------------- ----- --------------
_______% to ________% $ % %
The following table sets forth the Mortgage Interest Rates borne by the
Mortgage Notes relating to the Mortgage Loans as of the Cut-off Date:
S-24
Percent of Percent of
Mortgage Pool Number of Mortgage Pool by
Range of Mortgage Interest Cut-off Date by Cut-off Date Mortgage Number of
Rate Principal Balances Principal Balance Loans Mortgage Loans
---- ------------------ ----------------- ----- --------------
_______% to ______% $ % %
Total:
The following table sets forth the number of remaining months to stated
maturity of the Mortgage Loans in the Mortgage Pool as of the Cut-off Date:
Percent of Percent of
Mortgage Pool Number of Mortgage Pool by
Range of Remaining Months to Cut-off Date by Cut-off Date Mortgage Number of
Stated Maturity Principal Balances Principal Balance Loans Mortgage Loans
--------------- ------------------ ----------------- ----- --------------
________ to _________ $ % %
Total:
The following table sets forth the number of months since origination of
the Mortgage Loans in the Mortgage Pool as of the Cut-off Date:
S-25
Percent of Percent of
Mortgage Pool Number of Mortgage Pool by
Range of Months Since Cut-off Date by Cut-off Date Mortgage Number of
Origination Principal Balances Principal Balance Loans Mortgage Loans
----------- ------------------ ----------------- ----- --------------
________ to _________ $ % %
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Class A Certificates, the aggregate
amount of each interest payment on the Class A Certificates and the yield to
maturity of such Certificates are related to the rate and timing of payments of
principal on the Mortgage Loans, which may be in the form of scheduled and
unscheduled payments. In general, when the level of prevailing interest rates
for similar loans significantly declines, the rate of prepayment is likely to
increase, although the prepayment rate is influenced by a number of other
factors, including general economic conditions and homeowner mobility. Defaults
on mortgage loans are expected to occur with greater frequency in their early
years, although little data is available with respect to the rate of default on
second or more junior mortgage loans. The rate of default on second or more
junior mortgage loans may be greater than that of mortgage loans secured by
first liens on comparable properties. Prepayments, liquidations and purchases of
the Mortgage Loans will result in distributions to the related Class A
Certificateholders of amounts of principal which would otherwise be distributed
over the remaining terms of the Mortgage Loans in the Mortgage Pool.
In addition, the [Servicer] may, at its option, purchase from the Trust all
of the outstanding Mortgage Loans and REO Properties, and thus effect the early
retirement of the Class A Certificates, on any Payment Date [(but in no event
earlier than the Payment Date occurring in _____)] following the first date on
which the Pool Principal Balance (as defined herein) is less than [5]% of the
Original Pool Principal Balance. See "Description of the Certificates --
Termination; Purchase of Mortgage Loans" herein.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
mortgage loans. Depending on prevailing market rates,
S-26
the future outlook for market rates and economic conditions generally, some
mortgagors may sell or refinance mortgaged properties in order to realize their
equity in the mortgaged properties, to meet cash flow needs or to make other
investments. No representation is made as to the particular factors that will
affect the prepayment of the Mortgage Loans, as to the relative importance of
such factors, as to the percentage of the principal balance of the Mortgage
Loans that will be paid as of any date or as to the overall rate of prepayment
on the Mortgage Loans. The rate of prepayment of the Mortgage Loans may also be
influenced by programs offered by the Originators to encourage refinancing
through the Originators to those customers who are targeted for such
solicitations.
The scheduled maturity date of the latest maturing Mortgage Loan in the
Mortgage Pool is in ________________. Accordingly, the final payment on any
Class A Certificate would be made no later than ___________, assuming that no
prepayments are received on the Mortgage Loans in the Mortgage Pool, all
payments of principal of and interest on each of the Mortgage Loans in the
Mortgage Pool are timely received and none of the Mortgage Loans in the Mortgage
Pool is repurchased from the Trust. The weighted average life of the Class A
Certificates is likely to be shorter than would be the case if payments actually
made on the Mortgage Loans conformed to the foregoing assumptions and the date
on which the final payment on any Class A Certificate could occur is
significantly earlier than _________, because, among other things, (i)
prepayments are likely to occur, (ii) defective Mortgage Loans may be purchased
from the Trust under certain circumstances described herein, (iii) the Servicer
may purchase all of the Mortgage Loans when the aggregate outstanding principal
amount of the Mortgage Loans is less than ____% of the Original Pool Principal
Balance and (iv) shortfalls in principal due to losses on the Mortgage Loans
could result in withdrawals from the Spread Account or in Insured Payments to
make payments in respect of principal on the Class A Certificates.
Greater than anticipated prepayments of principal will increase the yield
on Class A Certificates purchased at a price less than par. Greater than
anticipated prepayments of principal will decrease the yield on Class A
Certificates purchased at a price greater than par. The effect on an investor's
yield due to principal prepayments on the Mortgage Loans occurring at a rate
that is faster (or slower) than the rate anticipated by the investor in the
period immediately following the issuance of the Certificates will not be
entirely offset by a subsequent like reduction (or increase) in the rate of
principal payments. The weighted average life of the Class A Certificates will
also be affected by the amount and timing of delinquencies and defaults on the
Mortgage Loans in the Mortgage Pool and the recoveries, if any, on defaulted
Mortgage Loans and foreclosed properties in the Mortgage Pool.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
the Class A Certificates will be influenced by, among other factors, the rate at
which principal payments are made on the Mortgage Loans in the Mortgage Pool,
including final payments made upon the maturity of Balloon Loans.
S-27
ORIGINATION, FORECLOSURE AND LOSS EXPERIENCE
General
For a general discussion of the Depositor, the Servicer and the
Originators, see "The Depositors, the Servicer and the Originators" in the
Prospectus.
As of ________, 199__, BOFS had a total of ____ employees; ____ employees
at its Indianapolis, Indiana headquarters and an additional ____ employees in
branch offices located in ____ states nationwide. As of December 31, 199__, the
total stockholders' equity of BOFS was $________.
Loan Origination History
At December __, 199__, BOFS conducted loan origination and/or wholesale
operations in a number of states, including Arizona, California, Connecticut,
Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky,
Louisiana, Maryland, Michigan, Minnesota, Missouri, Nevada, New York, New
Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and
Wisconsin.
The dollar amounts of first, second and more junior lien mortgage loans
originated and purchased by BOFS during the years ended December 31, 199__, 199
and 199 were $________, $________ and $________, respectively. BOFS originated
and purchased mortgage loans totalling $________ during the months ended
________, 199__.
BOFS originates and purchases mortgage loans under a number of underwriting
programs. See the "Depositors, the Servicer and the Originators -- Specific
Underwriting Criteria; Underwriting Programs" in the Prospectus for a discussion
of each of the underwriting programs.
Servicing Portfolio
At ________ and December 31, 199__, BOFS serviced a total portfolio of
________ and ________ mortgage loans, respectively, having aggregate unpaid
principal balances of $________ and $________, respectively, for itself, VNFSC
and Bank One, Utah, N.A. The foregoing figures include loans that were
originated or acquired and re-underwritten by BOFS.
Delinquency and Loss Experience
The following table sets forth BOFS's delinquency and charge-off experience
at the dates indicated on mortgage loans included in its servicing portfolio,
including loans in foreclosure proceedings.
At or
For the
S-28
Months
Ended ___,
At or For the Year Ended December 31, 199__
------------------------------------- -----
(Dollars in Thousands)
Portfolio Unpaid
Principal Balance(1). $ $ $ $ $
Average Portfolio
Unpaid Principal
Balance(1)........ $ $ $ $ $
Period of Delinquency(2):
30-59 Days........... %
60-89 Days........... % % % % % %
90 Days or More...... % % % % % %
Total Delinquencies.... % % % % % %
Total Credit Losses(3). $ $ $ $ $ $
Total Credit Losses as a
Percent of Average
Unpaid Principal
Balance.............. % % % % % %
- ----------
[(1) Portfolio Unpaid Principal Balance is the net amount of principal to be
paid on each mortgage loan, excluding unearned finance charges and other
charges, and excludes the principal balance of each mortgage loan as to which
the related mortgaged property has been previously acquired through foreclosure.
(2) Delinquency percentages are calculated as the dollar amount of mortgage loan
principal delinquent as a percent of the Portfolio Unpaid Principal Balance.
Delinquency percentages include the principal balance of all mortgage loans in
foreclosure proceedings. Generally, all Mortgage Loans in foreclosure
proceedings are 90 days or more delinquent. Delinquency percentages do not
include the principal balance of mortgage loans which are real estate owned.
(3) Total Credit Losses includes (a) charge-offs of principal, net of subsequent
recoveries, relating to mortgage loans written off as uncollectible or
charge-offs relating to properties securing any mortgage loans which have been
foreclosed upon and for which, in the opinion of management, liquidation
proceeds would not exceed estimated expenses of liquidation plus the unpaid
principal balance, (b) expenses associated with maintaining, repairing, and
selling foreclosed properties and real estate owned, and (c) losses (gains) on
the disposition of foreclosed properties and real estate owned.]
(4) Annualized.
The delinquency percentages set forth in the preceding table are calculated
on the basis of the unpaid principal balances of mortgage loans included in
BOFS's servicing portfolio as of the end of the periods indicated. The
charge-off experience percentages set forth above are calculated on the basis of
the average outstanding unpaid principal balance of mortgage loans included in
the servicing portfolio during the periods indicated. [However, because the
amount of loans included in the servicing portfolio has increased rapidly over
these periods as a result of new originations, the servicing portfolio as of the
end of any indicated period includes many loans that will not have been
outstanding long enough to give rise to some or all of the indicated periods of
delinquency or to have resulted in losses. In the absence of such substantial
and continual additions of newly originated loans to the servicing portfolio,
the delinquency and charge-offs percentages indicated above would be higher and
could be substantially higher.] The actual delinquency percentages and loss
experience with respect to the Mortgage Loans may be expected to be
substantially higher
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than the delinquency percentages indicated above because the composition of the
Mortgage Pool will not change.
In addition, over the last several years, there has been a general
deterioration of the real estate market and weakening of the economy in all
regions of the country. The general deterioration of the real estate market has
been reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as security for loans. If the real estate market and economy
continue to decline, BOFS may experience an increase in delinquencies on the
loans it services and higher net losses on liquidated loans.
Outstanding Real Estate Owned
At ________, 199__ and December __, 199__, approximately and properties,
respectively, acquired through foreclosure were owned by BOFS for its own
account or on behalf of owners of other mortgage loans included in its servicing
portfolio. Such properties, at ________, 199__ and December 31, 199__, were
valued at $________ and $________, respectively.
DESCRIPTION OF THE CERTIFICATES
General
The Banc One Home Equity Loan Asset Backed Certificates, Series 199__, will
consist of [two] classes of Certificates, designated as the Class A Certificates
and the Class R Certificates. Only the Class A Certificates (the "Class A
Certificates") are offered hereby.
The following summary describes certain terms of the Certificates and the
Pooling and Servicing Agreement. Reference is made to the accompanying
Prospectus for important additional information regarding the terms of the Class
A Certificates and the underlying documents. A form of the Pooling and Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
the Prospectus forms a part. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the Certificates and the Pooling and Servicing Agreement. Where particular
provisions or terms used in any of such documents are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
The Certificates represent interests in the Trust created and held pursuant
to the Pooling and Servicing Agreement. The Trust Fund consists primarily of (i)
the Mortgage Loans and all proceeds thereof, (ii) REO Property, (iii) amounts on
deposit in the Collection Account (as defined herein), Principal and Interest
Account (as defined herein), Insurance Account,
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Spread Account (including all earnings thereon and proceeds thereof) or Letter
of Credit Fee Account, including all investments of amounts on therein, (iv)
certain rights of the Depositor under the Transfer Agreement, (v) the
Certificate Insurance Policy, and (vi) certain other property; provided,
however, that the Trust Fund does not include amounts received on or after the
Cut-off Date in respect of interest accrued on the Mortgage Loans prior to the
Cutoff Date.
[Each Class A Certificate will be issued in minimum denominations of
$________ and integral multiples thereof. Each Class A Certificate will
represent a percentage interest (a "Percentage Interest") in the Class A
Certificates of the applicable Class determined by dividing the original dollar
amount represented by such Class A Certificate by the original aggregate
principal amount of all Class A Certificates of such Class.]
The Servicer expects to service the Mortgage Loans through BOFS, as
subservicer, in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"Description of the Offered Certificates--Servicing Standards" and "--Use of
Subservicers" in the Prospectus for a further description of the provisions of
the Pooling and Servicing Agreement relating to servicing standards and the use
of subservicers.
Representations and Warranties of the Depositor and the Originators
Each Originator will make the representations, among others, as to each
Mortgage Loan conveyed by any Originator to the Depositor as of the Closing Date
described under "Description of the Offered Certificates -- Representations and
Warranties of the Originators and the Depositor" in the Prospectus and will also
represent that:
1. No more than ____% of the Mortgage Loans are secured by Mortgaged
Properties improved by permanently affixed manufactured housing units.
2. Approximately ____% of the Mortgage Loans are Balloon Loans. All of
the Balloon Loans provide for monthly payments based on an amortization
schedule specified in the related Mortgage Note and have a final balloon
payment no earlier than ____ months following the date of origination and
no later than at the end of the ____ year following the date of originator;
3. As of the Cut-off Date, no more than ____% of the Mortgage Loans in
the Mortgage Pool were 30 or more days contractually delinquent. No more
than ____% of the Mortgage Loans in the Mortgage Pool were 60 or more days
contractually delinquent;
4. No more than ____% of the Mortgage Loans in the Mortgage Pool are
secured by Mortgaged Properties located within any single zip code area;
and
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5. Mortgage Loans representing at least ____% of the Mortgage Loan
Principal Balance are secured by an Owner Occupied Mortgaged Property.
Distributions
The Trustee is required to establish a trust account (the "Collection
Account") for the remittance of payments on the Mortgage Loans to the
Certificateholders. The Collection Account is required to be maintained as an
Eligible Account.
On each Payment Date, commencing on ________, 199__, the Trustee will
distribute to each person in whose name a Certificate is registered [(which, as
to the Class A Certificates, initially will be only Cede, the nominee of DTC)]
on the related Record Date, the portion of the aggregate distribution to be made
to Class A Certificateholders to which such holder is entitled, if any, based on
the Percentage Interest of the Class A Certificates, as the case may be, held by
such holder. Distributions will be made by wire transfer of immediately
available funds to the account of such Certificateholder at a bank or other
entity having appropriate facilities therefor, if such Certificateholder owns of
record Class A Certificates aggregating in excess of $________, and shall have
provided complete wiring instructions to the Trustee at least five business days
prior to the Record Date, and otherwise by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register. See
"Registration of the Offered Certificates -- Registration and Transfer of the
Offered Certificates" in the Prospectus.
On each Payment Date, the Trustee shall withdraw from the Collection
Account and distribute, based on the information provided in the most recent
Trustee's Remittance Report, the following amounts to the extent available, in
the priority indicated:
(i) first, for deposit into the Insurance Account for the benefit of
the Insurer, the Monthly Premium payable to the Insurer;
(ii) second, for deposit into the Spread Account, the Excess Spread;
(iii) third, for deposit into the Letter of Credit Fee Account, the
Letter of Credit Fee Amount, representing the fees due to the issuers of
any Letters of Credit;
(iv) fourth, to the Class A Certificateholders, the Class A Interest
Remittance Amount;
(v) fifth, to the Class A Certificateholders, to be applied to reduce
the Class A Principal Balance to zero, the Class A Principal Remittance
Amount;
(vi) sixth, to the Trustee, any amounts then due and owing
representing fees of the Trustee, provided that the Trustee certifies in
writing that such amount is due and owing and has not been paid by the
Servicer within 30 days after written demand therefor;
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(vii) seventh, to the Servicer, an amount equal to the amounts
expended by the Servicer or the Representative and reimbursable thereto
under the Pooling and Servicing Agreement but not previously reimbursed;
(viii) eighth, to the Servicer an amount equal to Nonrecoverable
Advances previously made by the Servicer and not previously reimbursed; and
(ix) ninth, to the Class R Certificateholders, the balance, if any.
The amount available to make the payments described above will generally
equal (a) the sum of (i) the Available Payment Amount for the related Due Period
and (ii) the Spread Account Draw deposited into the Collection Account from the
Spread Account and any Insured Payments deposited into the Collection Account,
less (b) the sum of (i) the amount of the premium payable to the Insurer during
the related Due Period and (ii) the amount of the fees payable to the provider
of any Letter of Credit during the related Due Period.
The Pooling and Servicing Agreement provides that to the extent the Insurer
makes Insured Payments, the Insurer will be subrogated to the rights of the
Class A Certificateholders with respect to such Insured Payments and shall be
deemed, to the extent of the payments so made, to be a registered holder of
Class A Certificates, and shall be entitled to reimbursement for such Insured
Payments, with interest thereon at the Class A Pass-Through Rate on each Payment
Date following the making of an Insured Payment, only after the Class A
Certificateholders have received the Class A Remittance Amount for such Payment
Date.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Payment Date.
"Available Payment Amount" generally means with respect to any Payment Date
the result of (a) collections on or with respect to the Mortgage Loans received
by the Servicer during the related Due Period, net of the Servicing Fee paid to
the Servicer during the related Due Period and reimbursements for accrued unpaid
Servicing Fees and certain expenses paid by the Servicer, plus (b) the amount of
any Advances made by the Servicer less (c) the Excess Spread.
"Basic Principal Amount" means the sum of (i) the principal portion of each
Monthly Payment during the related Due Period, (ii) all Curtailments and all
Principal Prepayments received during such related Due Period, (iii) the
principal portion of all Insurance Proceeds, Released Mortgaged Property
Proceeds and Net Liquidation Proceeds received during the related Due Period,
(iv)(a) that portion of the purchase price of any repurchased Mortgage Loans
which represents principal and (b) any Substitution Adjustments deposited into
the Collection Account as of the related Determination Date and (v) the
Principal Balance of each Mortgage Loan as of the beginning of the related Due
Period which became a
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Liquidated Mortgage Loan during the related Due Period (exclusive of any
principal payments in respect thereof described in the preceding clauses (i)
through (iv)).
"Class A Carry-Forward Amount" means the sum of (i) the amount, if any, by
which (x) the Class A Remittance Amount as of the immediately preceding Payment
Date exceeded (y) the amount of the actual distribution to the Class A
Certificateholders, exclusive of any portion of such amount attributable to any
Insured Payment, on such preceding Payment Date, and (ii) if any portion of the
amount in the preceding clause (i) represents Insured Payments made by the
Insurer, interest on such portion at the Class A Pass-Through Rate.
"Class A Interest Remittance Amount" means interest accruing during the
related Accrual Period at the Class A Pass-Through Rate on the Class A Principal
Balance outstanding on the immediately preceding Payment Date (after giving
effect to distributions of principal made on such Payment Date) or, in the case
of the initial Accrual Period, __________, 199__.
"Class A Principal Balance" means as of any Payment Date the Original Class
A Principal Balance reduced by the sum of all amounts previously distributed to
Class A Certificateholders in respect of principal on all previous Payment
Dates.
"Class A Principal Remittance Amount" means the lesser of (A) the Class A
Principal Balance as of such Payment Date and (B) the sum of (i) the Basic
Principal Amount for such Payment Date and (ii) the Class A Carry-Forward
Amount.
"Class A Remittance Amount" means the sum of the Class A Principal
Remittance Amount and the Class A Interest Remittance Amount.
"Insured Payment" means, the amount, if any, by which (A) the sum of the
Class A Remittance Amounts exceeds (B) the sum of (i) the Available Payment
Amount plus any amounts transferred from the Spread Account to the Collection
Account and (ii) the aggregate amount of any previous Insured Payments for which
the Insurer has not been reimbursed.
"Mortgage Loan Losses" means, with respect to the Mortgage Loans in the
Mortgage Pool, the aggregate sum of the amount, if any, by which the sum of (i)
the outstanding principal balance of each Mortgage Loan that became a Liquidated
Mortgage Loan during the related Due Period (such principal balance determined
immediately before such Mortgage Loan became a Liquidated Mortgage Loan) and
accrued and unpaid interest thereon at the Mortgage Interest Rate to the date on
which such Mortgage Loan became a Liquidated Mortgage Loan exceeds (ii) the Net
Liquidation Proceeds received during such Due Period in connection with the
liquidation of such Mortgage Loan which have not theretofore been used to reduce
the Principal Balance of such Mortgage Loan.
"Spread Account Draw" means an amount deposited into the Collection Account
from the Spread Account equal to the excess of (i) the sum of (A) the Class A
Remittance Amount,
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over (ii) the Available Payment Amount less the monthly fee of the Insurer and
any provider of a Letter of Credit (as reduced by any portion of the Available
Payment Amount that has been deposited in the Collection Account but may not be
withdrawn therefrom pursuant to an order of a United States bankruptcy court of
competent jurisdiction imposing a stay pursuant to Section 362 of the United
States Bankruptcy Code).
Example of Distributions
The following chart sets forth an example of distributions on the Class A
Certificates based upon the assumption that the Certificates will be issued in
________, 199__.
Cut-off Date. The Original Pool Principal
Balance will be the aggregate principal
balances of the Mortgage Loans on the Cutoff
Date after application of all payments
received prior to the Cut-off Date.
Due Period. The Servicer and any subservicers
remit for deposit into the Principal and
Interest Account all amounts received on
account of the Mortgage Loans (other than
interest accrued prior to the Cut-off Date).
Determination Date. The Trustee determines,
based on information provided by the
Servicer, the amount of principal and
interest that will be distributed to
Certificateholders on ________, 199__.
The Servicer transfers funds in the Principal
and Interest Account to the Collection
Account including any Advances.
Not later than 10:00 a.m. on The Trustee will notify the Servicer, the
Insurer and each Account Party (as defined
herein) of the amount of the Insured
Payment, if any, required to be distributed
to the Class A Certificateholders on
________, 199__.
First Record Date. Distributions on ________,
199__ will be made to Certificateholders of
record at the close of business on ________,
199__.
Payment Date. The Trustee or its designee
will distribute to Certificateholders the
amounts required to be distributed pursuant
to the Pooling and Servicing Agreement.
Spread Account
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The Trustee will establish a trust account (the "Spread Account") into
which it will deposit upon receipt from the Servicer on each Payment Date the
excess, if any, of the interest accrued for the related Due Period on each
Mortgage Note at the Mortgage Interest Rate over the sum of the Class A Interest
Remittance Amount, the Monthly Premium due to the Insurer, the Letter of Credit
Fee Amount due to the issuer of any Letter of Credit and the Servicing Fee for
such Mortgage Loans (such aggregate amount, the "Excess Spread"). The Trustee is
required to retain [100]% of the Excess Spread (the "Monthly Excess Spread
Amount") in the Spread Account until the amount on deposit therein is equal to
an amount specified by the Insurer (the "Base Spread Account Requirement") [;
provided that for the initial period set forth in the Pooling and Servicing
Agreement, the Period in Excess Spread Amount will be zero]. After the amount on
deposit in the Spread Account is equal to the Base Spread Account Requirement,
the amount required to be on deposit in the Spread Account at any time (the
"Specified Spread Account Requirement") may be reduced over time as specified by
the Insurer, provided that such reduction shall not result in the reduction of
the rating of the Class A Certificates. The percentage used in determining the
Monthly Excess Spread Amount may be reduced at the sole discretion of the
Insurer with the consent of each Account Party and the Base Spread Account
Requirement may be reduced at the sole discretion of the Insurer. The Pooling
and Servicing Agreement permits the Spread Account to be funded in part by one
or more Letters of Credit issued by banks or trust companies having unsecured
and uncollateralized debt obligations that are rated ___ or better by Moody's
and "____" or better by S&P on the date of delivery of such Letter of Credit, or
having short-term obligations that are rated __ or better by Moody's and "____"
or better by S&P on the date of delivery of such Letter of Credit, and having
certain other qualifications set forth in the Pooling and Servicing Agreement.
Amounts available for drawing under any Letter of Credit will be deemed to be on
deposit in the Spread Account.
On each Payment Date amounts, if any, on deposit in the Spread Account will
be available to fund any shortfall between the available funds for distributions
to Class A Certificateholders and the sum of the Class A Remittance Amount;
provided, however, that, on and after such date (the "Cross-Over Date") on which
the aggregate withdrawals from the Spread Account to cover shortfalls in amounts
distributable on the Class A Certificates to Mortgage Loan Losses ("Cumulative
Spread Account Receipts") equal an amount specified by the Insurer (the
"Subordinated Amount") in the Pooling and Servicing Agreement, no further
withdrawals with respect to shortfalls in the amounts required to be distributed
on the Class A Certificates may be made from the Spread Account, and the
Specified Spread Account Requirement will thereafter be zero. The Pooling and
Servicing Agreement provides that the Specified Spread Account Requirement for
any date shall in no event be greater than the Subordinated Amount as of such
date.
If the Trustee determines prior to any Payment Date that the amount
available in cash and from the liquidation of Permitted Instruments in which all
or a portion of the Spread Account has been invested is insufficient to fund any
withdrawals required to be made from the Spread Account on such Payment Date,
the Trustee is required to cause to be presented to the issuers of any Letters
of Credit on deposit in the Spread Account one or more drawing
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certificates in proper form for the payment under such Letters of Credit of the
amount of such insufficiency. The proceeds of any such drawings are required to
be deposited into the Spread Account for withdrawal on such Payment Date.
On each Payment Date any amounts constituting (i) Excess Spread in excess
of the Monthly Excess Spread Amount (the "Remainder Excess Spread Amount"), (ii)
amounts in the Spread Account in excess of the Specified Spread Account
Requirement (any such amount, a "Spread Account Excess") and (iii) after the
Cross-Over Date, the entire Excess Spread will be distributed to the Holders of
the Class R Certificates, after payment of outstanding LC Obligations to Account
Parties and of unreimbursed Servicing Advances to the Servicer.
Neither the holders of the Class R Certificates nor the Servicer will be
required to refund any amounts previously distributed to them properly,
regardless of whether there are sufficient funds on a subsequent Payment Date to
make full distributions to Class A Certificateholders of the amounts required to
be distributed to Class A Certificateholders.
The funding and maintenance of the Spread Account is intended to enhance
the likelihood of timely payment to the Class A Certificateholders of the Class
A Remittance Amount, and to afford limited protection against losses in respect
of the Mortgage Loans; however, in certain circumstances, the Spread Account
could be depleted and shortfalls could result.
Notwithstanding the depletion of the Spread Account, the Insurer will be
obligated to make Insured Payments on each Payment Date to fund the full amount
of the Class A Remittance Amount on any Payment Date.
Certificate Insurance Policy
The Servicer will obtain the Certificate Insurance Policy in favor of the
Trustee for the benefit of the Class A Certificateholders. In the event that, on
any Payment Date, the amount available for distribution (net of any Insured
Payments) is less than the Class A Remittance Amount, the Trustee will make a
draw on the Certificate Insurance Policy for an Insured Payment, in an amount
equal any such deficiency. The Certificate Insurance Policy provides for 100%
coverage of the Class A Remittance Amounts due on the Class A Certificates on
each Payment Date. The Certificate Insurance Policy provides protection for
credit risk and does not guarantee to the Class A Certificateholders any
specified rate of principal payments or prepayments.
Advances [from the Principal and Interest Account]
Not later than the close of business on the third business day prior to
each Payment Date, the Servicer shall [withdraw from amounts on deposit in the
Principal and Interest Account and held for future distribution and] remit to
the Trustee for deposit in the Collection Account an amount (the "Advance"), to
be distributed on the related Payment Date, equal to the sum of the interest
portions of the aggregate amount of Monthly Payments (net of the
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Servicing Fee and, after the later to occur of (x) the Cross-Over Date, and (y)
the date on which there are no outstanding LC Obligations, the Excess Spread)
accrued during the related Due Period, but uncollected as of the close of
business on the last day of the related Due Period. [The Servicer generally
shall not be required to make such Advance from its own funds or be liable for
the recovery thereof from collections on the related Mortgage Loans or
otherwise.]
Servicing Compensation
As compensation for servicing and administering the Mortgage Loans, the
Servicer is entitled to a fee of ____% per annum of the principal balance of
each Mortgage Loan (the "Servicing Fee") calculated and payable monthly from the
interest portion of monthly payments on the Mortgage Loans, Liquidation
Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds and certain
other late collections on the Mortgage Loans. In addition to the Servicing Fee,
the Servicer is entitled under the Pooling and Servicing Agreement to retain as
additional servicing compensation any assumption and other administrative fees
(including bad check charges, late payment fees and similar fees), the excess of
any Net Liquidation Proceeds over the outstanding principal balance of a
Liquidated Mortgage Loan, to the extent not otherwise required to be remitted to
the Trustee for deposit into the Collection Account, and interest paid on funds
on deposit in the Principal and Interest Account, earnings paid on Permitted
Instruments (other than earnings on amounts invested from the Spread Account),
certain amounts representing excess funds released from the Insurance Account
and the Letter of Credit Fee Account and similar items.
Termination; Purchase of Mortgage Loans
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Mortgage Loan (or
Advances of such payment or collection by the Servicer), or the disposition of
all funds with respect to the last Mortgage Loan and the remittance of all funds
due under the Pooling and Servicing Agreement and the payment of all amounts due
and payable to the Insurer and the Trustee or (b) mutual consent of the
Servicer, the Insurer and all Certificateholders in writing; provided, however,
that in no event will the Trust established by the Pooling and Servicing
Agreement terminate later than twenty-one years after the death of the last
surviving lineal descendant of the person named in the Pooling and Servicing
Agreement, alive as of the date of the Pooling and Servicing Agreement.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the [Servicer] may, at its option,
terminate the Pooling and Servicing Agreement on any date on which the Pool
Principal Balance is less than [5]% of the Original Pool Principal Balance by
purchasing, on the next succeeding Payment Date [(but in no event before the
Payment Date occurring in ___)], all of the outstanding Mortgage Loans and REO
Properties then remaining in the Trust at a price equal to (i) the sum of (x)
100%
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of the aggregate outstanding principal balances of the Mortgage Loans and REO
Properties, (y) 30 days' accrued interest thereon at a rate equal to the
weighted average Mortgage Interest Rate and (z) the aggregate amount of any
outstanding LC Obligations, minus (ii) any amounts representing collections on
the Mortgage Loans and REO Properties not yet applied to reduce the principal
balance thereof or interest related thereto (the "Termination Price"). In
connection with such purchase, the Servicer is required to pay any unpaid fees
and expenses of the Trustee and the Insurer.
[Following a final determination by the Internal Revenue Service from which
no appeal is taken within the permitted time for such appeal, or if any appeal
is taken, following a final determination of such appeal from which no further
appeal can be taken, or by a court of competent jurisdiction, to the effect that
the Trust Fund does not and will no longer qualify as a REMIC pursuant to
Section 860D of the Code (the "Final Determination"), at any time on or after
the date which is 30 calendar days following such Final Determination (i) the
holders of Class A Certificates representing a majority in Percentage Interest
thereof (the "Majority in Voting Interest") may direct the Trustee on behalf of
the Trust to adopt a "plan of complete liquidation" (within the meaning of
Section 860F(a)(4)(B)(i) of the Code) and (ii) the Insurer may notify the
Trustee of the Insurer's determination to purchase from the Trust all Mortgage
Loans and all REO Properties then remaining in the Trust at a price equal to the
Termination Price. Upon receipt of notice from the Insurer, the Trustee shall
notify the Class R Certificateholders of such election to liquidate or such
determination to purchase, as the case may be (the "Termination Notice"). The
holders of a majority of the Percentage Interest of the Class R Certificates
then outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all Mortgage Loans and all REO Properties then remaining in the [Trust Fund] at
a purchase price equal to the Termination Price.]
[If, during the Purchase Option Period, the Class R Certificateholders have
not exercised the option described in the immediately preceding paragraph, then
upon the expiration of the Purchase Option Period (i) in the event that the
Majority in Voting Interest have given the Trustee the direction described in
clause (i) of the immediately preceding paragraphs, the Trustee shall sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust, each
in accordance with the plan of complete liquidation, such that, if so directed,
the liquidation of the Trust, the distribution of the proceeds of the
liquidation and the termination of the Pooling and Servicing Agreement occur no
later than the close of the 60th day, or such later day as the Majority in
Voting Interest shall permit or direct in writing, after the expiration of the
Purchase Option Period and (ii) in the event that the Insurer has given the
Trustee notice of the Insurer's determination to purchase the [Trust Fund]
described in clause (ii) of the immediately preceding paragraphs, the Insurer
shall so purchase the [Trust Fund] within 60 days after the expiration of the
Purchase Option Period.]
[Following a Final Determination, the Holders of a majority of the
Percentage Interest of the Class R Certificates then outstanding may, at their
option and upon delivery to the Class A Certificateholders and the Insurer of an
opinion of nationally recognized tax counsel
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selected by the Holders of the Class R Certificates, which opinion shall
be reasonably satisfactory in form and substance to the Majority in Voting
Interest and the Insurer, to the effect that the effect of the Final
Determination is to increase substantially the probability that the gross income
of the Trust will be subject to federal taxation, purchase from the Trust all
Mortgage Loans and all REO Properties then remaining in the Trust at a purchase
price equal to the Termination Price. The foregoing opinion shall be deemed
satisfactory unless the Majority in Voting Interest give the Holders of a
majority of the Percentage Interest of the Class R Certificates notice that such
opinion is not satisfactory within thirty days after receipt of such opinion.]
In connection with a purchase by the Servicer, the Insurer or the Class R
Certificateholders as described above, the Servicer is required to remit to the
Trustee all amounts then on deposit in the Principal and Interest Account that
would have constituted part of the Available Payment Amount for subsequent
Payment Dates absent such purchase. Any such purchase is required to be
accomplished by deposit of the Termination Price into the Collection Account.
Amendment
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee by written agreement, with the consent
of the Insurer, and, to the extent such amendment adversely affects the
interests of any Account Party, each such Account Party, without notice to, or
consent of, the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions therein, to comply with any changes in the Code, or to
make any other provisions with respect to matters or questions arising under the
Pooling and Servicing Agreement which shall not be inconsistent with the
provisions of the Pooling and Servicing Agreement, or any Custodial Agreement,
provided that such action does not, as evidenced by an Opinion of Counsel
delivered to the Trustee, adversely affect in any material respect the interests
of any Certificateholder; and provided, further, that no such amendment is
permitted to reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the holder of such Certificate, or change the
rights or obligations of any other party to the Pooling and Servicing Agreement
without the consent of such party.
The Pooling and Servicing Agreement also may be amended from time to time
by the Depositor, the Servicer and the Trustee, with the consent of the Insurer,
and, to the extent such amendment adversely affects the interests of any Account
Party, each such Account Party, the Majority in Aggregate Voting Interest and
the holders of the majority of the Percentage Interest in the Class R
Certificates for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment is permitted unless the Trustee
receives an opinion of counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the [Trust
Fund] as a REMIC or cause any tax to be imposed
S-40
on the REMIC, and provided further, that no such amendment is permitted to
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the holder of each such Certificate or reduce the percentage for
each Class the holders of which are required to consent to any such amendment
without the consent of the holders of 100% of each Class of Certificates
affected thereby.
Notwithstanding any contrary provision of the Pooling and Servicing
Agreement, the Trustee is not permitted to consent to any amendment to the
Pooling and Servicing Agreement unless it has first received an Opinion of
Counsel to the effect that such amendment or the exercise of any power granted
to the Servicer, the Depositor, any issuer of a Letter of Credit, the Insurer or
the Trustee in accordance with such amendment will not result in the imposition
of a tax on the Trust or cause the REMIC to fail to qualify as a REMIC at any
time that any Certificate is outstanding.
THE TRUSTEE
______________________, a ___________________ organized under the laws of
with its principal place of business in the State of ______________ will be
named Trustee pursuant to the Pooling and Servicing Agreement.
__________________ will serve initially as the Custodian of the Trustee's
Mortgage Files.
Pursuant to the Pooling and Servicing Agreement, the Trustee is required at
all times to be a banking association organized and doing business under the
laws of the United States of America or of any State, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, whose long-term deposits, if any, are rated at least "___" by
S&P and by ____ Moody's, or such lower rating as may be approved in writing by
the Insurer and S&P, subject to supervision or examination by federal or state
authority and reasonably acceptable to the Insurer. If at any time the Trustee
shall cease to be eligible in accordance with the provisions described in this
paragraph, the Trustee shall give notice of such ineligibility to the Insurer
and any Account Party and shall resign, upon the request of the Insurer or the
Majority in Aggregate Voting Interest, in the manner and with the effect
specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by such
successor trustee.
The Trustee, or any successor trustee or trustees, may resign at any time
by giving written notice to the Servicer, the Insurer, each Account Party and to
all Certificateholders in the manner set forth in the Pooling and Servicing
Agreement. Upon receiving notice of resignation, the Servicer, with the consent
of the Insurer, is required to promptly appoint a successor trustee or trustees
meeting the eligibility requirements set forth above in the manner set forth in
the Pooling and Servicing Agreement. The Servicer will deliver a copy of the
instrument used to appoint a successor trustee to the Certificateholders. If no
successor trustee shall have been appointed and have accepted appointment within
60 days after the
S-41
giving of such notice of resignation, the resigning trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
The Majority in Aggregate Voting Interest or, if the Trustee fails to
perform in accordance with the terms of the Pooling and Servicing Agreement, the
Insurer, may remove the Trustee under the conditions set forth in the Pooling
and Servicing Agreement and appoint a successor trustee in the manner set forth
therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such person or persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable.
THE CERTIFICATE INSURANCE POLICY
AND THE INSURER
The information set forth in this section and in the financial statements
of the Insurer set forth in Appendix A hereto have been provided by
_____________. No representation is made by the Depositor, any Originator or any
of their affiliates as to the accuracy or completeness of any such information.
_____________________ (the "Insurer") will issue its Certificate Guaranty
Surety Bond for the Class A Certificates (the "Certificate Insurance Policy").
The Certificate Insurance Policy unconditionally guarantees the payment of
principal and scheduled interest on the Class A Certificates. The Insurer will
make each required Insured Payment to the Trustee on the later of (i) the
Payment Date on which such Insured Payment is distributable to the Class A
Certificateholders pursuant to the Pooling and Servicing Agreement and (ii) the
business day next following the day on which the Insurer shall have received
telephonic or telegraphic notice, subsequently confirmed in writing, or written
notice by registered or certified mail, from the Trustee, specifying that an
Insured Payment is due in accordance with the terms of the Certificate Insurance
Policy.
The Insurer's obligation under the Certificate Insurance Policy will be
discharged to the extent that funds are received by the Trustee for distribution
to the Class A Certificateholders, whether or not such funds are properly
distributed by the Trustee.
S-42
For purposes of the Certificate Insurance Policy, "Class A
Certificateholder" as to a particular Certificate, does not and may not include
the Trust, the Servicer, any Subservicer, the Depositor or any Originator.
The Certificate Insurance Policy does not guarantee to the Class A
Certificateholders any specified rate of prepayments of principal of the
Mortgage Loans or any specified return.
[The Insurer has the right to terminate the Trust if the Internal Revenue
Service or a court of competent jurisdiction has rendered a final determination
that the Trust Fund will no longer qualify as a REMIC pursuant to 860D of the
Code. See "Description of the Certificates -- Termination; Purchase of Mortgage
Loans".]
The Certificate Insurance Policy is non-cancelable.
The Insurer, a ____ stock insurance company, is a monoline financial
guaranty insurance company. The Insurer is authorized to write insurance in
states and and is subject to regulation by the State of _______________.
[INSERT APPROPRIATE DESCRIPTION OF INSURER]
As of ________, 199__ and December 31, 199__, the Insurer had written
directly or assumed through reinsurance guarantees of approximately $________
billion and $________ billion par value of securities, respectively, for which
it had collected gross premiums of approximately $________ and $________
billion, respectively. As of ________, 199__, the Insurer had reinsured
approximately ____% of the risks it has written, primarily through quota share
reinsurance treaties, but also through facultative arrangements.
[The Insurer is subject to regulation by each state in which the Insurer is
licensed to write insurance. These regulations vary from state to state, but
generally require insurance holding companies and their insurance subsidiaries
to register and file certain reports, including information concerning their
capital structure, ownership and financial condition and require prior approval
by the insurance department of their states of domicile, of changes in control,
of certain dividends and other intercorporate transfer of assets and of
transactions between insurance companies, their parents and other affiliates.
The Insurer is required to file quarterly and annual statutory financial
statements and is subject to statutory restrictions concerning the types and
quality of investments, the use of policy forms, premium rates and the size of
risk that it may insure, subject to reinsurance. Additionally, the Insurer is
subject to _____ audits by the State of _______________.]
CAPITALIZATION
The following table sets forth the capitalization of the Insurer as of
December 31, 199__, December 31, 199__ and ________, 199__, respectively, on the
basis of generally accepted
S-43
accounting principles. No material change in the
capitalization of the Insurer has occurred since ________, 199__.
December 31, December 31, ___________,
199__ 199__ 199__
----- ----- -----
(in millions)
Unearned Premiums................... $ $ $
Other Liabilities*..................
Stockholder's Equity Common Stock...
Additional Paid-in Capital
Unrealized gains on trading securities...
Foreign currency translation adjustment
Retained Earnings........................
Total Stockholder's Equity.................
Total Liabilities plus Stockholder's Equity $ $
= =
- ----------
* Including any short-term liabilities
For further financial information concerning the Insurer, see the audited
financial statements of the Insurer included as Appendix A of this Prospectus
Supplement.
Copies of the Insurer's quarterly and annual statutory statements filed by
the Insurer with the are available upon request to _________________,
____________, ____________, ______________, Attention:___________. The telephone
number is (___)__________.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus or any information or disclosure contained
herein, or omitted herefrom, other than with respect to the accuracy of
information regarding the Insurer and the Certificate Insurance Policy set forth
under the heading "The Certificate Insurance Policy and the Insurer" and in
Appendix A of this Prospectus Supplement.
FEDERAL INCOME TAX CONSEQUENCES
[INSERT APPROPRIATE TAX DISCUSSION, IF ANY]
CERTAIN STATE TAX CONSEQUENCES
[INSERT APPROPRIATE TAX DISCUSSION, IF ANY]
ERISA CONSIDERATIONS
[INSERT IF APPROPRIATE]
LEGAL INVESTMENT
[Although] upon their initial issuance the Class A Certificates will be
rated [____ by Moody's and "____" by S&P and Fitch], the Class A Certificates
[will not] constitute "mortgage related securities" under the Secondary Mortgage
Market Enhancement Act of
S-44
1984 ("SMMEA") [because the Mortgage Pool includes Mortgage Loans that are
secured by second or more junior Mortgages]. Investors should consult their own
legal advisers in determining whether and to what extent the Class A
Certificates constitute legal investments for such investors.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Class A Certificates will be received, directly or indirectly, by the Depositor.
[In the aggregate, the Originators have transferred the Mortgage Loans to the
Depositor in return for such proceeds.]
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Depositor and the Underwriters named
below, the Depositor has agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase from the Depositor, the
respective principal amounts of the Class A Certificates set forth opposite
their names below.
Class A
Underwriters Certificates
------------ ------------
$
Totals.......................................... $
Under the terms of the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A Certificates offered hereby if any of the Class A Certificates
are purchased.
The Underwriters have advised the Depositor that they propose to offer the
Class A Certificates from time to time for sale in negotiated transactions or
otherwise, at prices determined at the time of sale. The Underwriters may effect
such transactions by selling Class A Certificates to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters and any purchasers of Class A
Certificates for whom they act as agents. The Underwriters and any dealers that
participate with the Underwriters in the distribution of the Class A
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of Class A Certificates by them
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
S-45
[In the ordinary course of their respective businesses, the Underwriters
and their respective affiliates have engaged and may engage in investment
banking and/or commercial banking transactions with the Depositor and the
Originators and their affiliates. Banc One Capital Corporation is an affiliate
of the Depositor and the Originators.]
[After the initial distribution of the Class A Certificates by the
Underwriters, this Prospectus Supplement and the Prospectus may be used by Banc
One Capital Corporation in connection with offers and sales relating to
market-making transactions in the Class A Certificates. Banc One Capital
Corporation may act as principal or agent in such transactions. Such sales will
be made at prices related to prevailing market prices at the time of sale.]
EXPERTS
The financial statements of _____ at December 31, 199__ and 199__ and for
each of the three years in the period ended December 31, 199__, attached hereto
as Appendix A, have been audited by _____________, independent auditors, as set
forth in their report thereon and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
RATINGS
The Class A Certificates will be rated at their initial issuance [ by
Moody's and " " by S&P and Fitch].
A securities rating addresses the likelihood of the receipt by
Certificateholders 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 Class A Certificates. The ratings on
the Class A Certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the Mortgage Loans or the possibility
that Certificateholders might realize a lower than anticipated yield.
The ratings assigned to the Class A Certificates will depend primarily upon
the creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
ratings initially assigned to the Class A Certificates may result in a reduction
of one or more or the ratings assigned to the Class A Certificates.
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
Agency. No person is obligated to maintain the rating on any Class A
Certificate, and, accordingly, there can be no
S-46
assurance that the ratings assigned to the Class A Certificates upon initial
issuance will not be lowered or withdrawn by a Rating Agency at any time
thereafter.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Class A Certificates will be passed upon for the
Depositor by _____ and for the Underwriters by ________________. Certain federal
income tax matters will be passed upon for the Depositor by _________________.
S-47
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor, any Originator or the Underwriters. This Prospectus Supplement and
the Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities offered hereby by anyone in any jurisdiction in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make any such offer or solicitation. Neither
the delivery of this Prospectus Supplement and the Prospectus, nor any sale made
hereunder shall, under any circumstances, create an implication that information
herein is correct as of any time since the date of this Prospectus Supplement
and the Prospectus.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary of Terms.............................................................S-
Risk Factors.................................................................S-
Description of The Mortgage Pool.............................................S-
Certain Yield and Prepayment Considerations..................................S-
Foreclosure and Loss Experience..............................................S-
Description of the Certificates..............................................S-
The Trustee..................................................................S-
The Certificate Insurance Policy and the Insurer.............................S-
[Federal Income Tax Consequences]............................................S-
[Certain State Tax Consequences].............................................S-
[ERISA Considerations].......................................................S-
Legal Investment.............................................................S-
Use of Proceeds..............................................................S-
Underwriting.................................................................S-
Experts......................................................................S-
Ratings......................................................................S-
Legal Matters................................................................S-
Appendix A.....................................................................
[Appendix B]...................................................................
PROSPECTUS
Available Information..........................................................
Reports to Holder..............................................................
Summary of Prospectus..........................................................
Risk Factors...................................................................
Description of the Mortgage Pools..............................................
Certain Yield and Prepayment Considerations....................................
The Trusts.....................................................................
The Depositor and the Originators..............................................
Description of the Offered Certificates........................................
Certain Legal Aspects of the Mortgage Loans....................................
Certain Federal Income Tax Consequences........................................
Certain State Tax Consequences.................................................
ERISA Considerations...........................................................
Legal Investment...............................................................
Use of Proceeds................................................................
Plan of Distribution...........................................................
Ratings........................................................................
Legal Matters..................................................................
---------------
Until _________, 199__ (90 days after the date of this Prospectus), all
dealers effecting transactions in the Class A Certificates, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and Prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Banc One Home Equity Loan
Trust 199__
Banc One Home Equity Loan Asset
Backed Certificates,
Series 199__
$________
Class A Certificates,
____% Pass-Through Rate
Banc One ABS
Corporation
Depositor
Bank One, Indianapolis,
N.A.
Servicer
PROSPECTUS SUPPLEMENT
- --------------------------------------------------------------------------------
S-48
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED OCTOBER 15, 1996
PROSPECTUS SUPPLEMENT VERSION 2-MULTI-CLASS SENIOR/SUBORDINATED
to Prospectus dated
$____________
Banc One Home Equity Loan Trust 199_
Banc One Home Equity Loan Asset Backed Certificates, Series 199
$ Class A-1 Certificates, % Pass-Through Rate
$ Class A-2 Certificates, % Pass-Through Rate
$ Class A-3 Certificates, % Pass-Through Rate
$ Class B-1 Certificates, % Pass-Through Rate
Banc One ABS Corporation
Depositor
Bank One, Indianapolis, N.A.
Servicer
The Banc One Home Equity Loan Asset Backed Certificates, Series 199_ - (the
"Certificates"), will consist of the Class A-1, Class A-2 and Class A-3
Certificates (collectively, the "Class A Certificates") and the Class B-1 and
Class B-2 Certificates (collectively, the "Class B Certificates" and, with the
Class A Certificates, the "Certificates"). Only the Class A Certificates and the
Class B-1 Certificates (collectively, the "Offered Certificates") are offered
hereby. The Certificates represent fractional undivided interests in a trust
fund to be designated as Banc One Home Equity Loan Trust 199_ - (the "Trust" or
the "Trust Fund"), consisting primarily of (i) a pool (the "Mortgage Pool") of
[fixed-rate] mortgage loans (each, a "Mortgage Loan") secured by mortgages,
deeds of trust or other instruments (each, a "Mortgage") creating a first,
second or more junior lien on (continues on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospective investors should consider, among other things, the information set
forth in "Risk Factors" commencing on page S[ ] herein and commencing on page
[ ] in the Prospectus.
__________(the "Underwriters") have agreed to purchase from the Depositor the
Class A Certificates at ____% of the principal amount thereof and the Class B-1
Certificates at ____% of the principal amount thereof ($________ aggregate
proceeds to the Depositor, before deducting expenses payable by the Depositor
estimated at $________), plus accrued interest in each case from _______,
_______, subject to the terms and conditions set forth in the Underwriting
Agreement referred to herein under "Underwriting".
The Underwriters propose to offer the Class A and Class B-1 Certificates from
time to time for sale in negotiated transactions or otherwise, at prices to be
determined at the time of such sale. For further information with respect to the
plan of distribution, and any discounts, commissions or profits that may be
deemed underwriting discounts or commissions, see "Underwriting".
The Class A and Class B-1 Certificates are offered by the Underwriters, when, as
and if issued and accepted by the Underwriters and subject to the Underwriters'
right to reject orders in whole or in part. It is expected that the Class A and
Class B-1 Certificates will be delivered in [book-entry form, on or about
_______, _______, through the facilities of The Depository Trust Company
("DTC")].
[After the initial distribution of the Class A Certificates by the Underwriters,
this Prospectus Supplement and the Prospectus may be used by Banc One Capital
Corporation in connection with offers and sales relating to market-making
transactions in the Class A Certificates. Banc One Capital Corporation may act
as principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. Certain information in
this Prospectus Supplement and Prospectus will be updated from time to time as
described in "Incorporation of Certain Documents by Reference" in the
Prospectus.]
[____________], 199_
(continuation of cover page)
one- to four-family dwellings (each, a "Mortgaged Property") to be deposited
into the Trust by the Depositor and originated by [Originators] (each, an
"Originator") for the benefit of the holders of the Certificates (the
"Certificateholders"), (ii) all monies received on the Mortgage Loans on and
after the Cut-off Date (as defined herein) (other than amounts received on and
after the Cut-off Date in respect of interest accrued on the Mortgage Loans
prior to the Cut-off Date), and (ii) certain other property. The Mortgage Loans
will be serviced by Banc One Indianapolis, N.A. (in its capacity as servicer,
the "Servicer"). The Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") to be entered into
among the Servicer, the Depositor and __________________, as trustee (the
"Trustee").
In the aggregate, the Class A Certificates evidence an approximately % undivided
interest in the Trust Fund. In the aggregate, the Class B Certificates evidence
an approximately % undivided interest in the Trust Fund. The rights of holders
of the Class B Certificates to receive distributions with respect to the
Mortgage Loans will be subordinate to the rights of the holders of the Class A
Certificates to the extent described herein. See "Description of the
Certificates -- Distributions" herein and "Description of the Certificates --
Description of Credit Enhancement -- Subordination" in the Prospectus.
Distributions on the Certificates will be made, to the extent funds are
available therefor, on the day of each month, or, if such day is not a business
day, then on the next business day, commencing on , 199 (each, a "Payment
Date").
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market in the Offered Certificates, but
are not obligated to do so. There can be no assurance that a secondary market
for the Offered Certificates will develop or, if one does develop, that it will
continue. None of the Offered Certificates will be listed on any securities
exchange.
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated ["_________" by Moody's Investors Service, Inc.
("Moody's") and "_________" by Standard & Poor's Corporation ("S&P") and Fitch
Investors Service, Inc. ("Fitch"), and that the Class B-1 Certificates be rated
"_________" by Moody's and "_________" by S&P and Fitch].
[The Class A and Class B-1 Certificates initially will be represented by
certificates registered in the name of Cede & Co., the nominee of DTC. The
interests of owners of the Class A and Class B-1 Certificates will be
represented by book-entries on the records of DTC and participating members
thereof. See "Description of the Certificates -- Registration of the Offered
Certificates" herein.]
As described herein, [an election] [two separate elections] will be made to
treat the interests in the Trust Fund as [a] "real estate mortgage investment
conduit[s]" ([each], a "REMIC") for federal income tax purposes. The Class A and
Class B-1 Certificates will constitute "regular interests" in a REMIC. For a
description of certain tax consequences of owning the Class A and Class B-1
Certificates, including, without limitation, original issue discount, see
"Federal Income Tax Consequences" herein.
S-2
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED SECURITIES. NEITHER THE CLASS A CERTIFICATES NOR THE CLASS B-1
CERTIFICATES REPRESENT AN INTEREST IN OR OBLIGATION OF THE SERVICER, THE
DEPOSITOR, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES. NONE OF THE CLASS A
CERTIFICATES, THE CLASS B-1 CERTIFICATES OR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
SERVICER, THE DEPOSITOR, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES.
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus dated _________, 199 of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. Purchasers are urged to read
both this Prospectus Supplement and the Prospectus in full. Sales of the Offered
Certificates may not be consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
S-3
SUMMARY OF TERMS
The following Summary of Terms is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used but not otherwise defined shall have
the meanings ascribed to such terms in the Prospectus.
Issuer............................... Banc One Home Equity Loan Trust 199 .
Securities Offered................... $________ aggregate principal amount of
___% Banc One Home Equity Loan Asset
Backed Certificates, Series 199 - , Class
A-1 (the "Class A-1 Certificates"). The
Final Scheduled Payment Date of the Class
A-1 Certificates is .
$_______ aggregate principal amount of
____% Banc One Home Equity Loan Asset
Backed Certificates, Series 199 - , Class
A-2 (the "Class A-2 Certificates"). The
Final Scheduled Payment Date of the Class
A-2 Certificates is ________.
$_________ aggregate principal amount of
____% Banc One Home Equity Loan Asset
Backed Certificates, Series 199 - , Class
A-3 (the "Class A-3 Certificates" and,
with the Class A-1 and Class A-2
Certificates, the "Class A
Certificates"). The Final Scheduled
Payment Date of the Class A-3
Certificates is ______.
$________ aggregate principal amount of
____% Banc One Home Equity Loan Asset
Backed Certificates, Series 199 - , Class
B-1 (the "Class B-1 Certificates" and,
with the Class A Certificates, the
"Offered Certificates"). The Final
Scheduled Payment Date of the Class B-1
Certificates is . The Class B-1
Certificates are subordinated in right of
payment to the Class A Certificates to
the extent described herein. See
"Description of the Certificates --
Distributions" and "-- Subordinated
Certificates and Shifting Interests"
herein.
Depositor............................. Banc One ABS Corporation, a corporation
organized under the laws of the State of
Ohio (the
S-4
"Depositor") and a wholly-owned
subsidiary of BANC ONE CORPORATION
("BANC ONE").
Originator............................ [Originators] (each, an "Originator").
See "The Depositor, the Servicer and the
Originator" in the Prospectus and
"Foreclosure and Loss Experience"
herein.
Servicer.............................. Bank One, Indianapolis, N.A., a national
banking association and an indirect
subsidiary of BANC ONE (the "Servicer").
See "The Depositor, the Servicer and the
Originator" in the Prospectus.
Trustee............................... ___________, a organized __________
under the laws of and having its
principal place of business in the State
of _________ (the "Trustee"). See "The
Trustee" herein.
Cut-off Date.......................... ____________, 199 (the "Cut-off Date").
Closing Date.......................... The date on which the Certificates are
initially issued (the "Closing Date").
Payment Date.......................... The calendar day of each month or,
if such day is not a business day, the
first business day following such _____
calendar day, commencing on _______, 199
(each, a "Payment Date").
Determination Date.................... The business day of the month in
which the related Payment Date occurs
(each, a "Determination Date").
Record Date........................... The calendar day immediately preceding
each Payment Date (or, if Definitive
Certificates are issued, the ______
calendar day of the month in which each
such Payment Date occurs) (each, a
"Record Date").
Description of the Certificates;
The Mortgage Pool................... The Class A Certificates, the Class B-1
Certificates and the Banc One Home
Equity Loan Asset Backed Certificates,
Series 199 - , Class B-2 (with the Class
B-1 Certificates, the "Class B
Certificates"; the Class A Certificates
and the
S-5
Class B Certificates, collectively, the
"Certificates"), represent interests in
a trust fund to be designated as Banc
One Home Equity Loan Trust 199 - (the
"Trust" or the "Trust Fund"), consisting
primarily of (i) a pool (the "Mortgage
Pool") of [fixed-rate] mortgage loans
originated by the Originators and
evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage
Loans") secured by mortgages, deeds of
trust or other instruments (each, a
"Mortgage") creating a first or second
lien on one- to four-family dwellings,
units in condominium developments, units
in planned unit developments, units in
cooperatives or manufactured housing
units (each, a "Mortgaged Property"),
with an aggregate principal balance of
$__________ as of the Cut-off Date,
after giving effect to payments received
prior to the Cut-off Date (the "Original
Pool Principal Balance"), (ii) all
monies received with respect to the
Mortgage Loans on and after the Cut-off
Date (other than amounts received on and
after the Cut-off Date in respect of
interest accrued on the Mortgage Loans
prior to the Cutoff Date), (iii) certain
rights of the Depositor under the
Transfer Agreement and (iv) certain
other property. The Certificates will be
issued pursuant to a Pooling and
Servicing Agreement to be dated as of
the Cut-off Date among the Servicer, the
Depositor and the Trustee (the "Pooling
and Servicing Agreement"). See
"Description of the Certificates --
General" herein.
The Class A Certificates will
[initially] represent in the aggregate
an approximately ____% undivided
interest (the "Class A Percentage") in
the Trust. The Class B Certificates will
[initially] represent in the aggregate
an approximately ____% undivided
interest (the "Class B Percentage") in
the Trust. The Class B Certificates will
be subordinate to the Class A
Certificates, to the extent described
herein. [The Class A Percentage and the
Class B Percentage will vary from time
to time, as described herein, to the
extent that the
S-6
Class A Certificateholders do not
receive amounts due to them on any
Payment Date, losses are realized on the
Mortgage Loans or there are principal
payments of or certain other unscheduled
amounts of principal received with
respect to the Mortgage Loans.] Only the
Class A and Class B-1 Certificates are
offered hereby. See "Description of the
Certificates -- General" "--
Distributions" and "-- Subordinated
Certificates and Shifting Interests"
herein.
Unless otherwise specified herein,
references herein to percentages of
Mortgage Loans refer in each case to the
percentage of the aggregate principal
balance of the Mortgage Loans in the
Mortgage Pool as of the Cut-off Date,
and giving effect to principal payments
received prior to the Cut-off Date.
As of the Cut-off Date, the Mortgage
Pool will consist of ________ Mortgage
Loans (of which approximately ____% are
secured by first Mortgages and
approximately ____% are secured by
[second] Mortgages) having an aggregate
outstanding principal balance of
$_______, a weighted average Mortgage
Interest Rate (as defined below) of
approximately ____%, minimum and maximum
outstanding principal balances of
approximately $_______ and $_______,
respectively, minimum and maximum
Mortgage Interest Rates of ____% and
____%, respectively, a weighted average
original term to maturity of
approximately ___ months, a weighted
average remaining term to maturity of
approximately months, minimum and
maximum remaining terms to maturity of
___ months and ___ months, respectively,
and origination dates between _____ and
_______. See "Description of the
Mortgage Pool -- General" herein.
Denominations......................... The Offered Certificates of each Class
will be issued in minimum denominations
of $_______ and integral multiples
thereof [; provided, however, that one
Offered Security of each Class is
issuable
S-7
in a denomination equal to an amount
such that the aggregate denomination of
all Certificates of such Class is equal
to the original principal balance of all
Certificates of such Class]. Each Class
A and Class B-1 Certificate will
represent a percentage interest (a
"Percentage Interest") in the respective
Class determined by dividing the
original dollar amount represented by
such Certificate by the original
aggregate principal balance of all
Certificates of such Class.
[Registration of the Offered
Certificates........................ [The] [Each Class of] Class A and Class
B-1 Certificates will initially be
represented by one or more certificates
registered in the name of Cede & Co.
("Cede"), the nominee of The Depository
Trust Company ("DTC"), and will be
available only in the form of
book-entries on the records of DTC,
participating members thereof
("Participants") and other entities,
such as banks, brokers, dealers and
trust companies, that clear through or
maintain custodial relationships with a
Participant, either directly or
indirectly ("Indirect Participants").
Certificates representing the Class A
and Class B-1 Certificates will be
issued in definitive form only under the
limited circumstances described herein
and in the Prospectus. All references
herein to "holders" or
"Certificateholders" shall reflect the
rights of owners of the Class A and
Class B-1 Certificates (the "Certificate
Owners") as they may indirectly exercise
such rights through DTC and
Participants, except as otherwise
specified herein. See "Description of
the Certificates -- Registration of the
Offered Certificates" herein, "Risk
Factors" and "Description of the Offered
Certificates -- Registration and
Transfer of the Book-Entry Securities"
in the Prospectus.]
Distributions
A. General............................ As more fully described herein,
distributions will be made on the
Certificates on each Payment Date to the
extent monies are available therefor, if
and to the extent such Certificates are
then entitled to
S-8
such distributions, as described herein.
Any distributions on the Class A and
Class B-1 Certificates will be made on
each Payment Date to Certificateholders
of record on the related Record Date in
an amount equal to the product of such
Certificateholder's Percentage Interest
and the amount available for
distribution on such Payment Date to the
Certificateholders of the related Class
in accordance with the priorities
described in "Description of the
Certificates -- Distributions" herein.
On any Payment Date, the amount
available for distribution to
Certificateholders generally will be the
Available Payment Amount. The term
"Available Payment Amount" generally
means with respect to any Payment Date,
the result of (a) collections on or with
respect to the Mortgage Loans received
by the Servicer during the related Due
Period, net of the related Servicing Fee
(defined below) paid to the Servicer
during the related Due Period and
reimbursements for accrued unpaid
Servicing Fees and certain expenses paid
by the Servicer, plus (b) the amount of
any Advances made by the Servicer less
(c) the amount of any Excess Spread.
B. Interest Distributions ............ Interest on the Class A and Class B-1
Certificates will accrue from the
_____th calendar day of each month
(whether or not a Business Day) to, but
excluding, the _____th calendar day of
the next succeeding month (whether or
not a Business Day) (each, an "Accrual
Period"). Interest shall accrue on each
Class A and Class B-1 Certificate at the
respective Pass-Through Rate specified
on the cover page hereof and shall be
distributed, to the extent monies are
available therefor, on each Payment
Date. Interest with respect to the Class
A and Class B-1 Certificates will accrue
on the basis of a 360-day year
consisting of twelve 30-day months. With
respect to each Class of Class A
Certificates and each Payment Date,
interest accrued during the related
Accrual Period at the applicable
Pass-Through Rate on the Class A
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Principal Balance (as defined below)
outstanding on the immediately preceding
Payment Date (after giving effect to all
payments of principal made on such
Payment Date) or, in the case of the
initial Accrual Period, _______, is
referred to herein as the "Interest
Remittance Amount" for such Class and,
in the aggregate for all Class A
Certificates, the "Class A Interest
Remittance Amount". Interest accrued
during each Accrual Period at the Class
B-1 Pass-Through Rate on the Class B-1
Principal Balance (as defined below)
outstanding on the immediately preceding
Payment Date (after giving effect to all
payments of principal made on such
Payment Date) or, in the case of the
initial Accrual Period, _______, is
referred to herein as the "Class B-1
Interest Remittance Amount" for the
related Payment Date. See "Description
of the Certificates -- Distributions"
herein and "Description of the
Certificates -- Distributions" in the
Prospectus.
C. Principal Distributions............ Holders of the Class A and Class B-1
Certificates will be entitled to receive
on each Payment Date, to the extent
available (but not more than the Class A
Principal Balance or Class B-1 Principal
Balance, then outstanding), a
distribution allocable to principal
which will generally equal the sum of
(a)(i) the Class A Percentage or Class
B-1 Percentage, respectively, of the
principal portion of all scheduled
payments ("Monthly Payments") received
on the Mortgage Loans during the
calendar month preceding the calendar
month in which such Payment Date occurs
(the "Due Period"), (ii) [the Class A
[Prepayment] Percentage or Class B-1
Percentage, respectively, of] any
principal prepayments of any such
Mortgage Loans in full ("Principal
Prepayments") received during the
related Due Period and partial
prepayments of principal on any such
Mortgage Loan that were received during
the related Due Period payment that are
not Principal Prepayments (each, a
"Curtailment"), (iii) [the Class A
[Prepayment] Percentage or Class B-1
Percentage, respectively, of] the
principal portion
S-10
of (A) the proceeds of any insurance
policy relating to a Mortgage Loan, a
Mortgaged Property (as defined below) or
a REO Property (as defined below), net
of proceeds to be applied to the repair
of the Mortgaged Property or released to
the Mortgagor (as defined herein) and
net of expenses reimbursable therefrom
("Insurance Proceeds"), (B) proceeds
received in connection with the
liquidation of any defaulted Mortgage
Loans, whether by trustee's sale,
foreclosure sale or otherwise
("Liquidation Proceeds"), net of fees
and advances reimbursable therefrom
("Net Liquidation Proceeds") and (C)
proceeds received in connection with a
taking of a related Mortgaged Property
by condemnation or the exercise of
eminent domain or in connection with a
release of part of any such Mortgaged
Property from the related lien
("Released Mortgaged Property
Proceeds"), (iv) [the Class A
[Prepayment] Percentage or Class B-1
Percentage, respectively, of] the
principal portion of all amounts paid by
the Depositor (which are limited to
amounts paid by the Originator pursuant
to the obligation to purchase or
substitute Mortgage Loans contained in
the Transfer Agreement) in connection
with the repurchase of, or the
substitution of a substantially similar
mortgage loan for, a Mortgage Loan as to
which there is defective documentation
or a breach of a representation or
warranty contained in the Pooling and
Servicing Agreement, and (v) [the Class
A [Prepayment] Percentage or Class B-1
Percentage, respectively, of] the
principal balance of each defaulted
Mortgage Loan or REO Property (as
defined below) as to which the Servicer
has determined that all amounts expected
to be recovered have been recovered
(each, a "Liquidated Mortgage Loan") to
the extent not included in the amounts
described in clauses (i) through (iv)
above (the sum of 100% of (i), (ii),
(iii), (iv) and (v) above, the "Basic
Principal Amount"), and (b) the sum of
(i) the amount, if any, by which (A) the
amount required to be distributed to
Class A Certificateholders or Class
S-11
B-1 Certificateholders as of the
preceding Payment Date exceeded (B) the
amount of the actual distribution to
Class A Certificateholders, or Class B-1
Certificateholders, respectively on such
preceding Payment Date, (the "Class A
Carry-Forward Amount" and, together with
the applicable percentage of the Basic
Principal Amount, the "Class A Principal
Remittance Amount" or the "Class B-1
Carry-Forward Amount" and, with the
Class B-1 Percentage of the Basic
Principal Amount, the "Class B-1
Principal Remittance Amount", as the
case may be). Principal will be
distributed to the Class A Certificates
[in order of their Final Scheduled
Payment Dates and pro rata among the
Class A Certificates of each Class]. The
Final Scheduled Payment Date of each
Class of Class A Certificates and of the
Class B-1 Certificates has been
calculated as described herein. The
actual final payment to each Class is
likely to occur prior to its Final
Scheduled Payment Date although, in the
event of defaults in payment of the
Mortgage Loans, it could occur later or
earlier. See "Description of the
Certificates" herein.
On each Payment Date, the lesser of (i)
the Class A Principal Balance then
outstanding and (ii) the Class A
Principal Remittance Amount (which,
together with the Class A Interest
Remittance Amount, constitutes the
"Class A Remittance Amount" for such
Payment Date) is payable to the Class A
Certificateholders. [As of any Payment
Date, the "Class A Principal Balance"
will equal the Original Class A
Principal Balance reduced by the sum of
all amounts previously distributed to
Class A Certificateholders in respect of
principal on all prior Payment Dates.
Subject to the subordination and
shifting interest provisions described
herein, on each Payment Date, the lesser
of (i) the Class B-1 Principal Balance
then outstanding and (ii) the Class B-1
Principal Remittance Amount (which,
together with the Class B-1 Interest
Remittance Amount,
S-12
constitutes the "Class B-1 Remittance
Amount" for such Payment Date) is
payable to the Class B- 1
Certificateholders as of any Payment
Date, the "Class B-1 Principal Balance"
will equal the Original Class B-1
Principal Balance, reduced by the sum of
all amounts previously distributed to
Certificateholders in respect of
principal on all prior Payment Dates.
Subordinated Certificates............. The right of the Class B
Certificateholders to receive
distributions with respect to the
Mortgage Loans will be subordinated to
the right of the Class A
Certificateholders, to the extent
described below. This subordination is
intended to enhance the likelihood of
regular receipt by the Class A
Certificateholders of the Class A
Remittance Amounts and to protect the
Class A Certificateholders against
losses.
On each Payment Date, payments to the
Class A Certificateholders will be made
prior to payments to the Class B
Certificateholders. On any Payment Date
on which the Class A Percentage is less
than 100%, if the Class A
Certificateholders receive less than the
amount due to them on such date, the
interest of the Class A
Certificateholders in the Trust Fund
will vary so as to preserve the
entitlement of the Class A
Certificateholders to unpaid principal
of the Mortgage Loans and interest
thereon. [If a Principal Prepayment,
Curtailment or certain other unscheduled
amounts of principal are received on a
Mortgage Loan, the Class A
Certificateholders will be paid an
amount equal to the Class A Prepayment
Percentage (defined herein) of the
amount received. This will have the
effect of accelerating receipt of
principal by the Class A
Certificateholders, thus reducing their
proportionate interest in the Trust Fund
and increasing the relative interest in
the Trust Fund evidenced by the Class B
Certificates. Increasing the interest of
the Class B Certificates relative to
that of the Class A Certificates is
intended to preserve the availability of
the subordination
S-13
provided by the Class B Certificates.]
[Summarize applicable limits on
subordination.]
The Class B Certificateholders will not
be required to refund any amounts
properly distributed to them, regardless
of whether there are sufficient funds on
a subsequent Payment Date to make a full
distribution to Class A
Certificateholders of the amount
required to be distributed to such
Certificateholders.
The subordination of the Class B
Certificates is intended to enhance the
likelihood of timely payment to Class A
Certificateholders of the Class A
Remittance Amount; however, if the Class
A Percentage increases to 100%, all
future losses or delinquencies will be
borne by the Class A Certificates and
shortfalls could result.
Advances [from the Principal and
Interest Account]................... The Servicer is required to [withdraw
from the Principal and Interest Account
amounts on deposit therein and held for
future distribution to] make advances
(each, an "Advance") on each Payment
Date in respect of interest on the
Mortgage Loans accrued but uncollected
as of the end of the related Due Period
(net of the Servicing Fee). [The
Servicer generally shall not be required
to make such Advance from its own funds
or be liable for the recovery thereof
from collections on the related Mortgage
Loans or otherwise.] See "Description of
the Certificates -- Advances [from the
Principal and Interest Account]" herein
and "Description of the Offered
Certificates -- Advances [from the
Principal and Interest Account];
Servicing Advances" in the Prospectus.
Servicing Fee......................... The Servicer will be entitled to a fee
of ___% per annum of the outstanding
principal balance of each Mortgage Loan
(the "Servicing Fee"), calculated and
payable monthly from the interest
portion of monthly payments on such
Mortgage Loan, Liquidation Proceeds,
Released Mortgaged
S-14
Property Proceeds and certain other
sources as provided in the Pooling and
Servicing Agreement.
Ratings............................... It is a condition to the issuance of the
Certificates that the Class A
Certificates be rated ["________" by
Moody's and "________" by S&P and Fitch
Investors Service, Inc. ("Fitch" and
each of Fitch, Moody's and S&P, a
"Rating Agency") and that the Class B-1
Certificates be rated "________" by S&P
and Fitch.] A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time. No
person is obligated to maintain any
rating on any Class A Certificate, and,
accordingly, there can be no assurance
that the ratings assigned to the Class A
or Class B-1 Certificates upon initial
issuance thereof will not be lowered or
withdrawn by a Rating Agency at any time
thereafter. In the event any rating is
revised or withdrawn, the liquidity of
the Class A or Class B-1 Certificates
may be adversely affected. In general,
the ratings address credit risk and do
not represent any assessment of the
likelihood or rate of principal
prepayments. See "Risk Factors --
Liquidity" and "Ratings" herein.
Optional Termination ................. The [Servicer] may, at its option,
terminate the Pooling and Servicing
Agreement on any date on which the Pool
Principal Balance is less than [5]% of
the Original Pool Principal Balance by
purchasing from the Trust, on the next
succeeding Payment Date [(but in no
event earlier than the Payment Date
occurring in ________)] all of the
Mortgage Loans and all Mortgaged
Properties acquired by foreclosure or
deed in lieu of foreclosure ("REO
Properties") then remaining in the Trust
Fund at a price (the "Termination
Price") equal to (i) the sum of (x) 100%
of the aggregate outstanding principal
balances of the Mortgage Loans and REO
Properties, and (y) interest on such
amount computed at a rate equal to the
weighted average Mortgage Interest Rate
minus (ii) any amounts representing
collections on the Mortgage Loans and
REO Properties not yet
S-15
applied to reduce the principal balance
thereof or interest related thereto. In
connection with such purchase, the
Servicer is required to pay any unpaid
fees and expenses of the Trustee. See
"Description of the Certificates --
Termination; Purchase of Mortgage Loans"
herein and in the Prospectus.
[Certain Legal Aspects of the
Mortgage Loans ..................... Approximately ____% of the Mortgage
Loans are secured by second or more
junior Mortgages which are subordinate
to a mortgage lien on the related
Mortgaged Property prior to the lien of
such Mortgage Loan (such senior lien, if
any, a "First Lien"). A primary risk
with respect to [second] Mortgages is
that foreclosure funds received in
connection therewith will not be
sufficient to satisfy fully both the
First Lien and the second Mortgage. See
"Risk Factors" and "Certain Legal
Aspects of the Mortgage Loans" herein.]
REMIC Election and Tax
Status.............................. [An election will be made to treat the
assets of the Trust Fund as a "real
estate mortgage investment conduit" (a
"REMIC") for federal income tax purposes
(the "Subsidiary REMIC"), and a separate
election will be made to treat the pool
of assets represented by the regular
interests in the Subsidiary REMIC as a
REMIC (the "Master REMIC").]
The Class A and Class B-1 Certificates
will be [regular interests] in the
[Master REMIC]. As regular interests in
a REMIC, the Class A and Class B-1
Certificates generally will be treated
as debt instruments issued by the REMIC.
Certain Classes of Certificates may be
treated as having been issued with
original issue discount. As a result,
holders of such Certificates may be
required to include amounts in income
with respect to such Certificates in
advance of the receipt of cash
attributable to that income. The
prepayment assumption that will be used
in
S-16
computing the amount of original issue
discount includible periodically will be
____% CPR, as described herein. See
"Certain Yield and Prepayment
Considerations" herein and in the
Prospectus. No representation is made
that either prepayments on the Mortgage
Loans or payments on any Class of
Certificates will occur at that rate or
any other rate. Based on final
regulations relating to the treatment of
original issue discount, the Internal
Revenue Service could assert that all of
the interest payments on the
Certificates should be treated as
original issue discount regardless of
their issue price. If such an assertion
were successful, any otherwise de
minimis discount would be treated as
original issue discount. See "Certain
Federal Income Tax Consequences for
REMIC Certificates -- Original Issue
Discount" in the Prospectus.
The Class A and Class B-1 Certificates
will be treated as (i) qualifying real
property loans within the meaning of
Section 593(d)(1) of the Internal
Revenue Code of 1986, as amended (the
"Code"), (ii) assets described in
Section 7701(a)(19)(C) of the Code and
(iii) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the
Code, in each case to the extent
describe herein. See "Certain Federal
Income Tax Consequences" [herein and] in
the Prospectus.
[insert any additional or substitute
language, as appropriate]
ERISA Considerations.................. A fiduciary or other person
contemplating purchasing the Class A
Certificates on behalf of or with "plan
assets" of any employee benefit plan or
other retirement arrangement subject to
the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code should
carefully review with its legal advisors
whether the purchase or holding of Class
A Certificates could give rise to a
non-exempt prohibited transaction under
ERISA or Section 4975 the Code and the
application of the fiduciary
S-17
responsibility provisions of ERISA. [The
Class B- 1 Certificates may not be
purchased by Plans subject to ERISA.]
[The U.S. Department of Labor has issued
an individual exemption, Prohibited
Transaction Exemption [____] to (the
"Exemption"). The Exemption generally
exempts from the application of certain
of the prohibited transaction provisions
of ERISA and the excise taxes and
penalties imposed on such prohibited
transactions by Section 4975(a) and (b)
of the Code transactions relating to the
purchase, sale and holding of
pass-through certificates such as the
[Class A] Certificates and the servicing
and operation of asset pools such as the
Mortgage Pool, provided that certain
conditions are satisfied.] See "ERISA
Considerations" [herein and] in the
Prospectus.
[insert any additional or substitute
language, as appropriate]
Legal Investment...................... Although upon their initial issuance the
Class A Certificates will be rated [____
by Moody's and "____" by S&P and Fitch],
the Class A Certificates will [not]
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA")
[because the Mortgage Pool includes
Mortgage Loans that are secured by
second and more junior Mortgages.] [The
Class B-1 Certificates will not
constitute "mortgage related securities"
under SMMEA.] Investors should consult
their own legal advisers in determining
whether and to what extent any Class of
Certificates constitute legal
investments for such investors. See
"Legal Investment" herein.
Use of Proceeds....................... Substantially all of the net proceeds to
be received from the sale of the Offered
Securities will be received by the
Depositor. [The Originators have, in the
aggregate, transferred the Mortgage
Loans to the Depositor in return for
such proceeds.]
S-18
RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus and the following factors in connection with
the purchase of the Offered Securities:
Risks of the Mortgage Loans [insert any appropriate considerations with respect
to Mortgage Loans.]
Geographic Concentration. In addition to the foregoing, certain geographic
regions of the United States from time to time will experience weaker regional
economic conditions and housing markets, and, consequently, will experience
higher rates of loss and delinquency on mortgage loans generally. Any
concentration of the Mortgage Loans in such a region may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. In particular,
approximately ___%, ___%, ___% and ___% of the Mortgage Loans in the Mortgage
Pool are secured by Mortgaged Properties located in , , and ,
respectively. There has been a contraction of economic activity and a
deterioration of the real estate market in many states and uncertainty exists
with respect to the economy and the real estate market in _______, __________
and other regions of the United States. See "Description of the Mortgage Pool"
herein for further information regarding the geographic concentration of the
Mortgage Loans in the Mortgage Pool.
Nature of Security. Approximately ___% of the Mortgage Loans in the
Mortgage Pool, by aggregate principal balance as of the Cut-off Date, are
secured by second or more junior Mortgages, and the related First Liens are not
included in the Mortgage Pool. Although little data is available, the rate of
default of second mortgage loans may be greater than that of mortgage loans
secured by First Liens on comparable properties. See "Risk Factors -- Risks of
the Mortgage Loans -- Nature of Security" in the Prospectus.
Risk of Early Defaults. Approximately ___% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date were originated within ___
months prior to the Cut-off Date. The weighted average remaining term to
maturity of the Mortgage Loans in the Mortgage Pool as of the Cut-off Date is
approximately ___ months. Although little data is available, defaults on
mortgage loans are generally expected to occur with greater frequency in their
early years.
Balloon Mortgage Loans. Approximately ___% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date provide for the payment of
the unamortized principal balance of the Mortgage Loan in a single payment at
the maturity of the Mortgage Loan that is greater than the preceding monthly
payment ("Balloon Loans"). See "Description of the Mortgage Pool" and "Risk
Factors -- Risks of the Mortgage Loans -- Balloon Loans" in the Prospectus.
S-19
Subordination of Class B-1 Certificates
[Appropriate special considerations regarding the Class B-1 Certificates to
be inserted.]
Yield and Prepayment Considerations
The yield to maturity of the Offered Certificates will depend on the rate
and timing of payment of principal on the Mortgage Loans in the Mortgage Pool
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. The rate of prepayment of the
Mortgage Loans may also be influenced by programs offered by the Originators to
encourage refinancing through the Originators to those customers who are
targeted for such solicitations. See "Certain Yield and Prepayment
Considerations" herein and in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool consists of Mortgage Loans with an aggregate principal
balance outstanding as of the Cut-off Date, after giving effect to payments
received prior to such date, of $__________ (the "Original Pool Principal
Balance"). This subsection describes generally certain characteristics of the
Mortgage Loans in the Mortgage Pool. Unless otherwise specified herein,
references herein to percentages of Mortgage Loans refer in each case to the
approximate percentage of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date, based on the outstanding balances of the Mortgage Loans
as of the Cut-off Date, and giving effect to principal payments received prior
to the Cut-off Date. The Mortgage Pool consists of [fixed-rate] Mortgage Loans
with remaining terms to maturity of not more than months (including both fully
amortizing Mortgage Loans and Balloon Loans). All of the Mortgage Loans were
originated and underwritten by the Originators. The Mortgage Loans have the
characteristics set forth below as of the Cut-off Date. Percentages expressed
herein based on principal balances and number of Mortgage Loans have been
rounded, and in the tables set forth herein the sum of the percentages may not
equal the respective totals due to such rounding.
All of the Mortgage Loans were originated prior to ____, 199__ and have a
scheduled maturity date no later than ____. No Mortgage Loan has a remaining
term to maturity as of the Cut-off Date of less than ____ months. The weighted
average original term to maturity of the Mortgage Loans in the Mortgage Pool as
of the Cut-off Date is
S-20
approximately ____ months. The weighted average remaining term to maturity of
the Mortgage Loans as of the Cut-off Date is approximately ____ months.
The weighted average Mortgage Interest Rate of the Mortgage Loans as of the
Cut-off Date is approximately ___% per annum. All of the Mortgage Loans have
Mortgage Interest Rates as of the Cut-off Date of at least ___% per annum but
not more than ___% per annum. The average principal balance outstanding of the
Mortgage Loans as of the Cut-off Date was $_____ and the principal balances of
the Mortgage Loans as of the Cut-off Date ranged from $_____ to $_____. The
original principal balances of the Mortgage Loans ranged from $_____ to $_____.
Approximately ___% of the Mortgage Loans are secured by a second or more
junior Mortgage on the related Mortgaged Property that is junior to a First Lien
and approximately ____% are secured by a first Mortgage on the related Mortgage
Property. The First Liens related to the Mortgage Loans secured by second
Mortgages are not included in the Mortgage Pool.
Approximately ___% Mortgage Loan had a Combined Loan-to-Value Ratio at
origination (defined below) in excess of ___%. The weighted average Combined
Loan-to-Value Ratio of the Mortgage Loans as of the Cut-off Date is
approximately ___%. No Mortgage Loan had a Home Equity Loan Ratio (defined
below) in excess of ___%. The weighted average Home Equity Loan Ratio of the
Mortgage Loans as of the Cut-off Date is approximately ___%.
At least ___% of the Mortgage Loans are secured by fee simple interests in
detached single-family dwelling units, including units in de minimis planned
unit developments, with the remaining Mortgage Loans secured by fee simple
interests in attached or detached two- to four-family dwelling units, units in
planned unit developments and condominiums on more than one parcel of real
property; provided, however, that approximately ___% of the Mortgage Loans are
secured by a leasehold interest in a one- to four-family residential dwelling
situated on property located in the State of Maryland; and further provided that
approximately ___% of the Mortgage Loans are secured by real property improved
with a single-family residence constituting a permanently affixed manufactured
housing unit. With respect to at least ___% of the Mortgage Loans, the Mortgagor
represented at the time of the origination of the Mortgage Loan that the related
Mortgaged Property would be occupied by the Mortgagor as a primary or secondary
residence (an "Owner Occupied Mortgaged Property").
No more than approximately ___% of the Mortgage Loans are secured by
Mortgaged Properties located in any one zip code area in the State of _________,
and no more than approximately ___% of the Mortgage Loans are secured by
Mortgaged Properties located in any one zip code area outside the State of
__________. Approximately ___%, ___%, ___% and ___% of the Mortgage Loans are
secured by Mortgaged Properties located in ___, ___, and ___, respectively.
Except as indicated in the preceding sentence, no more than ___% of the Mortgage
Loans are secured by Mortgaged Properties located in any one state.
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Approximately ___% of the Mortgage Loans are Balloon Loans. Approximately
___%, ___% and ___% of the Mortgage Loans are Balloon Loans based on ____ a year
amortization schedule and a single payment of the remaining loan balance
approximately ____, ____ and ____ years after origination, respectively.
Approximately ___% of the Mortgage Loans are Bankruptcy Mortgage Loans. Of
the Mortgage Loans, ___% in principal amount are Bankruptcy Mortgage Loans which
are days or more contractually delinquent. Of the Mortgage Loans other than
Bankruptcy Mortgage Loans, representing ___% in aggregate principal amount of
all Mortgage Loans, ___% in principal amount are contractually delinquent 30-59
days and ___% in principal amount are contractually delinquent 60-89 days.
The following table sets forth the number and outstanding principal balance
as of the Cutoff Date of, and the percentage of the Mortgage Pool represented by
Mortgage Loans in the Mortgage Pool having outstanding principal balances as of
the Cut-off Date in the ranges described therein:
Range of Cut-off Percent of Mortgage Percent of Mortgage
Date Principal Cut-Off Date Pool by Cut-off Date Number of Mortgage Pool by Number of
Balance Principal Balance Principal Balance Loans Mortgage Loans
------- ----------------- ----------------- ----- --------------
$ $ % %
Total:
The following table sets forth the geographic distribution of the Mortgaged
Properties in the Mortgage Pool by state or territory as of the Cut-off Date:
Percent of Mortgage Percent of Mortgage
Cut-off Date Pool by Cut-off Date Number of Mortgage Pool by Number of
State or Territory Principal Balance Principal Balance Loans Mortgage Loans
------------------ ----------------- ----------------- ----- --------------
$ % %
Total:
The following table sets forth the Combined Loan-to-Value Ratios of the
Mortgage Loans in the Mortgage Pool as of the Cut-off Date:
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Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Combined Loan-to- Cut-off Date Cut-off Date Mortgage by Number of
Value Ratios Principal Balance Principal Balance Loans Mortgage Loans
------------ ----------------- ----------------- ----- --------------
_______% to ________% $ % %
The following table sets forth the Home Equity Ratios of Mortgage Loans in
the Mortgage Pool:
Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Combined Loan-to- Cut-off Date Cut-off Date Mortgage by Number of
Value Ratios Principal Balance Principal Balance Loans Mortgage Loans
------------ ----------------- ----------------- ----- --------------
_______% to ________% $ % %
The following table sets forth the Mortgage Interest Rates borne by the
Mortgage Notes relating to the Mortgage Loans as of the Cut-off Date:
Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Mortgage Interest Cut-off Date Cut-off Date Mortgage by Number of
Rate Principal Balance Principal Balance Loans Mortgage Loans
- -------------------------- ----------------- ----------------- ----- --------------
_______% to ________% $ % %
Total:
The following table sets forth the number of remaining months to stated
maturity of the Mortgage Loans in the Mortgage Pool as of the Cut-off Date:
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Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Remaing Monts to Cut-off Date Cut-off Date Mortgage by Number of
Stated Maturity Principal Balance Principal Balance Loans Mortgage Loans
- ------------------------- ----------------- ----------------- ----- --------------
_______% to ________% $ % %
Total:
The following table sets forth the number of months since origination of
the Mortgage Loans in the Mortgage Pool as of the Cut-off Date:
Percent of Percent of
Mortgage Pool by Number of Mortgage Pool
Range of Months Since Cut-off Date Cut-off Date Mortgage by Number of
Origination Principal Balance Principal Balance Loans Mortgage Loans
- --------------------- ----------------- ----------------- ----- --------------
_______% to ________% $ % %
Total:
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Certificates, the aggregate amount of
each interest payment on the Certificates and the yield to maturity of the
Certificates are related to the rate and timing of payments of principal on the
Mortgage Loans, which may be in the form of scheduled and unscheduled payments.
In general, when the level of prevailing interest rates for similar loans
significantly declines, the rate of prepayment is likely to increase, although
the prepayment rate is influenced by a number of other factors, including
general economic conditions and homeowner mobility. Defaults on mortgage loans
are expected to occur with greater frequency in their early years, although
little data is available with respect to the rate of default on second or more
junior mortgage loans. The rate of default on second mortgage loans may be
greater than that of mortgage loans secured by first liens on comparable
properties. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to the related Class of Certificateholders of amounts of
principal which would otherwise be distributed over the remaining terms of the
Mortgage Loans in the Mortgage Pool.
In addition, the [Servicer] may, at its option, purchase from the Trust all
of the outstanding Mortgage Loans and REO Properties, and thus effect the early
retirement of the Class A Certificates, on any Payment Date [(but in no event
earlier than the Payment Date occurring )] following the first date on which
the Pool Principal Balance (as defined herein) is less than [5]% of the Original
Pool Principal Balance. See "Description of the Certificates -- Termination;
Purchase of Mortgage Loans" herein.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
mortgage loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments. No
representation is made as to the particular factors that will affect the
prepayment of the Mortgage Loans, as to the relative importance of such factors,
as to the percentage of the principal balance of the Mortgage Loans that will be
paid as of any date or as to the overall rate of prepayment on the Mortgage
Loans. The rate of prepayment of the Mortgage Loans may also be influenced by
programs offered by the Originators to encourage refinancing through the
Originators to those customers who are targeted for such solicitations.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Greater than anticipated
prepayments of principal will decrease the yield on Certificates purchased at a
price greater than par. The effect on an investor's yield due to principal
prepayments on the Mortgage Loans occurring at a rate that is faster (or slower)
than the rate anticipated by the investor in the period immediately following
the issuance of the Certificates will not be entirely offset by a subsequent
like
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reduction (or increase) in the rate of principal payments. The weighted average
life of the Certificates will also be affected by the amount and timing of
delinquencies and defaults on the Mortgage Loans in the Mortgage Pool and the
recoveries, if any, on defaulted Mortgage Loans and foreclosed properties in the
Mortgage Pool.
The yield to maturity on the Class B-1 Certificates will be extremely
sensitive to losses on the Mortgage Loans (and the timing thereof) because the
entire amount of losses [(to the extent of the Subordinated Amount)] will be
allocated to the Class B Certificates until the principal balance thereof has
been reduced to zero. After the Principal Balance of the Class B Certificates
[or the Subordinated Amount] has been reduced to zero, the yield to maturity of
the Class A Certificates then outstanding will be extremely sensitive to losses
on the Mortgage Loans (and the timing thereof). [In addition, because principal
distributions are paid to certain Classes of Class A Certificates before other
Classes, holders of Classes having a later priority of payment bear greater risk
of loss than holder of Classes having earlier priorities for distributions of
principal.
[As described herein, amounts otherwise distributable to holders of the
Class B Certificates may be made available to protect the holders of Class A
Certificates against interruptions in distributions due to certain Mortgagor
delinquencies to the extent not covered by Advances. Such delinquencies may
affect the yield to investors in the Class B Certificates and, even if
subsequently cured, may affect the timing of the receipt of distributions by the
holders of the Class B Certificates.]
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
the Certificates will be influenced by, among other factors, the rate at which
principal payments are made on the Mortgage Loans in the Mortgage Pool,
including final payments made upon the maturity of Balloon Loans.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement
[("CPR")] represents [an assumed annualized constant rate of prepayment relative
to the then outstanding principal balance of a pool of mortgage loans]. The
tables set forth below are based on the assumption that the Mortgage Loans
prepay at the indicated percentage of [CPR]. Neither [CPR] nor any other
prepayment model purports to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Pool.
The tables set forth below have been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Trust Fund and the respective expected initial principal balances of the
Certificates. For purposes of preparation of the tables, it has been assumed
that (i) the Certificates are purchased on ____, (ii) payments on the
Certificates are made on the day of each month, commencing ____, 199_, [(iii)
the initial Class A Percentage is approximately ___%], (iv) prepayments are
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received on the Mortgage Loans at the specified percentage of CPR, (v) all
payments of principal of and interest on each of the Mortgage Loans in the
Mortgage Pool are timely received, (vi) none of the Mortgage Loans in the
Mortgage Pool is repurchased from the Trust and ( ) [other assumptions].
Any discrepancy between the characteristics of the Mortgage Loans actually
included in the Trust and the characteristics of the Mortgage Loans expected to
be so included may affect the percentages of the original outstanding principal
balance set forth in the tables and the weighted average lives of the
Certificates. In addition, to the extent that the Mortgage Loans included in the
Trust Fund have characteristics that differ from those assumed in preparing the
following tables, the outstanding principal balance of any Certificate will be
reduced to zero earlier or later than that indicated by the table.
Variations in actual prepayment experience and the principal balances of
the Mortgage Loans that prepay may increase or decrease the percentages of the
original principal balances outstanding and the weighted average lives shown in
the following tables. Such variations may occur even if the average prepayment
experience of all such Mortgage Loans equals the indicated levels of [CPR].
There is no assurance that prepayment of the Mortgage Loans will conform to any
level of [CPR].
Based on the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Class A and Class B-1 Certificates and
sets forth the percentages of the original principal balance outstanding of each
Class of Class A and Class B-1 Certificates that would be outstanding after each
of the dates shown at various percentages of [CPR].
Payment Date Class A-1 Class A-2 Class A-3 Class B-1
--------- --------- --------- ---------
in % % % % % % % % % % % %
-- - - - - - - - - - - - -
Weighted average life in years(1)
- ----------
(1) The weighted average lives of the Certificates as shown above are
determined by (i) multiplying the amount of principal payments by the
number of years from the date of issuance of the Certificates to the
related Payment Date, (ii) summing the results and (iii) dividing the sum
by the sum of the amounts in clause (i) above.
ORIGINATION, FORECLOSURE AND LOSS EXPERIENCE
General
For a general discussion of the Depositor, the Servicer and the
Originators, see "The Depositor, the Servicer and the Originators" in the
Prospectus.
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As of ___________, 199 , BOFS had a total of employees; _____ employees at
its Indianapolis, Indiana, headquarters and an additional ___ employees in
branch offices located in ___ states nationwide. As of ___________, 199_, the
total stockholders' equity of BOFS was $_____.
Loan Origination History
At December , 199 , BOFS conducted loan origination and/or wholesale
operations in a number of states, including Arizona, California, Connecticut,
Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky,
Louisiana, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New York,
New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and
Wisconsin.
The dollar amounts of first and second lien mortgage loans originated and
purchased by BOFS during the years ended December 31, 199 , 199 and 199 were
$ , $ and $ , respectively. BOFS originated and purchased mortgage loans
totalling $ during the months ended , 199 .
BOFS originates and purchases mortgage loans under a number of underwriting
programs.
See the "Depositor, the Servicer the Originators -- Specific Underwriting
Criteria; Underwriting Programs" in the Prospectus for a discussion of each of
the underwriting programs.
Servicing Portfolio
At _____ and December 31, 199 , BOFS serviced a total portfolio of _____
and mortgage loans, respectively, having aggregate unpaid principal balances of
$_____ and $_____, respectively, for itself, VNFSC and Bank One, Utah, N.A. The
foregoing figures include loans that were originated or acquired and
re-underwritten by BOFS.
Delinquency and Loss Experience
The following table sets forth BOFS's delinquency and charge-off experience
at the dates indicated on mortgage loans included in its servicing portfolio,
including loans in foreclosure proceedings.
(Dollars in Thousands)
At or For the Year Ended December 31, ____ At or For the Months
(Dollars in Thousands) Ended _______, 199_
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Portfolio Unpaid
Principal Balance.......... $ $ $ $ $
Average Portfolio
Unpaid Principal
Balance (1)................ $ $ $ $
Period of
Delinquency (2):
30-59 Days............... % % % % % %
60-89 Days............... % % % % % %
90 Days or More.......... % % % % % %
Total Delinquencies........ % % % % % %
Total Credit Losses $ $ $ $ $
(3)........................
Total Credit Losses
as a Percent of
Average Unpaid
Principal Balance.......... % % % % % (5) %
[----------
(1) Portfolio Unpaid Principal Balance is the net amount of principal to be paid
on each mortgage loan, excluding unearned finance charges and other charges, and
excludes the principal balance of each mortgage loan as to which the related
mortgaged property has been previously acquired through foreclosure.
(2) Delinquency percentages are calculated as the dollar amount of mortgage loan
principal delinquent as a percent of the Portfolio Unpaid Principal Balance.
Delinquency percentages include the principal balance of all mortgage loans in
foreclosure proceedings. Generally, all Mortgage Loans in foreclosure
proceedings are 90 days or more delinquent. Delinquency percentages do not
include the principal balance of mortgage loans which are real estate owned.
(3) Total Credit Losses includes (a) charge-offs of principal, net of subsequent
recoveries, relating to mortgage loans written off as uncollectible or
charge-offs relating to properties securing any mortgage loans which have been
foreclosed upon and for which, in the opinion of management, liquidation
proceeds would not exceed estimated expenses of liquidation plus the unpaid
principal balance, (b) expenses associated with maintaining, repairing, and
selling foreclosed properties and real estate owned, and (c) losses (gains) on
the disposition of foreclosed properties and real estate owned.]
(4) Annualized.
The delinquency percentages set forth in the preceding table are calculated
on the basis of the unpaid principal balances of mortgage loans included in
BOFS's servicing
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portfolio as of the end of the periods indicated. The charge-off experience
percentages set forth above are calculated on the basis of the average
outstanding unpaid principal balance of mortgage loans included in the servicing
portfolio during the periods indicated. [However, because the amount of loans
included in the servicing portfolio has increased rapidly over these periods as
a result of new originations, the servicing portfolio as of the end of any
indicated period includes many loans that will not have been outstanding long
enough to give rise to some or all of the indicated periods of delinquency or to
have resulted in losses. In the absence of such substantial and continual
additions of newly originated loans to the servicing portfolio, the delinquency
and charge-offs percentages indicated above would be higher and could be
substantially higher.] The actual delinquency percentages and loss experience
with respect to the Mortgage Loans may be expected to be substantially higher
than the delinquency percentages indicated above because the composition of the
Mortgage Pool will not change.
In addition, over the last several years, there has been a general
deterioration of the real estate market and weakening of the economy in all
regions of the country. The general deterioration of the real estate market has
been reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as security for loans. If the real estate market and economy
continue to decline, BOFS may experience an increase in delinquencies on the
loans it services and higher net losses on liquidated loans.
Outstanding Real Estate Owned
At , 199 and December 3 , 199 , approximately and properties,
respectively, acquired through foreclosure were owned by BOFS for its own
account or on behalf of owners of other mortgage loans included in its servicing
portfolio. Such properties, at 31, 199 and December 31, 199 , were valued
at $ and $ , respectively.
DESCRIPTION OF THE CERTIFICATES
General
The following summary describes certain terms of the Certificates and the
Pooling and Servicing Agreement. Reference is made to the accompanying
Prospectus for important additional information regarding the terms of the
Offered Certificates and the underlying documents. A form of the Pooling and
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which the Prospectus forms a part. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Certificates and the Pooling and Servicing Agreement.
Where particular
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provisions or terms used in any of such documents are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
The Banc One Home Equity Loan Asset Backed Certificates, Series 199 - ,
will consist of the Class A-1, Class A-2 and Class A-3 Certificates
(collectively, the "Class A Certificates") and the Class B-1 and Class B-2
Certificates (collectively, the "Class B Certificates" and, with the Class A
Certificates, the "Certificates"). In the aggregate, the Class A Certificates
evidence an approximately ___% undivided interest in the Trust Fund. In the
aggregate, the Class B Certificates evidence an approximately ___% undivided
interest in the Trust Fund. Only the Class A Certificates and Class B-1
Certificates are offered hereby.
The Certificates represent interests in the Trust Fund created and held
pursuant to the Pooling and Servicing Agreement. The Trust Fund consists
primarily of (i) the Mortgage Loans and all proceeds thereof, (ii) REO Property,
(iii) amounts on deposit in the Collection Account (as defined herein),
Principal and Interest Account (as defined herein), Insurance Account, Spread
Account (including all earnings thereon and proceeds thereof) or Letter of
Credit Fee Account, including all investments of amounts on therein, (iv)
certain rights of the Depositor under the Transfer Agreement, (v) the
Certificate Insurance Policy, and (vi) certain other property; provided,
however, that the Trust Fund does not include the amounts received on or after
the Cut-off Date in respect of interest accrued on the Mortgage Loans prior to
the Cut-off Date.
Each Class A Certificate will be issued in minimum denominations of $_____
and integral multiples thereof. Each Class B-1 Certificate will be issued in
minimum denominations of $ and integral multiples thereof. Each Class A and
Class B-1 Certificate will represent a percentage interest (a "Percentage
Interest") in the Certificates of the applicable Class determined by dividing
the original dollar amount represented by such Certificate by the original
aggregate principal amount of all Certificates of such Class.
[Each Class of Class A Certificates and the Class B-1 Certificates (the
"Book-Entry Certificates") will initially be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and will be available only in the form of
book-entries on the records of DTC, Participants and Indirect Participants.
Certificates representing the Book-Entry Certificates will be issued in
definitive form only under the limited circumstances described herein. All
references to "holders" or "Certificateholders" shall reflect the rights of
owners of the Book-Entry Certificates, as they may indirectly exercise such
rights through DTC and Participants, except as otherwise specified herein. See
"-- Registration of Certificates" herein and "Description of the Securities --
Registration of Certificates" in the Prospectus.]
On each Payment Date, the Trustee will pay to each person in whose name a
Certificate is registered on the related Record Date [(which in the case of
Book-Entry Certificates initially will be only Cede, as nominee of DTC)], the
portion of the aggregate payment to be made to Certificateholders of the
applicable Class of Certificates, to which such holder is entitled, if
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any, based on the Percentage Interest of the Certificates of such Class held by
such holder. Distributions will be made by wire transfer of immediately
available funds to the account of such holder at a bank or other entity having
appropriate facilities therefor if such holder owns of record Certificates of
such Class in denominations aggregating in excess of $_____ and shall have
provided complete wiring instructions to the Trustee at least five business days
prior to the Record Date, and otherwise by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register.
The Final Scheduled Payment Dates of the Class A Certificates will be as
follows: Class A-1:
Class A-2:
Class A-3:
Class B-1:
The Final Scheduled Payment Date of each Class is months after the
Payment Date on which the principal balance of such Class is expected to be
reduced to zero assuming that, among other things, [describe assumptions]. The
rate of payment of principal of the Class A and Class B-1 Certificates will
depend on the rate of payments of principal (including prepayments) and any
repurchases of the Mortgage Loans. [Since the Final Scheduled Payment Dates have
been determined on the assumption, among others, that there are no prepayments
on the Mortgage Loans, the actual final distribution date of each Class is
likely to occur prior to its Final Scheduled Payment Date although, in the event
of defaults in payment of the Mortgage Loans, it could occur later or earlier.]
The Servicer expects to service the Mortgage Loans through BOFS, as
subservicer in accordance with the Pooling and Servicing Agreement and generally
in accordance with the first and second mortgage loan servicing standards and
procedures accepted by prudent mortgage lending institutions. See "Description
of the Offered Certificates -- Servicing Standards" and "-- Use of Subservicers"
in the Prospectus for a further description of the provisions of the Pooling and
Servicing Agreement relating to servicing standards and the use of subservicers.
Representations and Warranties of the Depositor and the Originators
Each Originator will make the representations, among others, as to each
Mortgage Loan conveyed by any Originator to the Depositor as of the Closing Date
described under "Description of the Offered Certificates -- Representations and
Warranties of the Originators and the Depositor" in the Prospectus and will also
represent that:
1. No more than % of the Mortgage Loans are secured by Mortgaged
Properties improved by permanently affixed manufactured housing units.
2. Approximately % of the Mortgage Loans are Balloon Loans. All of
the Balloon Loans provide for monthly payments based on an amortization
schedule specified in the
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related Mortgage Note and have a final balloon payment no earlier than ___
months following the date of origination and no later than at the end of
the ___ year following the date of origination;
3. As of the Cut-off Date, no more than ___% of the Mortgage Loans in
the Mortgage Pool were 30 or more days contractually delinquent. No more
than ___% of the Mortgage Loans in the Mortgage Pool were 60 or more days
contractually delinquent;
4. No more than ___% of the Mortgage Loans in the Mortgage Pool are
secured by Mortgaged Properties located within any single zip code area;
and
5. Mortgage Loans representing at least ___% of the Mortgage Loan
Principal Balance are secured by an Owner Occupied Mortgaged Property.
Distributions
Interest will accrue on the Class A and Class B-1 Certificates from [the
___ calendar day of each month (whether or not a Business Day) to, but
excluding, the ___ calendar day of the next succeeding month (whether or not a
Business Day)] (each, an "Accrual Period"). Interest shall accrue on each Class
A and Class B-1 Certificate at the applicable Pass- Through Rate specified on
the cover page hereof, calculated on the basis of a 360-day year consisting of
twelve 30-day months, and shall be distributed, to the extent monies are
available therefor, on each Payment Date. With respect to each Payment Date,
interest accrued on each Class of Class A Certificates during the related
Accrual Period at the applicable Pass-Through Rate on the Class Principal
Balance (defined below) outstanding on the immediately preceding Payment Date
(after giving effect to all payments of principal made on such Payment Date) or,
in the case of the initial Accrual Period, ___, is referred to herein as the
"Interest Remittance Amount" for such Class and, in the aggregate for all Class
A Certificates, as the "Class A Interest Remittance Amount". Interest accrued
during each Accrual Period at the Class B-1 Pass-Through Rate on the Class B-1
Principal Balance (as defined below) outstanding on the immediately preceding
Payment Date (after giving effect to all payments of principal made on such
Payment Date) or, in the case of the initial Accrual Period, ___, is referred to
herein as the "Class B-1 Interest Remittance Amount" for the related Payment
Date.
Holders of the Class A and Class B-1 Certificates will be entitled to
receive on each Payment Date, to the extent monies are available therefor (but
not more than the Class A Principal Balance or Class B-1 Principal Balance then
outstanding), a distribution allocable to principal which will generally equal
the sum of (i) the Class A Percentage or Class B-1 Percentage, respectively, of
all scheduled payments ("Monthly Payments") of principal received on the
Mortgage Loans during [the calendar month preceding the calendar month in which
such Payment Date occurs] (each, a "Due Period"), (ii) the [Class A [Prepayment]
Percentage or Class B-1 Percentage, respectively,] of each other component of
the Basic Principal Amount (defined below) and (iii) the amount, if any, by
which (a) the amount
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required to be distributed to Class A Certificateholders as of the preceding
Payment Date exceeded (b) the amount actually distributed to the Class A
Certificateholders or Class B-1 Certificateholders, respectively on such date
(such excess, the "Class A Carry-Forward Amount" and, with the applicable
percentage of the Basic Principal Amount, the "Class A Principal Remittance
Amount" or the "Class B-1 Carry-Forward Amount" and, with the Class B-1
Percentage of the Basic Principal Amount, the "Class B-1 Principal Remittance
Amount", as the cases may be). [Except during such time as the Class A
Percentage equals 100%,] [P]rincipal will be distributed to the Class A
Certificates [in order of their Final Scheduled Payment Dates and pro rata among
the Class A Certificates of each Class]. [If the Class A Percentage increases to
100%, distributions allocable to principal will be made pro rata among the
remaining Class A Certificates in accordance with their respective outstanding
principal balances and not in accordance with the priorities set forth above.]
The Trustee is required to establish a trust account (the "Collection
Account") for the remittance of payments on the Mortgage Loans to the
Certificateholders. The Collection Account is required to be maintained as an
Eligible Account.
The amount available to make the payments described above will generally
equal the Available Payment Amount for the related Due Period. The "Available
Payment Amount" generally means with respect to any Payment Date the result of
(a) collections on or with respect to the Mortgage Loans received by the
Servicer during the related Due Period, net of the Servicing Fee paid to the
Servicer during the related Due Period and reimbursements for accrued unpaid
Servicing Fees and for certain expenses paid by the Servicer, plus (b) the
amount of any Advances less (c) the amount of any Excess Spread.
The "Basic Principal Amount" means the sum of (i) the principal portion of
each Monthly Payment [received][due] during the related Due Period, (ii) all
Curtailments and all Principal Prepayments received during such related Due
Period, (iii) the principal portion of all Insurance Proceeds, Released
Mortgaged Property Proceeds and Net Liquidation Proceeds received during the
related Due Period, (iv)(a) that portion of the purchase price of any
repurchased Mortgage Loans which represents principal and (b) any Substitution
Adjustments deposited into the Collection Account as of the related
Determination Date and (v) the Principal Balance of each Mortgage Loan as of the
beginning of the related Due Period which became a Liquidated Mortgage Loan
during the related Due Period (exclusive of any principal payments in respect
thereof described in the preceding clauses (i) through (iv)).
The "Class A Principal Balance" means as of any Payment Date the Original
Class A Principal Balance reduced by the sum of all amounts previously
distributed to Class A Certificateholders in respect of principal on all
previous Payment Dates. The "Original Class A Principal Balance" is $ .
The "Class B-1 Principal Balance" means as of any Payment Date the Original
Class B-1 Principal Balance reduced by the sum of all amounts previously
distributed to Class B-1
S-34
Certificateholders in respect of principal on all previous Payment Dates. The
"Original Class B-1 Principal Balance" is $ .
The "Class A Prepayment Percentage" means, generally, subject to certain
conditions set forth in the Pooling and Servicing Agreement, as of any Payment
Date up to and including the Payment Date in , [100%]; as of any Payment Date
in the [first] year thereafter, the Class A Percentage plus % of the Class B
Percentage for such Payment Date; as of any Payment Date in the [second] year
thereafter, the Class A Percentage plus % of the Class B Percentage for such
Payment Date; as of any Payment Date in the [third] year thereafter, the Class A
Percentage plus % of the Class B Percentage for such Payment Date; and as of
any Payment Date thereafter, the Class A Percentage; provided that, if the Class
A Percentage as of any such Payment Date is greater than the initial Class A
Percentage, the Class A Prepayment Percentage shall be 100%.]
Subordinated Certificates and Shifting Interests
The right of the Class B Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to the right of the Class A
Certificateholders, to the extent described below. This subordination is
intended to enhance the likelihood of regular receipt by the Class A
Certificateholders of the Class A Remittance Amounts and to protect the Class A
Certificateholders against losses.
On each Payment Date, payments to the Class A Certificateholders will be
made prior to payments to the Class B Certificateholders. On any Payment Date on
which the Class A Percentage is less than 100%, if the Class A
Certificateholders receive less than the amount due to them on such date, the
interest of the Class A Certificateholders in the Trust Fund will vary so as to
preserve the entitlement of the Class A Certificateholders to unpaid principal
of the Mortgage Loans and interest thereon. [If a Principal Prepayment,
Curtailment or certain other unscheduled amounts of principal are received on a
Mortgage Loan, the Class A Certificateholders will be paid an amount equal to
the Class A Prepayment Percentage (defined herein) of the amount received. This
will have the effect of accelerating receipt of principal by the Class A
Certificateholders, thus reducing their proportionate interest in the Trust Fund
and increasing the relative interest in the Trust Fund evidenced by the Class B
Certificates. Increasing the interest of the Class B Certificates relative to
that of the Class A Certificates is intended to preserve the availability of the
subordination provided by the Class B Certificates.]
[Describe any applicable limits on subordination.]
Example of Distributions
The following chart sets forth an example of distributions on the
Certificates based upon the assumption that the Certificates will be issued in
_________ 199 .
S-35
Cut-off Date. The Original Pool Principal
Balance will be the aggregate principal
balances of the Mortgage Loans on the Cutoff
Date after application of all payments
received prior to the Cut-off Date.
Due Period. The Servicer and any
subservicers remit for deposit into the
Principal and Interest Account all amounts
received on account of the Mortgage Loans
(other than interest accrued prior to the
Cut-off Date).
Determination Date. The Trustee determines,
based on information provided by the
Servicer, the amount of principal and
interest that will be distributed to
Certificateholders on ____, 199_.
The Servicer transfers funds in the
Principal and Interest Account to the
Collection Account including any Advances.
Advances [from the Principal and Interest Account]
Not later than the close of business on the third business day prior to
each Payment Date, the Servicer shall [withdraw from amounts on deposit in the
Principal and Interest Account and held for future distribution and] remit to
the Trustee for deposit in the Collection Account an amount (the "Advance"), to
be distributed on the related Payment Date, equal to the sum of the interest
portions of the aggregate amount of Monthly Payments (net of the Servicing Fee
and, after the later to occur of (x) the Cross-Over Date, and (y) the date on
which there are no outstanding LC Obligations, the Excess Spread) accrued during
the related Due Period, but uncollected as of the close of business on the last
day of the related Due Period. [The Servicer generally shall not be required to
make such Advance from its own funds or be liable for the recovery thereof from
collections on the related Mortgage Loans or otherwise.]
Servicing Compensation
As compensation for servicing and administering the Mortgage Loans, the
Servicer is entitled to a fee of % per annum of the principal balance of each
Mortgage Loan (the "Servicing Fee") calculated and payable monthly from the
interest portion of monthly payments on the Mortgage Loans, Liquidation
Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds and certain
other late collections on the Mortgage Loans. In addition to the Servicing Fee,
the Servicer is entitled under the Pooling and Servicing Agreement to retain as
additional servicing compensation any assumption and other administrative fees
(including bad check charges, late payment fees and similar fees), the excess of
any Net Liquidation Proceeds over the outstanding principal balance of a
Liquidated Mortgage Loan, to the extent not otherwise required to be remitted to
the Trustee
S-36
for deposit into the Collection Account and not constituting any part of the
Representative's Yield, and interest paid on funds on deposit in the Principal
and Interest Account, earnings paid on Permitted Instruments (other than
earnings on amounts invested from the Spread Account), certain amounts
representing excess funds released from the Insurance Account and the Letter of
Credit Fee Account and similar items.
Termination; Purchase of Mortgage Loans
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Mortgage Loan (or
Advances of such payment or collection by the Servicer), or the disposition of
all funds with respect to the last Mortgage Loan and the remittance of all funds
due under the Pooling and Servicing Agreement and the payment of all amounts due
and payable to the Trustee or (b) mutual consent of the Servicer and all
Certificateholders in writing; provided, however, that in no event will the
Trust established by the Pooling and Servicing Agreement terminate later than
twenty-one years after the death of the last surviving lineal descendant of the
person named in the Pooling and Servicing Agreement, alive as of the date of the
Pooling and Servicing Agreement.
Subject to provisions in the Pooling and Servicing Agreement concerning
adopting a plan of complete liquidation, the [Servicer] may, at its option,
terminate the Pooling and Servicing Agreement on any date on which the Pool
Principal Balance is less than [5]% of the Original Pool Principal Balance by
purchasing, on the next succeeding Payment Date [(but in no event before the
Payment Date occurring in _____], all of the outstanding Mortgage Loans and REO
Properties then remaining in the Trust Fund at a price equal to (i) 100% of the
aggregate outstanding principal balances of the Mortgage Loans and REO
Properties and 30 days' accrued interest thereon at a rate equal to the weighted
average Mortgage Interest Rate, minus (ii) any amounts representing collections
on the Mortgage Loans and REO Properties not yet applied to reduce the principal
balance thereof or interest related thereto (the "Termination Price"). In
connection with such purchase, the Servicer is required to pay any unpaid fees
and expenses of the Trustee.
Amendment
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee by written agreement, without notice to,
or consent of, the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions therein, to comply with any changes in the Code, or to
make any other provisions with respect to matters or questions arising under the
Pooling and Servicing Agreement which shall not be inconsistent with the
provisions of the Pooling and Servicing Agreement, provided that such action
does not, as evidenced by an Opinion of Counsel delivered to the Trustee,
adversely affect in any material respect the interests of any Certificateholder;
and provided, further, that no such amendment is permitted to reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be
S-37
distributed on any Certificate without the consent of the holder of such
Certificate, or change the rights or obligations of any other party to the
Pooling and Servicing Agreement without the consent of such party.
The Pooling and Servicing Agreement also may be amended from time to time
by the Depositor, the Servicer and the Trustee, the Majority in Aggregate Voting
Interest and the holders of the majority of the Percentage Interest in the Class
B Certificates for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment is permitted unless the Trustee
receives an opinion of counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the Trust Fund
as a REMIC or cause any tax to be imposed on the REMIC, and provided further,
that no such amendment is permitted to reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the holder of each such
Certificate or reduce the percentage for each Class the holders of which are
required to consent to any such amendment without the consent of the holders of
100% of each Class of Certificates affected thereby.
Notwithstanding any contrary provision of the Pooling and Servicing
Agreement, the Trustee is not permitted to consent to any amendment to the
Pooling and Servicing Agreement unless it has first received an Opinion of
Counsel to the effect that such amendment or the exercise of any power granted
to the Servicer, the Depositor, or the Trustee in accordance with such amendment
will not result in the imposition of a tax on the [Trust Fund] or cause the
REMIC to fail to qualify as a REMIC at any time that any Certificate is
outstanding.
THE TRUSTEE
__________ , a organized under the laws of with its principal place of
business in the State of _________ will be named Trustee pursuant to the Pooling
and Servicing Agreement.
Pursuant to the Pooling and Servicing Agreement, the Trustee is required at
all times to be a banking association organized and doing business under the
laws of the United States of America or of any State, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, whose long-term deposits, if any, are rated at least "BBB" by
S&P and Baa2 by Moody's, or such lower rating as may be approved in writing by
Moody's and S&P, subject to supervision or examination by federal or state
authority. If at any time the Trustee shall cease to be eligible in accordance
with the provisions described in this paragraph, the Trustee shall give notice
of such ineligibility to the Servicer and shall resign, upon the request of the
Majority in Aggregate Voting Interest, in the manner and with the effect
specified in the Pooling and Servicing Agreement.
S-38
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by such
successor trustee.
The Trustee, or any successor trustee or trustees, may resign at any time
by giving written notice to the Servicer and to all Certificateholders in the
manner set forth in the Pooling and Servicing Agreement. Upon receiving notice
of resignation, the Servicer is required to promptly appoint a successor trustee
or trustees meeting the eligibility requirements set forth above in the manner
set forth in the Pooling and Servicing Agreement. The Servicer will deliver a
copy of the instrument used to appoint a successor trustee to the
Certificateholders. If no successor trustee shall have been appointed and have
accepted appointment within 60 days after the giving of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
The Majority in Aggregate Voting Interest may remove the Trustee under the
conditions set forth in the Pooling and Servicing Agreement and appoint a
successor trustee in the manner set forth therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such person or persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable.
FEDERAL INCOME TAX CONSEQUENCES
[INSERT APPROPRIATE TAX DISCUSSION, IF ANY]
CERTAIN STATE TAX CONSEQUENCES
[INSERT APPROPRIATE TAX DISCUSSION, IF ANY]
ERISA CONSIDERATIONS
[INSERT IF APPROPRIATE]
LEGAL INVESTMENT
S-39
[Although] upon their initial issuance the Class A Certificates will be
rated [_____ by Moody's and "_____" by S&P and Fitch], the Class A Certificates
[will not] constitute "mortgage related securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") [because the Mortgage Pool includes
Mortgage Loans that are secured by second or more junior Mortgages]. [The Class
B-1 Certificates will not constitute "mortgage related securities" under SMMEA.]
Investors should consult their own legal advisers in determining whether and to
what extent any Class of Certificates constitute legal investments for such
investors.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Class A Certificates will be received, directly or indirectly, by the Depositor.
[In the aggregate, the Originators have transferred the Mortgage Loans to the
Depositor in return for such proceeds.]
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Depositor and the Underwriters named
below, the Depositor has agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase from the Depositor, the
respective principal amounts of Certificates set forth opposite their names
below.
Class A Class A-2 Class A-3 Class B-1
Underwriters Certificates Certificates Certificates Certificates
------------ ------------ ------------ ------------ ------------
$
Totals $
Under the terms of the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A and Class B-1 Certificates offered hereby if any of such
Certificates are purchased.
The Underwriters have advised the Depositor that they propose to offer the
Class A and Class B-1 Certificates from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriters may effect such transactions by selling Class A and Class B-1
Certificates to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriters and any purchasers of Class A and Class B-1 Certificates for whom
they act as agents. The Underwriters and any dealers that participate with the
Underwriters in the distribution of the Class A and Class B-1 Certificates may
be deemed to be underwriters, and any discounts or commissions received by them
and any profit on the resale of Class A and Class B-1 Certificates by them may
be deemed to be underwriting discounts or commissions under the Securities Act
of 1933, as amended.
S-40
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
[In the ordinary course of their respective businesses, the Underwriters
and their respective affiliates have engaged and may engage in investment
banking and/or commercial banking transactions with the Depositor and the
Originators and their affiliates. Banc One Capital Corporation is an affiliate
of the Depositor and the Originators.]
[After the initial distribution of the Class A Certificates by the
Underwriters, this Prospectus Supplement and the Prospectus may be used by Banc
One Capital Corporation in connection with offers and sales relating to
market-making transactions in the Class A Certificates. Banc One Capital
Corporation may act as principal or agent in such transactions. Such sales will
be made at prices related to prevailing market prices at the time of sale.
RATINGS
The Class A Certificates will be rated at their initial issuance [by
Moody's and " " by S&P and Fitch]. The Class B-1 Certificates will be rated at
their initial issuance " " by Moody's and " " by S&P and Fitch.
A securities rating addresses the likelihood of the receipt by
Certificateholders 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 Class A and Class B-1 Certificates.
The ratings on the Class A and Class B-1 Certificates do not, however,
constitute statements regarding the likelihood or frequency of prepayments on
the Mortgage Loans or the possibility that Certificateholders might realize a
lower than anticipated yield.
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
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to the Class A
Certificates or Class B-1 Certificates upon initial issuance will not be lowered
or withdrawn by a Rating Agency at any time thereafter.
LEGAL MATTERS
In addition to the legal opinions referred to in the Prospectus, certain
legal matters relating to the Certificates will be passed upon for the Depositor
by _____; and for the Underwriters by _____. Certain federal income tax matters
will be passed upon for the Depositor by ___________.
S-41
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, October 15, 1996
PROSPECTUS
Banc One ABS Corporation
Depositor
Bank One, Indianapolis, N.A.
Servicer
Banc One Home Equity Loan Asset Backed Certificates
(Issuable in Series)
_______________
The Home Equity Loan Asset Backed Certificates (the "Certificates") offered
hereby may be sold from time to time in series (each, a "Series") as described
in the related Prospectus Supplement. Each Series of Certificates will be issued
by a separate trust (each, a "Trust").
The assets of each Trust will consist primarily of (i) a pool (a "Mortgage
Pool") of fixed- or adjustable-rate mortgage loans (each, a "Mortgage Loan")
secured by mortgages, deeds of trust or other instruments (each, a "Mortgage")
creating a first or junior lien on one- to four-family dwellings, units in
planned unit developments, units in condominium developments, units in
cooperatives or manufactured housing units (each, a "Mortgaged Property") to be
transferred to such Trust by the Depositor and originated or purchased and
re-underwritten by Banc One Financial Services, Inc., Valley National Financial
Services Company or their affiliates (each, an "Originator"), (ii) all monies
received on or with respect to the Mortgage Loans (other than principal and
interest received before the related Cut-off Date (as defined herein) and
interest received on or after the related Cut-off Date but accrued prior to the
Cut-off Date), and (iii) certain other property. The Mortgage Loans will be
serviced by Bank One, Indianapolis, N.A. (the "Servicer"). The Mortgage Loans
and other assets of each Trust as described herein and in the related Prospectus
Supplement will be held for the benefit of the holders of the related Series of
Certificates.
(continues on following page)
None of the Certificates of any Series will represent an interest in or
obligation of the Depositor, any Originator or any of their Affiliates. None of
the Certificates of any Series or the underlying mortgage loans will be insured
or guaranteed by any Governmental Agency or instrumentality or by the Depositor
or any of its Affiliates.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
_______________
Prospective investors should consider the factors set forth under "Risk
Factors" beginning on page 15 herein and in the related Prospectus Supplement.
Prospective investors should refer to the "Index of Principal Definitions"
herein for the location of the definitions of capitalized terms that appear in
this Prospectus.
The date of this Prospectus is ______, 1996.
(continuation of cover page)
Each Series of Certificates may be issuable in one or more classes (each, a
"Class"). The Certificates of any Class will represent beneficial ownership
interests in the Mortgage Loans held by the related Trust. A Series may include
one or more Classes of Certificates entitled to principal distributions and
disproportionate, nominal or no interest distributions, or to interest
distributions and disproportionate, nominal or no principal distributions. The
rights of one or more Classes of Certificates of a Series may be senior or
subordinate to the rights of one or more of the other Classes of Certificates. A
Series may include two or more Classes of Certificates which differ as to the
timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both.
If specified in the related Prospectus Supplement, one or more Classes of
Certificates of a Series may have the benefit of one or more of a letter of
credit, financial guaranty insurance policy, reserve fund, spread account, cash
collateral account, overcollateralization or other form of credit enhancement.
If specified in the related Prospectus Supplement, the Mortgage Loans underlying
a Series of Certificates may be insured under one or more of a mortgage pool
insurance policy, bankruptcy bond, special hazard insurance policy or similar
credit enhancement. In addition to or in lieu of any or all of the foregoing,
credit enhancement with respect to one or more Classes of Certificates of a
Series may be provided through subordination. See "Description of Credit
Enhancement".
The yield on each Class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Loans in the related Trust and the timing of receipt of such
payments. See "Certain Yield and Prepayment Considerations" herein and in the
related Prospectus Supplement. A Trust may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement.
Offers of the Certificates of a Series may be made through one or more
different methods, including offerings through underwriters, as described under
"Method of Distribution" herein and "Underwriting" in the related Prospectus
Supplement. There will have been no secondary market for the Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Class of Certificates of any Series will develop or, if one does
develop, that it will continue. None of the Certificates will be listed on any
securities exchange.
If so specified in the related Prospectus Supplement, one or more elections
will be made to treat the related Trust or a designated portion of the assets of
the related Trust as a "real estate mortgage investment conduit" for federal
income tax purposes. For a description of certain tax consequences of owning the
Certificates, including, without limitation, original issue discount, see
"Certain Federal Income Tax Consequences" herein and in the related Prospectus
Supplement.
2
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Certificates. This
Prospectus, which forms a part of the Registration Statement, omits certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement and the exhibits
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices located as follows: Chicago Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York
Regional Office, 7 World Trade Center, 3rd Floor, New York, New York 10007.
Copies of such material may also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a public access site on the
Internet through the World Wide Web at which site reports, information
statements and other information, including all electronic filings, regarding
the Depositor may be viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
REPORTS TO HOLDERS
Periodic reports concerning the assets of each Trust are required to be
forwarded to holders of the Certificates of the related Series. See "Description
of the Certificates -- Reports to Holders" herein. Any reports forwarded to
holders will not contain financial information that has been examined and
reported upon by, with an opinion expressed by, an independent public or
certified public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Depositor pursuant to Section
13(a), Section 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be part
hereof. After the initial distribution of the Class A Certificates by the
Underwriters and in connection with market-making transactions by Banc One
Capital Corporation, this Prospectus Supplement and the Prospectus will be
distributed together with, and should be read in conjunction with, an
accompanying supplement to the Prospectus Supplement and Prospectus. Such
supplement will contain the reports described above and generally will include
the information contained in the statements furnished to Class A
Certificateholders. See "Description of Certificates -- Reports to Holders." Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Depositor will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any of or all the documents incorporated herein by reference (other
than exhibits to such documents). Requests for such copies should be directed to
BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio 43271-0133,
Attention: Structured Finance. Telephone requests for such copies should be
directed to BANC ONE CORPORATION at (614) 248-5800.
3
SUMMARY OF PROSPECTUS
The following Summary of Prospectus is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus and
by reference to the information with respect to each Series of Certificates
contained in the related Prospectus Supplement. Capitalized terms used but not
defined in this Summary of Prospectus shall have the meanings ascribed to such
terms elsewhere in this Prospectus. The Index of Principal Definitions included
in this Prospectus sets forth the pages on which the definitions of certain
principal terms appear.
Depositor.............. Banc One ABS Corporation, a corporation organized under
the laws of the State of Ohio (the "Depositor") and a
wholly-owned subsidiary of BANC ONE CORPORATION ("BANC
ONE"). See "The Depositor, the Servicer and the
Originators" herein.
Issuer................. With respect to each Series of Certificates, a trust
entitled "Banc One Home Equity Loan Trust" (the "Trust"
or the "Issuer"), with an additional designation to
indicate the Series of Certificates to which it
relates. Each Trust will be formed pursuant to a
Pooling and Servicing Agreement among the Depositor,
the Servicer (defined herein) and the trustee named
therein (the "Trustee").
Originators............ Banc One Financial Services, Inc., a corporation
organized under the laws of the State of Indiana and an
indirect subsidiary of BANC ONE, and Valley National
Financial Services Company, a corporation organized
under the laws of the State of Arizona and an indirect
subsidiary of BANC ONE. Additional Originators, each of
which is expected to be a direct or indirect subsidiary
of BANC ONE may originate Mortgage Loans to be sold to
the Depositor for transfer to a Trust, if so specified
in the related Prospectus Supplement (each, an
"Originator"). See "The Depositor, the Servicer and the
Originators" herein.
Servicer............... Bank One, Indianapolis, N.A., a national banking
association and an indirect subsidiary of BANC ONE (in
its capacity as servicer, the "Servicer"). See "The
Depositor, the Servicer and the Originators" herein.
Trustee................ The entity or entities named as trustee in the related
Prospectus Supplement.
Cut-off Date........... The date specified in the related Prospectus Supplement
on and after which payments due or received on the
related Mortgage Loans, as specified in the related
Prospectus Supplement, are transferred to the related
Trust and available for payment to the holders of the
related Certificates (each, a "Cut-off Date").
4
Closing Date........,.. The date on which the Certificates of any Series are
initially issued (each, a "Closing Date") as specified
in the related Prospectus Supplement.
Description of
Certificates......... The Certificates of each Series may be issued in one or
more classes (each, a "Class") and will represent
beneficial interests in a segregated pool (each, a
"Mortgage Pool") of mortgage loans (the "Mortgage
Loans") originated or purchased and re-underwritten by
the Originators and transferred by the Originators to
the Depositor pursuant to a Transfer Agreement (each, a
"Transfer Agreement"), and by the Depositor to the
related Trust, and certain other property. See "The
Trust Assets".
A Series of Certificates may include one or more
Classes entitled to distributions of principal and
disproportionate, nominal or no interest distributions
or distributions of interest and disproportionate,
nominal or no principal distributions. The principal
amount of any Certificate may be zero or may be a
notional amount as specified in the related Prospectus
Supplement. A Class of Certificates of a Series
entitled to payments of interest may receive interest
at a specified rate (a "Certificate Interest Rate")
which may be fixed, variable or adjustable and may
differ from other Classes of the same Series, may
receive interest based on the weighted average interest
rate on the underlying Mortgage Loans or may receive
interest as otherwise determined, all as described in
the related Prospectus Supplement. One or more Classes
of a Series may be Certificates upon which interest
will accrue but not be currently paid until certain
other Classes have received principal payments due to
them in full or until the happening of certain events,
as set forth in the related Prospectus Supplement. One
or more Classes of Certificates of a Series may be
entitled to receive principal payments pursuant to a
planned amortization schedule or may be entitled to
receive interest payments based on a notional principal
amount which reduces in accordance with a planned
amortization schedule. A Series may also include one or
more Classes of Certificates entitled to payments
derived from a specified group or groups of Mortgage
Loans held by the related Trust. The rights of one or
more Classes of Certificates may be senior or
subordinate to the rights of one or more of the other
Classes of Certificates. A Series may include two or
more Classes of Certificates which differ as to the
timing, sequential order, priority of payment or amount
of distributions of principal or interest or both.
Payment Date........... The monthly or other periodic date specified in the
related Prospectus Supplement on which payments will be
made to holders of Certificates (each, a "Payment
Date").
5
Determination Date..... The day of the month in which the related Payment Date
occurs (each, a "Determination Date") specified in the
related Prospectus Supplement.
Record Date............ The calendar day (each, a "Record Date") specified in
the related Prospectus Supplement.
Interest............... Unless otherwise specified in the related Prospectus
Supplement, interest on each Class of Certificates of a
Series (other than a Class of Certificates entitled to
receive only principal) will accrue during each period
specified in the related Prospectus Supplement (each,
an "Accrual Period") at the Certificate Interest Rate
for such Class specified in the related Prospectus
Supplement. Interest accrued on each Class of
Certificates at the applicable Certificate Interest
Rate during each Accrual Period will be paid, to the
extent monies are available therefor, on each Payment
Date, commencing on the day specified in the related
Prospectus Supplement and will be distributed in the
manner specified in such Prospectus Supplement, except
for any Class of Certificates ("Accrual Certificates")
on which interest is to accrue and not be paid until
the principal of certain other Classes has been paid in
full or until the occurrence of certain events as
specified in such Prospectus Supplement. If so
described in the related Prospectus Supplement,
interest that has accrued but is not yet payable on any
Accrual Certificates will be added to the principal
balance thereof on each Payment Date and will
thereafter bear interest at the applicable Certificate
Interest Rate. Payments of interest with respect to any
Class of Certificates entitled to receive interest only
or a disproportionate amount of interest and principal
will be paid in the manner set forth in the related
Prospectus Supplement. Payments of interest (or
accruals of interest, in the case of Accrual
Certificates) with respect to any Series of
Certificates or one or more Classes of Certificates of
such Series, may be reduced to the extent of interest
shortfalls not covered by Advances (defined herein) or
by any applicable credit enhancement.
Principal.............. On each Payment Date, commencing with the Payment Date
specified in the related Prospectus Supplement,
principal with respect to the related Mortgage Loans
during the period specified in the related Prospectus
Supplement (each such period, a "Due Period") will be
paid to holders of the Certificates of the related
Series (other than a Class of Certificates of such
Series entitled to receive interest only) in the
priority, manner and amount specified in such
Prospectus Supplement, to the extent funds are
available therefor. Unless otherwise specified in the
related Prospectus Supplement, such principal payments
will generally include (i) the principal portion of all
scheduled payments ("Monthly Payments") received on the
related Mortgage Loans during
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the related Due Period, (ii) any principal prepayments
of any such Mortgage Loans in full ("Principal
Prepayments") and in part ("Curtailments") received
during the related Due Period or such other period
(each, a "Prepayment Period") specified in the related
Prospectus Supplement, (iii) the principal portion of
(A) the proceeds of any insurance policy relating to a
Mortgage Loan, a Mortgaged Property (defined herein) or
a REO Property (defined herein), net of any amounts
applied to the repair of the Mortgaged Property or
released to the Mortgagor (defined herein) and net of
reimbursable expenses (such net proceeds, "Insurance
Proceeds"), (B) proceeds received in connection with
the liquidation of any defaulted Mortgage Loans
("Liquidation Proceeds"), net of fees and advances
reimbursable therefrom ("Net Liquidation Proceeds") and
(C) proceeds received in connection with a taking of a
related Mortgaged Property by condemnation or the
exercise of eminent domain or in connection with any
partial release of any such Mortgaged Property from the
related lien ("Released Mortgaged Property Proceeds"),
(iv) the principal portion of all amounts paid by the
Depositor (which are limited to amounts paid by an
Originator pursuant to the related Transfer Agreement,
unless otherwise specified in the related Prospectus
Supplement) in connection with the purchase of or
substitution for a Mortgage Loan as to which there is
defective documentation or a breach of a representation
or warranty contained in such Transfer Agreement and
assigned to the related Trust under the related Pooling
and Servicing Agreement and (v) the principal balance
of each defaulted Mortgage Loan or REO Property as to
which the Servicer has determined that all amounts
expected to be recovered have been recovered (each, a
"Liquidated Mortgage Loan"), to the extent not included
in the amounts described in clauses (i) through (iv)
above (the aggregate of the amounts described in
clauses (i) through (v), (the "Basic Principal
Amount"). Payments of principal with respect to a
Series of Certificates or one or more Classes of such
Series may be reduced to the extent of delinquencies or
losses not covered by advances or any applicable credit
enhancement.
Denominations.......... Each Class of Certificates of a Series will be issued
in the minimum denominations set forth in the related
Prospectus Supplement. Each Certificate will represent
a percentage interest (a "Percentage Interest") in the
Certificates of the related Class determined by
dividing the original dollar amount (or Notional
Principal Amount, in the case of Certificates entitled
to interest only and assigned a Notional Principal
Amount) represented by such Certificate by the original
aggregate principal balance (or original aggregate
Notional Principal Amount, if applicable).
Registration of the
7
Certificates......... Each or any Class of Certificates of a Series may be
issued in definitive form or may initially be
represented by one or more certificates registered in
the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and available only in
the form of book-entries on the records of DTC,
participating members thereof ("Participants") and
other entities, such as banks, brokers, dealers and
trust companies, that clear through or maintain
custodial relationships with a Participant, either
directly or indirectly ("Indirect Participants")
("Book-Entry Securities"). Certificates representing
Book-Entry Securities will be issued in definitive form
only under the limited circumstances described herein
and in the related Prospectus Supplement. With respect
to the Book-Entry Securities, all references herein to
"holders" shall reflect the rights of owners of the
Book-Entry Securities as they may indirectly exercise
such rights through DTC and Participants, except as
otherwise specified herein. See "Risk Factors" and
"Description of the Certificates -- Registration of the
Certificates" herein.
The Trust Property..,.. Each Class of Certificates of a Series will represent
an interest primarily in (i) a segregated pool (the
"Mortgage Pool") of fixed- or adjustable-rate mortgage
loans originated or purchased and re-underwritten by
the Originators and evidenced by promissory notes or
other evidence of indebtedness (the "Mortgage Loans")
secured by mortgages, deeds of trust or other
instruments (each, a "Mortgage") creating a first lien
or a junior lien on one- to four-family dwellings,
units in condominium developments, units in planned
unit developments, units in cooperatives and
manufactured housing units (each, a "Mortgaged
Property"), with the aggregate principal balance of the
Cut-off Date specified in the related Prospectus
Supplement, after giving effect to payments received
prior to the Cut-off Date (the "Original Pool Principal
Balance"), (ii) all monies received with respect to the
Mortgage Loans on and after the Cut-off Date (other
than amounts received on and after the Cut-off Date in
respect of interest accrued on the Mortgage Loans prior
to the Cut-off Date), (iii) certain rights of the
Depositor under the related Transfer Agreement, and
(iv) certain other property. One or more Classes of
Certificates of any Series may, if so specified in the
related Prospectus Supplement, have the benefit of one
or more of a spread account, reserve fund, financial
guaranty insurance policy, mortgage pool insurance
policy, special hazard insurance policy, letter of
credit, cash collateral account, overcollateralization,
subordination or other credit enhancement as described
herein under "Description of Credit Enhancement".
The Prospectus Supplement for each Series of
Certificates will specify certain information with
respect to the related Mortgage Pool including, without
limitation, the number of
8
Mortgage Loans in the Mortgage Pool, the Original Pool
Principal Balance, the respective percentages of the
Mortgage Loans which are secured by first Mortgages,
second Mortgages and more junior Mortgages, the minimum
and maximum outstanding principal balances of the
Mortgage Loans, the weighted average of the annual
rates of interest of the Mortgage Loans (each such
annual rate of interest hereinafter referred to as the
"Mortgage Interest Rate") and, if the Mortgage Loans
bear interest at adjustable interest rates, the
applicable Index (defined herein), the maximum and
minimum Gross Margins (defined herein) and the weighted
average Gross Margin, the minimum and maximum Mortgage
Interest Rates, the weighted average original term to
maturity, the weighted average remaining term to
maturity, the minimum and maximum remaining terms to
maturity and the range of origination dates. If so
specified in the related Prospectus Supplement, such
information may be approximate, based on the expected
Mortgage Pool, in which case the final information, to
the extent of any variances, will be contained in the
Current Report on Form 8-K referred to below. See
"Description of the Mortgage Pools -- General" herein
and "Description of the Mortgage Pool" in the related
Prospectus Supplement.
A Current Report on Form 8-K will be available to
purchasers or underwriters of the related Series of
Certificates and will generally be filed, together with
the related primary documents, with the Securities and
Exchange Commission within fifteen days after the
related Closing Date.
Optional Termination .. The Servicer, the Depositor or the holders of the Class
of Certificates specified in the related Prospectus
Supplement may cause the sale of all of the Mortgage
Loans and all Mortgaged Properties acquired by
foreclosure or deed in lieu of foreclosure ("REO
Properties") when the Pool Principal Balance declines
to the percentage of the Original Pool Principal
Balance specified in the related Prospectus Supplement,
the proceeds of which will be applied to retire the
related Certificates. See "Description of the
Certificates -- Optional Disposition of Mortgage
Loans" herein.
Mandatory Termination . If so specified in the related Prospectus Supplement,
the Trustee, the Servicer or such other entities as may
be specified in such Prospectus Supplement, may be
required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the
purchase of the assets of the related Trust or
otherwise, under the circumstances and in the manner
specified under "Description of the Certificates --
Mandatory Disposition of Mortgage Loans" herein and in
the related Prospectus Supplement.
9
Yield and Prepayment
Considerations....... The yield on each Class of Certificates of a Series
will be affected by, among other things, the rate of
payment of principal (including prepayments) on the
Mortgage Loans in the related Trust and the timing of
receipt of such payments. See "Certain Yield and
Prepayment Considerations" herein and in the related
Prospectus Supplement. The Prospectus Supplement for a
Series may specify certain yield calculations, based
upon an assumed rate or range of prepayment assumptions
on the related Mortgage Loans, for Classes receiving
disproportionate allocations of principal and interest.
A higher level of principal prepayments on the related
Mortgage Loans than anticipated is likely to have an
adverse effect on the yield on any Class of
Certificates that is purchased at a premium and a lower
level of principal prepayments on the related Mortgage
Loans is likely to have an adverse effect on the yield
on any Class of Certificates that is purchased at a
discount from its principal amount. It is possible
under certain circumstances that holders of
Certificates purchased at a premium (including
Certificates entitled to receive interest only) could
suffer a lower than anticipated yield or could fail to
recoup fully their initial investment. See "Certain
Yield and Prepayment Considerations" herein and in the
related Prospectus Supplement.
Transfer and
Servicing............ Under the Transfer Agreement with respect to a Series
of Certificates, the Depositor will acquire the related
Mortgage Loans from the Originators and, under the
related Pooling and Servicing Agreement, the Depositor
will transfer the Mortgage Loans to the related Trust.
In addition, the Servicer will agree to service the
Mortgage Loans.
Forward Commitments;
Prefunding........... If so specified in the related Prospectus Supplement, a
portion of the proceeds of the sale of one or more
Classes of Certificates of a Series may be deposited in
a segregated account (a "Prefunding Account") or all or
a portion of the payments on the Mortgage Loans may be
set aside, to be applied to acquire additional Mortgage
Loans from the Depositor at the times and meeting the
requirements set forth in the related Pooling and
Servicing Agreement or other agreement with the
Depositor. Unless otherwise specified in the related
Prospectus Supplement, monies on deposit in the
Prefunding Account or otherwise set aside to fund such
transfer and not applied to acquire such additional
Mortgage Loans within the time set forth in the related
Pooling and Servicing Agreement or other applicable
agreement will be treated as a principal prepayment and
applied in the manner described in the related
Prospectus Supplement.
10
Credit Enhancement..... If so specified in the related Prospectus Supplement,
credit enhancement may be provided by any one or a
combination of a letter of credit, financial guaranty
insurance policy, mortgage pool insurance policy,
special hazard insurance policy, reserve fund, spread
account, cash collateral account, overcollateralization
or other type of credit enhancement to provide full or
partial coverage for certain defaults and losses
relating to the underlying Mortgage Loans. Credit
support may also be provided by subordination. The
amount of any credit enhancement may be limited or have
exclusions from coverage and may decline over time or
under certain circumstances, all as specified in the
related Prospectus Supplement. See "Description of
Credit Enhancement" herein.
Advances............... If so specified in the related Prospectus Supplement,
the Servicer will be required to make advances (each,
an "Advance") in respect of interest on the Mortgage
Loans accrued but uncollected as of the end of the
related Monthly Period (net of the Servicing Fee),
which obligation to make Advances may be limited to
amounts on deposit in the Principal and Interest
Account and held for future distributions. Unless
specified in the related Prospectus Supplement, the
Servicer generally shall not be required to make such
Advance from its own funds or be liable for the
recovery thereof from collections on the related
Mortgage Loans or otherwise. See "Description of the
Certificates -- Advances from the Principal and
Interest Account; Servicing Advances" herein.
Servicing Fee.......... The Servicer will be entitled to receive a fee for its
servicing duties in the amount specified in the related
Prospectus Supplement (the "Servicing Fee"), payable
monthly from the interest portion of monthly payments
on the related Mortgage Loans, Liquidation Proceeds,
Released Mortgaged Property Proceeds and certain other
sources as provided in the related Pooling and
Servicing Agreement.
Ratings................ It is a condition to the issuance of each Series of
Certificates that each Class of the Certificates of
such Series be rated by one or more of Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services ("S&P") and Fitch Investors Service,
Inc. ("Fitch" and each of Fitch, Moody's and S&P, a
"Rating Agency") in one of their four highest rating
categories. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to
revision or withdrawal at any time. No person is
obligated to maintain any rating on any Certificate,
and, accordingly, there can be no assurance that the
ratings assigned to any Class of Certificates upon
initial issuance thereof will not be lowered or
withdrawn by a Rating Agency at any time thereafter. If
a rating of any Class of
11
Certificates of a Series is revised or withdrawn, the
liquidity of such Class of Certificates may be
adversely affected. In general, the ratings address
credit risk and do not represent any assessment of the
likelihood or rate of principal prepayments. See "Risk
Factors -- Liquidity" and "Ratings" herein.
Certain Legal Aspects
of the Mortgage Loans.. The Mortgage Loans relating to a Series of Certificates
may be secured by second or more junior Mortgages which
are subordinate to one or more mortgage liens on the
related Mortgaged Property prior to the lien of such
Mortgage Loan (such senior lien, if any, a "Senior
Lien"). A primary risk with respect to a junior
Mortgage is that funds received in connection with the
foreclosure thereof will not be sufficient to satisfy
fully both the Senior Lien and the junior Mortgage. See
"Risk Factors" and "Certain Legal Aspects of the
Mortgage Loans" herein.
Tax Status of the
Certificates......... An election will be made to treat the Trust or one or
more segregated pools of assets comprising the Trust
relating to a Series of Certificates as a "real estate
mortgage investment conduit (a "REMIC"). The
Certificates will constitute "regular interests" in a
REMIC or "residual interests" in a REMIC, as specified
in the related Prospectus Supplement. See "Certain
Federal Income Tax Consequences."
ERISA Considerations... A fiduciary or other person investing "plan assets" of
any employee benefit or other plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code should
carefully review with its legal advisors whether the
purchase or holding of any Class of Certificates could
give rise to a transaction prohibited or not otherwise
permissible under ERISA or Section 4975 of the Code.
Certain Classes of Certificates may not be permitted to
be acquired by any employee benefit or other plan
subject to ERISA or Section 4975 of the Code, as
specified in the related Prospectus Supplement. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
Legal Investment....... Unless otherwise specified in the related Prospectus
Supplement, no Class of Certificates will constitute
"mortgage related securities" under the Secondary
Mortgage Market Enhancement Act of 1984 because the
related Mortgage Pool will include Mortgage Loans that
are secured by second or more junior mortgages.
Investors should consult their own legal advisers in
determining whether and to what extent the Certificates
constitute legal investments for such investors. See
"Legal Investment" herein and in the related Prospectus
Supplement.
12
Use of Proceeds........ Substantially all of the net proceeds to be received
from each sale of Certificates will be received,
directly or indirectly, by the Depositor. The
Originators will, in the aggregate, contribute or
otherwise transfer the related Mortgage Loans to the
Depositor in return for cash, stock or other property,
as specified in the related Prospectus Supplement.
13
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates:
Certificates
Limited Liquidity. There is no assurance that a secondary market for any of
the Certificates will develop or, if one does develop, that it will provide the
holders with liquidity of investment or that it will continue for the life of
such Certificates. None of the Certificates will be listed on any securities
exchange.
It is a condition to the issuance of each Series of Certificates that each
Class of Certificates of such Series be rated in one of the four highest rating
categories by one or more of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P") or Fitch Investors Service, Inc.
("Fitch"; and each of Moody's, S&P and Fitch, a "Rating Agency"). See "Ratings"
herein. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. No person
is obligated to maintain any rating on any Certificate and, accordingly, there
can be no assurance that the ratings assigned to any Class of Certificates upon
initial issuance will not be lowered or withdrawn by a Rating Agency at any time
thereafter. If any rating is revised or withdrawn, the liquidity of the related
Certificates may be adversely affected.
Issuance of any of the Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market because investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates -- Registration of the
Certificates" herein.
Difficulty in Pledging. Because transactions in Certificates of a Series in
book-entry form may be effected only through DTC, Participants and Indirect
Participants, the ability of an Owner to pledge such a Certificate to persons or
entities that do not participate in the DTC system, or otherwise to take actions
in respect of such Certificates, may be limited due to the lack of a physical
certificate representing such Certificate. See "Description of the Certificates
- -- Registration of the Certificates" herein.
Potential Delays in Receipt of Payments. Owners of Certificates issued in
book-entry form may experience some delay in their receipt of payments of
interest and principal on the Certificates because such payments will be
forwarded to DTC and DTC will credit such payments to the accounts of its
Participants which will thereafter credit them to the accounts of Owners either
directly or indirectly through Indirect Participants. See "Description of the
Certificates -- Registration and Transfer of the Certificates" herein.
Limited Obligations. No Class of Certificates of any Series will represent
an interest in or obligation of the Depositor, any Originator, the Servicer or
any of their affiliates. The only obligations of the foregoing entities with
respect to any of the Certificates or the related Mortgage Loans will be the
Servicer's servicing obligations under the Pooling and Servicing Agreement and
the obligations of the Depositor to purchase, or substitute substantially
similar mortgage loans for, or cause the Originators to purchase or substitute,
any Mortgage Loans as to which there is defective documentation or a breach of
certain representations and warranties in the Pooling and Servicing Agreement
and Transfer Agreement, respectively. Neither the Certificates nor the
underlying Mortgage Loans will be guaranteed or insured by any governmental
agency or instrumentality, or by the Depositor, any Originator, the Servicer or
any of their affiliates.
14
ERISA Considerations. An investment in a Class of Certificates of any
Series by Plans may give rise to a prohibited transaction under ERISA section
406 and be subject to tax under Code section 4975 unless a statutory or
administrative exemption is available. Accordingly, fiduciaries of any employee
benefit plan or other retirement arrangement should consult their counsel before
purchasing any Class of Certificates. Certain Classes of Certificates will not
be eligible for purchase by Plans. See "ERISA Considerations" herein and in the
related Prospectus Supplement.
Limitations, Reduction and Substitution of Credit Enhancement. Credit
enhancement may be provided with respect to one or more Classes of Certificates
of a Series to cover certain types of losses on the underlying Mortgage Loans.
Credit enhancement may be provided by one or more forms, including but not
limited to subordination of one or more Classes of Certificates of such Series,
letter of credit, financial guaranty insurance policy, mortgage pool insurance
policy, special hazard insurance policy, reserve fund, spread account, cash
collateral account, overcollateralization or other type of credit enhancement.
The coverage of any credit enhancement may be limited or have exclusions from
coverage and may decline over time or under certain circumstances, all as
specified in the related Prospectus Supplement. See "Description of Credit
Enhancement" herein.
Yield and Prepayment Considerations. The yield on certain Classes of
Certificates of a Series may be particularly sensitive to the rate of
prepayments, including voluntary prepayments and prepayments due to
foreclosures, repurchases and losses. Accordingly, to the extent the risks
described herein and in the related Prospectus Supplement with respect to the
characteristics of the Mortgage Loans and of mortgage loans in general result in
prepayments being received at rates greater or less than those assumed by
investors, the yield to the holders of such Class of Certificates will be
adversely affected. See "Certain Yield and Prepayment Considerations" herein and
in the related Prospectus Supplement.
Risks of the Mortgage Loans
General Economic Conditions. General economic conditions have an impact on
the ability of borrowers to repay mortgage loans. Loss of earnings, illness and
other similar factors may lead to an increase in delinquencies and bankruptcy
filings by borrowers. In the event of personal bankruptcy of a borrower under a
Mortgage Loan (a "Mortgagor"), it is possible that the holders of the related
Certificates could experience a loss with respect to such Mortgagor's Mortgage
Loan. In conjunction with a Mortgagor's bankruptcy, a bankruptcy court may
suspend or reduce the payments of principal and interest to be paid with respect
to such Mortgage Loan, thus delaying the amount received by the holders of the
related Certificates with respect to such Mortgage Loan. Moreover, if a
bankruptcy court prevents the transfer of the related Mortgaged Property to the
related Trust, any remaining balance on such Mortgage Loan may not be
recoverable. In recent years, the Originators have experienced increased
delinquencies and higher net losses on the mortgage loans included in the
Originators' servicing portfolio. This trend may have resulted in part from the
effect of general economic conditions on the ability of borrowers to repay such
mortgage loans, although no statistics are available with respect to the extent
of such effect. See "The Depositor, the Servicer and the Originators --
Delinquency and Loss Experience" herein and "The Originators and the Servicer --
Origination, Foreclosure and Delinquency Experience" in the related Prospectus
Supplement for further information regarding the rates of delinquency and net
losses experienced on the mortgage loans included in the Originators' servicing
portfolios.
Real Estate Market Conditions. An investment in securities such as the
Offered Certificates which are secured by or represent interests in mortgage
loans may be affected by, among other things, a decline in real estate values.
No assurance can be given that values of the Mortgaged Properties will remain at
the levels existing on the dates of origination of the related Mortgage Loans.
If the residential real estate market should experience an overall decline in
property values such that
15
the outstanding balances of the Mortgage Loans, together with loans secured by
Senior Liens (defined below), if any, 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 recent years, the Originators
have experienced higher net losses on the mortgage loans included in the
Originators' servicing portfolios. This trend may have resulted in part from the
effect of real estate market conditions on the value of the mortgaged properties
securing such mortgage loans, although no statistics are available with respect
to the extent of such effect. See "The Depositor, the Servicer and the
Originators -- Delinquency and Loss Experience" herein and "The Originators and
the Servicer -- Origination, Foreclosure and Delinquency Experience" in the
related Prospectus Supplement for further information regarding the rates of
delinquency and net losses experienced on the mortgage loans included in the
Company's servicing portfolio.
Geographic Concentration. Certain geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of the Mortgage Loans
relating to any Series of Certificates in such a region may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. See "Description of the
Mortgage Pool" in the related Prospectus Supplement for further information
regarding the geographic concentration of the Mortgage Loans underlying the
Certificates of any Series.
Nature of Certificates. Certain of the Mortgage Loans underlying the
Certificates of a Series may be secured by Mortgages junior or subordinate to
one or more other mortgages ("Senior Liens"), and the related Senior Liens will
not be included in the Mortgage Pool. Although little data is available, the
rate of default of second or more junior mortgage loans may be greater than that
of mortgage loans secured by senior liens on comparable properties. A primary
risk to holders of Mortgage Loans secured by junior Mortgages is the possibility
that adequate funds will not be received in connection with a foreclosure of the
related Senior Lien to satisfy fully both the Senior Lien and the Mortgage Loan.
If a holder of the Senior Lien forecloses on a Mortgaged Property, the proceeds
of the foreclosure or similar sale generally will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, third in satisfaction of all principal, interest, prepayment
or acceleration penalties, if any, and any other sums due and owing to the
holder of the Senior Liens. The claims of the holder of the Senior Lien will be
satisfied in full out of proceeds of the liquidation of the Mortgage Loan, if
such proceeds are sufficient, before the related Trust as holder of the junior
Mortgage receives any payments in respect of the Mortgage Loan. If the Servicer
were to foreclose on any junior Mortgage Loan, it would do so subject to any
related Senior Lien. The debt related to the Mortgage Loan would not be paid in
full at such sale unless a bidder at the foreclosure sale of such Mortgage Loan
bids an amount sufficient to pay off all sums due under the Mortgage Loan and
the Senior Lien or purchases the Mortgaged Property subject to the Senior Lien.
If such proceeds from a foreclosure or similar sale of the related Mortgaged
Property are insufficient to satisfy such loans in the aggregate, the related
Trust, as the holder of the junior Mortgage, and, accordingly, holders of the
Offered Certificates would bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions. In addition, a junior mortgagee
may not foreclose on the property securing a junior Mortgage unless it
forecloses subject to the Senior Lien. In servicing second Mortgages, it is
generally the Servicer's practice to advance funds to keep the Senior Lien
current in the event the mortgagor is in default thereunder if the Servicer
expects to satisfy the Senior Lien by sale of the mortgaged property. The
Servicer intends to advance such amounts in accordance with its normal servicing
procedures, but only to the extent that it determines such advances will be
recoverable from future payments and collections on that Mortgage Loan or
otherwise. Such practice may not be
16
followed in servicing loans more junior than second mortgages or may be modified
at any time. The related Trust will have no source of funds to satisfy any
Senior Lien or make payments due to any senior mortgagee. The junior Mortgages
securing the Mortgage Loans are subject and subordinate to any Senior Liens
affecting the related Mortgaged Property, including limitations and prohibitions
which may be contained in such Senior Liens upon subordinate financing.
Certain Mortgage Loans. Certain Mortgage Loans that may be included in the
assets of a Trust may involve additional uncertainties not present in other
types of loans. Certain of the Mortgage Loans may provide for escalating or
variable payments that may be larger than the initial payment amount; however,
the borrowers under such Mortgage Loans are generally qualified on the basis of
the initial payment amount. In some instances, such a borrower's income may not
be sufficient to enable them to pay the increased payment amounts and the
likelihood of default may increase.
Certain of the Mortgage Loans underlying a Series of Certificates may be
delinquent in respect of the payment of principal and interest. In addition,
certain of the Mortgagors under the Mortgage Loans underlying a Series of
Certificates may be subject to personal bankruptcy proceedings. Such Mortgage
Loans may be subject to a greater risk of default. See "Description of the
Mortgage Pools" herein and "Description of the Mortgage Pool" in the related
Prospectus Supplement.
Delays in Liquidating Defaulted Mortgage Loans. Even assuming that the
Mortgaged Properties provide adequate security for the Mortgage Loans underlying
a Series of Certificates, substantial delays could be encountered in connection
with the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of related proceeds by the related Trust could occur. An action to
foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by state
statutes and rules and is subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Servicer to foreclose on or sell the
Mortgaged Property or to obtain Net Liquidation Proceeds sufficient to repay all
amounts due on the related Mortgage Loan. In addition, the Servicer will be
entitled to deduct from collections received during the preceding Due Period all
expenses reasonably incurred in attempting to recover amounts due and not yet
repaid on Liquidated Mortgage Loans, including payments to senior lienholders,
legal fees and costs of legal action, real estate taxes and maintenance and
preservation expenses, thereby reducing collections available to the related
Trust. See "Certain Legal Aspects of the Mortgage Loans -- Foreclosure in
General," and "-- Rights of Redemption" herein.
Likelihood of Disproportionate Liquidation Expenses. Liquidation expenses
with respect to defaulted mortgage loans 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 large remaining principal balance, the
amount realized after expenses of liquidation would be smaller as a percentage
of the outstanding principal balance of the small mortgage loan than would be
the case with the defaulted mortgage loan having a large remaining principal
balance. Because the average outstanding principal balance of the Mortgage Loans
is small relative to the size of the average outstanding principal balance of
the loans in a typical pool consisting only of conventional purchase-money
mortgage loans, Net Liquidation Proceeds on Liquidated Mortgage Loans may also
be smaller as a percentage of the principal balance of a Mortgage Loan than
would be the case in a typical pool consisting only of conventional purchase-
money mortgage loans.
17
Risk of Early Defaults. Certain of the Mortgage Loans underlying a Series
of Certificates may be recently originated as of the date of inclusion in the
related Mortgage Pool. Although little data is available, defaults on mortgage
loans are generally expected to occur with greater frequency in their early
years.
Balloon Mortgage Loans. Certain of the Mortgage Loans underlying a Series
of Certificates may provide for the payment of the unamortized principal balance
of the Mortgage Loan in a single payment at the maturity of the Mortgage Loan
that is greater than the preceding monthly payment ("Balloon Loans"). See
"Description of the Mortgage Pools" herein and "Description of the Mortgage
Pool" in the related Prospectus Supplement. Because borrowers under Balloon
Loans are required to make a relatively large single payment upon maturity, it
is possible that the default risk associated with Balloon Loans is greater than
that associated with fully-amortizing mortgage loans. The ability of a Mortgagor
on a Balloon Loan to repay the Mortgage Loan upon maturity frequently depends
upon, among other things, the borrower's ability to refinance the Mortgage Loan,
which will be affected by a number of factors, including, without limitation,
the level of mortgage rates available in the primary mortgage market at the
time, the Mortgagor's equity in the related Mortgaged Property, the financial
condition of the Mortgagor, the condition of the Mortgaged Property, tax law,
general economic conditions and the general willingness of financial
institutions and primary mortgage bankers to extend credit.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by holders of the Offered
Certificates of the proceeds in such an environment may produce a lower return
than that previously received in respect of the related Mortgage Loan.
Conversely, a high interest rate environment may make it more difficult for the
Mortgagor to accomplish a refinancing and may result in delinquencies or
defaults.
Legal Considerations. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures and may require licensing
of the Originators and the Servicer. In addition, most states have other laws,
public policy and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and practices which may apply to the
origination, servicing and collection of the Mortgage Loans. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Mortgage Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Servicer to damages and
administrative sanctions. See "Certain Legal Aspects of the Mortgage Loans"
herein.
The Mortgage Loans are also subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the Mortgagors regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the Mortgagor's credit
experience; and (iv) certain other laws and regulations.
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Equity Protection Act") which amended the Truth in
Lending Act as it applies to mortgages subject to the Equity Protection Act. The
Equity Protection Act requires certain additional disclosures, specifies the
timing of such disclosures and limits or prohibits the inclusion of certain
provisions in mortgages subject to its provisions. The Equity Protection Act
also provides that any purchaser or assignee of a mortgage covered by the Equity
Protection Act is subject to all of the
18
claims and defenses which the borrower could assert against the original lender.
The maximum damages that may be recovered under the Equity Protection Act from
an assignee is the remaining amount of indebtedness plus the total amount paid
by the borrower in connection with the Mortgage Loan. If the assets of the
related Trust include Mortgage Loans subject to the Equity Protection Act, the
Trust may be subject to all of the claims and defenses which the borrower could
assert against the original lender. The Depositor is required to provide the
Trustee, as assignee of such Mortgage Loans, with notice that such Mortgage
Loans are subject to special rules under the Federal Truth in Lending Act and
that the assignee could be liable for violations of such rules.
Under environmental legislation and case law applicable in certain states,
including the State of California, it is possible that liability for
environmental hazards in respect of real property may be imposed on a holder of
a mortgage note (such as the Trust) secured by real property. See "Certain Legal
Aspects of the Mortgage Loans -- Environmental Legislation" herein.
Creditors' Rights and Insolvency Considerations
Creditors Rights Considerations. Unless otherwise specified in the related
Prospectus Supplement, under the terms of the related Pooling and Servicing
Agreement, during the period that the related Certificates are outstanding and
so long as the conditions set forth in the related Prospectus Supplement are
satisfied, each Originator will hold the original documentation relating to each
Mortgage Loan, including the related Mortgage Note and Mortgage (the "Mortgage
File"), as custodian and agent for the Trustee, and will not be required to
record assignments of the Mortgages in favor of the Trustee. Retention of the
Mortgage Files by each Originator as custodian for the Trustee, in most, if not
all, states in which the Mortgage Files will be held, and failure to record
assignments of the Mortgages in favor of the Trustee in many states in which the
Mortgaged Properties are located, will have the result of making the sale
thereof potentially ineffective against (i) any creditors of the Originators who
may have been fraudulent or inadvertently induced to rely on the Mortgage Loans
as assets of the Originators, or (ii) any purchaser in the event the Originators
fraudulently or inadvertently sell a Mortgage Loan to a purchaser who had no
notice of the prior sale thereof to the Trust and such purchaser takes
possession of the Mortgage and, as a result, neither the Trust nor
Certificateholders would be entitled to receive the distributions relating to,
or have any other rights with respect to, such Mortgage Loans. If the conditions
described in the related Prospectus Supplement are not satisfied, or on the
related Closing Date if the related Prospectus Supplement so specifies, the
Mortgage Files relating to the Mortgage Loans will be delivered to the Trustee
and assignments of the Mortgages in favor of the Trustee will be required to be
recorded (or opinions of counsel acceptable to the Rating Agencies will be
obtained to the effect that recording is not required to protect the Trust's
interest in and to the related Mortgage Loan). Prior to the delivery of a
Mortgage File to the Trustee, the related Mortgage Note will not be endorsed to
the Trustee. See "Description of the Certificates -- Assignment of the Mortgage
Loans."
Insolvency Related Matters. The transactions contemplated hereby and by the
related Prospectus Supplement will be structured such that the voluntary or
involuntary application for relief under the United States Bankruptcy Code or
similar applicable federal or state laws ("Insolvency Laws") by the Depositor is
unlikely and such filings by the Originators should not result in consolidation
of the assets and liabilities of the Depositor with those of BANC ONE. These
steps include the creation of the Depositor as a separate, limited purpose
subsidiary, the certificate of incorporation of which contains limitations on
the nature of the Depositor's business and restrictions on the ability of the
Depositor to commence voluntary or involuntary cases or proceedings under the
Insolvency Laws without the prior unanimous affirmative vote of all its
directors. However, there can be no assurance that the activities of the
Depositor would not result in a court concluding that the assets and liabilities
of the Depositor should be consolidated with those of BANC ONE.
19
Each Originator will transfer its related Mortgage Loans to the Depositor,
and the Depositor will transfer the Mortgage Loans to the related Trust. The
Originators will warrant in the related Transfer Agreement, and the Depositor
will warrant in the related Pooling and Servicing Agreement, that the
Originators or the Depositor, as the case may be, have taken and will take all
actions that are required to perfect the Depositor's and the Trust's, as the
case may be, ownership interests in the Mortgage Loans. If an Originator were to
become a debtor in a bankruptcy case, a creditor or trustee (or the debtor
itself) may take the position that the contribution or transfer of the Mortgage
Loans by the Originator to the Depositor should be characterized as a pledge of
such Mortgage Loans to secure a borrowing of such debtor, with the result that
the Depositor is deemed to be a creditor of such Originator, secured by a pledge
of the applicable Mortgage Loans. If such an attempt were successful, delays in
payments of collections on the Mortgage Loans could occur or reductions in the
amount of such payments could result, or such a trustee in bankruptcy could
elect to accelerate payment of the obligation to the Depositor and liquidate the
Mortgage Loans.
Yield and Prepayment Considerations
The yield to maturity of each Class of Certificates of a Series will depend
on the rate and timing of payment of principal on the related Mortgage Loans,
including prepayments, liquidations due to defaults and repurchases due to
defective documentation or breaches of representations and warranties. Such
yield may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. The yield to maturity of certain
Classes of Certificates identified in the related Prospectus Supplement may be
particularly sensitive to the rate and timing of principal payments (including
prepayments, liquidations and repurchases) of the related Mortgage Loans, which
may fluctuate significantly from time to time. Investors in a Class of
Certificates offered at a discount from the principal amount thereof or with no
stated principal amount should fully consider the associated risks, including
the risk that an extremely rapid rate of principal payments could result in the
failure of such investors to recoup their initial investments. See "Certain
Yield and Prepayment Considerations" herein and in the related Prospectus
Supplement.
Limitations on Interest Payments and Foreclosures
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a Mortgagor who enters military service
after the origination of such Mortgagor's Mortgage Loan (including a Mortgagor
who is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such action could
have an effect, for an indeterminate period of time, on the ability of the
Servicer to collect full amounts of interest on certain of the Mortgage Loans
underlying a Series of Certificates. In addition, the Relief Act imposes
limitations which would impair the ability of the Servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of active duty status.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasioned by the inability to realize upon the related
Mortgaged Property in a timely fashion.
Original Issue Discount
Certain Classes of Certificates of a Series may be treated as having been
issued with original issue discount for federal income tax purposes. As a
result, holders of such Certificates will be required to include amounts in
income without the receipt of cash corresponding to that income. See
20
"Federal Income Tax Consequences -- Original Issue Discount" herein and, if
applicable, in the related Prospectus Supplement.
DESCRIPTION OF THE MORTGAGE POOLS
General
Each Mortgage Pool will consist of Mortgage Loans having the aggregate
principal balance outstanding as of the related Cut-off Date, after giving
effect to payments due or received prior to such date, specified in the related
Prospectus Supplement (the "Original Pool Principal Balance"). Unless otherwise
specified in the related Prospectus Supplement, each Mortgage Pool will consist
of fixed- or adjustable-rate Mortgage Loans (including both fully amortizing
Mortgage Loans and Balloon Loans) originated and underwritten by one or more
Originators or purchased and re-underwritten by one or more Originators. This
subsection describes generally certain characteristics of the Mortgage Loans.
The related Prospectus Supplement will describe certain characteristics of
the related Mortgage Loans, including without limitation (i) the range of dates
of origination and the latest scheduled maturity date, (ii) the minimum
remaining term to maturity, the weighted average original term to maturity and
the weighted average remaining term to maturity, (iii) the range of Mortgage
Interest Rates and the weighted average Mortgage Interest Rate, (iv) in the case
of Mortgage Loans with adjustable interest rates ("ARMs" or "Adjustable Rate
Mortgages"), the weighted average outstanding current Mortgage Interest Rates,
Gross Margins, Maximum Mortgage Rates and Minimum Mortgage Rates and Periodic
Caps and Payment Caps, if any (as such terms are defined below under "--
Payments on the Mortgage Loans"), (v) the range of principal balances
outstanding, the range of original principal balances and the weighted average
outstanding principal balance, (vi) the percentages of Mortgage Loans secured by
first Mortgages, second Mortgages and more junior Mortgages, respectively, (vii)
the maximum Combined Loan-to-Value Ratio (defined below), the weighted average
Combined Loan-to-Value Ratio, the Maximum Home Equity Loan Ratio (defined below)
and the weighted average Home Equity Loan Ratio, (viii) the percentage of
Mortgage Loans secured by fee simple interests in single-family dwelling units,
attached or detached two- to four-family dwelling units, units in planned unit
developments and condominiums, respectively, the percentage of Mortgage Loans
secured by leasehold interests, the percentage of Mortgage Loans secured by
manufactured housing units and the percentage of Mortgage Loans secured by units
in cooperatives, (ix) the percentage of Mortgage Loans as to which the related
Mortgagor represented at the time of origination that the related Mortgaged
Property would be occupied by such Mortgagor as a primary or secondary
residence, (x) certain summary information relating to the geographic
concentration of the Mortgaged Properties securing the Mortgage Loans, (xi) the
percentage of Mortgage Loans which are Balloon Loans and the dates after
origination the balloon payment is due, and (xii) the percentage of Mortgage
Loans which are Bankruptcy Mortgage Loans (defined below), the percentage of
Bankruptcy Loans which are 30 days or more contractually delinquent and the
percentages of Mortgage Loans other than Bankruptcy Mortgage Loans which are 30
days and 60 days or more contractually delinquent, respectively. If so specified
in the related Prospectus Supplement, such information may be approximate based
on the expected characteristics of the Mortgage Liens to be included in the
related Mortgage Pool and any significant variations therefrom provided on the
related Current Report on Form 8-K, as described below.
For purposes of the foregoing, the "Combined Loan-to-Value Ratio" of any
Mortgage Loan is the ratio (expressed as a percentage) of (i) the sum of (a) the
original principal balance of such Mortgage Loan at the date of origination plus
(b) the outstanding balance of the Senior Lien, if any, divided by (ii) the
lesser of (a) the value of the related Mortgaged Property, based upon the most
recent appraisal (which may be the appraisal made at the time of origination of
the Mortgage Loan).
21
The Combined Loan-to-Value Ratios of the Mortgage Loans also reflect certain
judgments of the related Originator's underwriters made at the time the Mortgage
Loans were originated or acquired and certain other policies of the related
Originators. See "The Depositor, the Servicer and the Originators -- Specific
Underwriting Criteria -- Balloon Mortgage Loans" and "-- Certain Calculations
Relating to Combined Loan-to-Value Ratios." The "Home Equity Loan Ratio" of any
Mortgage Loan is the ratio expressed as a percentage) of (i) the original
principal balance of such Mortgage Loan divided by (ii) the value of the related
Mortgaged Property, based upon the most recent appraisal (which may be the
appraisal made at the time of origination of the Mortgage Loan). For Mortgage
Loans secured by a first Mortgage, the Combined Loan-to-Value Ratio and the Home
Equity Loan Ratio will be the same.
A Bankruptcy Mortgage Loan is a Mortgage Loan on which the related
Mortgagor is making payments pursuant to a personal bankruptcy plan or
proceeding (each, a "Bankruptcy Plan"). The entire principal balance and the
right to receive interest accrued after the Cut-off Date with respect to each
Bankruptcy Mortgage Loan will generally be included in the assets of the related
Trust, while the right to interest accrued but unpaid prior to the related
Cut-off Date under each Bankruptcy Mortgage Loan will generally be retained by
the Originators. The Originators' right to collect interest accrued on a
Bankruptcy Mortgage Loan prior to the date of the related Bankruptcy Plan filing
will generally be subordinate to the related Trust's right to receive timely
payments of principal and interest with respect to such Bankruptcy Mortgage
Loan.
In addition, the related Prospectus Supplement or, if so specified therein,
the Current Report on Form 8-K to be filed within fifteen days after the
delivery of a Series of Certificates, will set forth in tabular form certain
more detailed information relating to the characteristics of the related
Mortgage Loans by number and outstanding principal balance and by percentage of
the Mortgage Pool including, without limitation, the outstanding principal
balances of the Mortgage Loans, the geographic distribution of the related
Mortgaged Properties (by state), the Combined Loan-to-Value Ratios, the Home
Equity Loan Ratios, the Mortgage Interest Rates, the remaining months to stated
maturity and the number of months since origination, in each case (except for
geographic distribution) within the ranges specified therein.
Payments on the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, a
substantial portion of the Mortgage Loans underlying a Series of Certificates
will provide for level monthly installments (except, in the case of Balloon
Mortgage Loans, the final payment) consisting of interest equal to one-twelfth
of the applicable Mortgage Interest Rate times the unpaid principal balance,
with the remainder of such payment applied to principal (an "Actuarial Mortgage
Loan"). No adjustment is made if a payment is made earlier or later than the due
date, although the Mortgagor may be subject to a late payment penalty. If such
Mortgage Loan is prepaid, the borrower is required to pay interest only to the
date of prepayment. The remainder of the Mortgage Loans will provide for
payments that are allocated to principal and interest according to the daily
simple interest method (a "Simple Interest Mortgage Loan") or the "sum of the
digits" method, otherwise known as the "Rule of 78s" method (a "Rule of 78s
Mortgage Loan"). Unless otherwise specified in the related Prospectus
Supplement, no Mortgage Loan will provide for deferred interest or negative
amortization.
The Mortgage Loans may have Mortgage Interest Rates which are fixed or may
be ARMs on which the Mortgage Interest Rates are adjusted periodically based on
an index (an "Index") or otherwise, as specified in the related Prospectus
Supplement. ARMs generally provide for a fixed initial Mortgage Interest Rate
until the first date on which such Mortgage Interest Rate is to be adjusted.
Thereafter, the Mortgage Interest Rate is subject to periodic adjustment
generally equal to the Index plus a fixed percentage spread over the Index
established contractually for each ARM at the
22
time of its origination (the "Gross Margin"). The initial Mortgage Interest Rate
for an ARM may be lower than the sum of the then-applicable Index and the Gross
Margin for such ARM. An ARM may be convertible into a fixed-rate Mortgage Loan.
To the extent specified in the related Prospectus Supplement, any ARM so
converted may be subject to repurchase upon conversion by the party specified in
such Prospectus Supplement.
An ARM may provide that its Mortgage Interest Rate may not exceed a rate
above a maximum rate (the "Maximum Mortgage Rate") or be less than a minimum
rate (the "Minimum Mortgage Rate") established at the time of origination. In
addition, if so specified in the related Prospectus Supplement, an ARM may
provide for limitations on the maximum amount by which the Mortgage Interest
Rate may adjust for any single adjustment period (a "Periodic Cap") or, in the
case of an ARM providing for negative amortization, may provide for limitations
on the amounts by which scheduled payments may be increased due to rising
interest rates (a "Payment Cap").
A Simple Interest Mortgage Loan provides for the amortization of the amount
financed under the Mortgage Loan over a series of equal monthly payments
(except, in the case of a Balloon Loan, the final payment). Each monthly payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Mortgage Loan multiplied by the stated
Mortgage Interest 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 such Mortgage Loan. As payments are
received under a Simple Interest Mortgage Loan, 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. Accordingly, if a borrower pays a fixed
monthly installment on a Simple Interest Mortgage Loan before its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. However, the next
succeeding payment will result in an allocation of a greater amount to interest
if such payment is made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Mortgage
Loan is made on or prior to its scheduled due date, the principal balance of the
Mortgage Loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date the Mortgage Loan will amortize more slowly than scheduled.
If a Simple Interest Mortgage Loan is prepaid, the borrower is required to pay
interest only to the date of prepayment.
A Rule of 78s Mortgage Loan provides for the payment by the borrower of a
specified total amount of payments, payable in equal monthly installments on
each due date, which total represents the amount financed and add-on interest in
an amount calculated on the basis of the stated note rate for the term of the
Mortgage Loan. The rate at which such amount of add-on interest is earned and,
correspondingly, the portion of each fixed monthly payment allocated to
reduction of the outstanding principal balance are calculated in accordance with
the "sum of the digits" or "Rule of 78s". Under a Rule of 78s Mortgage Loan, the
portion of a payment allocable to interest is determined by multiplying the
total amount of add-on interest payable over the term of the Mortgage Loan by a
fraction derived as described herein. The fraction used in the calculation of
add-on interest earned each month under a Rule of 78s Mortgage Loan has as its
denominator a number equal to the sum of a series of numbers beginning with one
and ending with the number of monthly payments due under
23
the Mortgage Loan. For example, for a Mortgage Loan providing for twelve
scheduled payments, the denominator of each month's fraction would be 78, the
sum of the series of numbers from one to twelve. The numerator of the fraction
for a given month would be the number of payments remaining before giving effect
to the payment to which the fraction is being applied. Accordingly, in the case
of such Mortgage Loan, the fraction for the first payment would be 12/78, for
the second payment, 11/78, for the third payment, 10/78, and so on through the
final payment, for which the fraction would be 1/78. The applicable fraction is
then multiplied by the total add-on interest payable over the term of the
Mortgage Loan to determine the amount of interest "earned" that month. The
difference between the amount of the monthly payment made by the borrower and
the amount of earned add-on interest calculated for the month is applied to
principal reduction. As a result, the rate at which interest is earned in the
initial months of a Rule of 78s Mortgage Loan is somewhat higher than the
interest computed for a Mortgage Loan computed on an actuarial basis, and the
rate at which interest is earned at the end of the Mortgage Loan is somewhat
less than that computed under an actuarial basis. Payments to holders of the
related Certificates and the Servicing Fee with respect to Rule of 78s Mortgage
Loans will be computed as if such Mortgage Loans were Simple Interest Mortgage
Loans. In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78s Mortgage Loan, under the terms of the Mortgage Loan the entire
remaining amount of payments is due but a "refund" or "rebate" will be made to
the borrower of the portion of the total amount of the scheduled payments
remaining under the Mortgage Loan immediately prior to such prepayment which is
allocable to "unearned" add-on interest. Such rebate will be calculated in
accordance with the Rule of 78s method.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on each Class of Certificates of a Series
entitled to principal, the aggregate amount of each interest payment on each
Class of Certificates of a Series entitled to interest and the yield to maturity
of each Class of Certificates of a Series will be related to the rate and timing
of payments of principal on the related Mortgage Loans, which may be in the form
of scheduled and unscheduled payments. The rate of prepayment on a pool of
mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including general economic conditions and homeowner mobility.
Defaults on mortgage loans are expected to occur with greater frequency in their
early years, although little data is available with respect to the rate of
default on second mortgage loans. The rate of default on second or more junior
mortgage loans may be greater than that of mortgage loans secured by first liens
on comparable properties. Prepayments, liquidations and purchases of the
Mortgage Loans will result in distributions to the holders of amounts of
principal which would otherwise be distributed over the remaining terms of the
Mortgage Loans.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Servicer, the Depositor or the holders of the Class of
Certificates of any Series specified in the related Prospectus Supplement may,
at their option, cause the related Trust to sell all of the outstanding Mortgage
Loans and REO Properties underlying the related Series of Certificates, and thus
effect the early retirement of the related Certificates, after the date on which
the Pool Principal Balance (as defined herein) is less than the percentage of
the Original Pool Principal Balance specified in the related Prospectus
Supplement. See "Description of the Certificates -- Optional Disposition of
Mortgage Loans" herein. Further, if so specified in the related Prospectus
Supplement, the Servicer or such other entities as may be specified in such
Prospectus Supplement may be required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the purchase of the assets of
the related Trust or otherwise. See "Description of the Certificates --
Mandatory Disposition of Mortgage Loans" herein.
24
If the Pooling and Servicing Agreement for a Series of Certificates
provides for a Prefunding Account or other means of funding the transfer of
additional Mortgage Loans to the related Trust, as described under "Description
of the Certificates -- Forward Commitments; Prefunding" herein, and the Trust is
unable to acquire such additional Mortgage Loans within any applicable time
limit, the amounts set aside for such purpose may be required to effect the
retirement of all or a portion of one or more Classes of Certificates of such
Series.
As described above, the rate of prepayment on a pool of mortgage loans is
affected by prevailing market rates for comparable mortgage loans. When the
market interest rate is below the mortgage coupon, mortgagors may have an
increased incentive to refinance their mortgage loans. Depending on prevailing
market rates, the future outlook for market rates and economic conditions
generally, some mortgagors may sell or refinance mortgaged properties in order
to realize their equity in the mortgaged properties, to meet cash flow needs or
to make other investments. No representation is made as to the particular
factors that will affect the prepayment of the Mortgage Loans underlying any
Series of Certificates, as to the relative importance of such factors, as to the
percentage of the principal balance of the Mortgage Loans that will be paid as
of any date or as to the overall rate of prepayment on the related Mortgage
Loans. The rate of prepayment of the Mortgage Loans may also be influenced by
programs offered by the Originators to encourage refinancing through the
Originators to those customers who are targeted for such solicitations.
The yield to maturity of certain Classes of Certificates of a Series may be
particularly sensitive to the rate and timing of principal payments (including
prepayments) of the Mortgage Loans, which may fluctuate significantly from time
to time. The Prospectus Supplement relating to such Certificates will provide
certain additional information with respect to the effect of such payments on
the yield to maturity of such Certificates under varying rates of prepayment,
including the rate of prepayment, if any, which would reduce the holder's yield
to zero.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Conversely, greater than
anticipated prepayments of principal will decrease the yield on Certificates
purchased at a price greater than par. The effect on an investor's yield due to
principal prepayments on the Mortgage Loans occurring at a rate that is faster
(or slower) than the rate anticipated by the investor in the period immediately
following the issuance of the Certificates will not be entirely offset by a
subsequent like reduction (or increase) in the rate of principal payments. The
weighted average life of each Class of Certificates of a Series will also be
affected by the amount and timing of delinquencies and defaults on the related
Mortgage Loans and the recoveries, if any, on defaulted Mortgage Loans and
foreclosed properties in the related Mortgage Pool.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
each Class of Certificates of a Series will be influenced by, among other
factors, the rate at which principal payments are made on the Mortgage Loans,
including final payments made upon the maturity of Balloon Loans.
THE TRUSTS
Each Trust will be formed under a Pooling and Servicing Agreement (a
"Pooling and Servicing Agreement") among the Depositor, the Servicer and the
Trustee named therein (a "Trustee"). No Trust will engage in any activity other
than (i) acquiring, holding and managing the Mortgage Loans and the other assets
of the Trust and the proceeds therefrom, (ii) issuing the related
25
Certificates, (iii) making payments on the related Certificates and (iv)
engaging in other activities incidental to the foregoing.
The property of each Trust will include: (i) the related Mortgage Loans as
from time to time are subject to the related Pooling and Servicing Agreement and
all proceeds thereof, (ii) such assets as from time to time are identified as
REO Property or are deposited in the Collection Account (defined herein),
Principal and Interest Account (defined herein), or other accounts established
under any of the documents governing the Trust or the related Certificates,
including amounts on deposit in such accounts and invested in Permitted
Instruments, (iii) the Trustee's rights under all insurance policies with
respect to the Mortgage Loans required to be maintained pursuant to the Pooling
and Servicing Agreement and any Insurance Proceeds, (iv) Liquidation Proceeds,
(v) Released Mortgaged Property Proceeds; and (vi) certain other property;
provided, however, that the assets of a Trust will not include amounts received
on or after the Cut-off Date in respect of interest accrued on the Mortgage
Loans prior to the Cut-off Date.
The Servicer will service the Mortgage Loans either directly or through
subservicers in accordance with the Pooling and Servicing Agreement and
generally in accordance with the first and second mortgage loan servicing
standards and procedures accepted by prudent mortgage lending institutions. See
"Description of the Certificates -- Servicing Standards" and "-- Use of
Subservicers" below for a further description of the provisions of the Pooling
and Servicing Agreement relating to servicing standards and the use of
subservicers.
THE DEPOSITOR, THE SERVICER AND THE ORIGINATORS
General
The Depositor was incorporated in the State of Ohio on May 7, 1996 for the
limited purposes of purchasing mortgage loans, automobile loans and other
receivables, transferring such loans or receivables to third parties, forming
trusts and engaging in related activities. All of the outstanding common stock
of the Depositor is owned by BANC ONE CORPORATION ("BANC ONE").
BOFS was incorporated under the laws of the State of Indiana on December
30, 1971. BOFS is a subsidiary of Finance One Corporation ("Finance One"),
which, in turn, is a wholly-owned subsidiary of BANC ONE. The chief business of
BOFS is home equity lending.
Valley National Financial Services Company ("VNFSC") was incorporated under
the laws of the state of Arizona on April 24, 1981. It is a subsidiary of Bank
One, Arizona, N.A., a second-tier subsidiary of BANC ONE. The chief business of
VNFSC is the purchase of auto contracts from originating dealers and the
financing of auto leases. VNFSC is also engaged in home equity lending under the
name of Sun Country Financial Services in the States of California, Colorado,
New Mexico, Oklahoma, Texas, and Utah.
If so specified in the related Prospectus Supplement, the Mortgage Loans
included in the Mortgage Pool relating to a Series of Certificates may include
Mortgage Loans originated or purchased and re-underwritten by direct or indirect
subsidiaries of BANC ONE other than BOFS and VNFSC. In such event, the related
Prospectus Supplement will set forth information with respect to such
Originators substantially similar to that set forth herein with respect to BOFS
and VNFSC.
The transactions contemplated hereby have been structured to make the
voluntary or involuntary application for relief by the Depositor under any
Insolvency Law unlikely and that such application by an Originator would not
result in consolidation of the assets and liabilities of the Depositor with
those of such Originator. If, notwithstanding the measures so taken, a court
concluded
26
that the assets and liabilities of the Depositor should be so consolidated with
those of an Originator, delays in distributions on the Certificates and possible
reductions in the amount of such distributions could occur. See "Risk Factors --
The Status of the Mortgage Loans in the Event of Bankruptcy of an Originator".
Loan Origination History
BOFS and VNFSC originate mortgage loans on residential dwellings
nationwide; purchase mortgage loans from lenders, mortgage bankers, and brokers
on a wholesale basis; and assemble and sell pools of mortgages to major
commercial banks and other financial institutions. BOFS also services mortgage
portfolios for itself, VNFSC and Bank One, Utah, N.A. BOFS and VNFSC lend
primarily on suburban and urban single-family homes in major metropolitan areas.
See "Origination, Foreclosure and Loss Experience -- Loan Origination History"
in the related Prospectus Supplement for a current listing of the states in
which the related Originator conducts loan origination and/or wholesale
operations.
The related Prospectus Supplement will set forth the dollar amounts of
first and junior lien mortgage loans originated and purchased by the related
Originators during the three years immediately preceding the date of the
Prospectus Supplement and, if available, the dollar amounts of mortgage loans
originated and purchased by the related Originators during the most recent
complete calendar quarters in the current year.
General Loan Underwriting
Each of BOFS and VNFSC originate and acquire first and more junior lien
mortgage loans using standard underwriting procedures based upon an applicant's
general creditworthiness and the extent of real estate equity used as collateral
security. The following is a general discussion of the underwriting standards
and procedures utilized by BOFS and VNFSC, subject to such variations as are
specified in the related Prospectus Supplement.
BOFS
General. All mortgage loan applications are underwritten, and collateral
properties appraised, prior to the closing or acquisition of a mortgage loan by
BOFS. Loan underwriting and approval is centralized at BOFS' two loan operation
centers in Indianapolis, Indiana, and Phoenix, Arizona. Loans are reviewed and
approved by one of the Company's real estate underwriters, each of whom is
granted specific credit approval limits based on experience and seniority. BOFS'
CEO and President must authorize all loan applications over a dollar limit
established currently at $300,000.
BOFS does not currently originate or acquire mortgage loans that result in
a lien position more subordinate than a second lien on real estate and, unless
otherwise specified in the related Prospectus Supplement, no loan secured by a
more subordinate mortgage will be included in a Mortgage Pool. BOFS will
consider making a second mortgage loan in a subordinate position to a first
mortgage loan held by a party other than a bank, savings association or a
supervised lender, if a copy of the recorded security instrument and note are
reviewed prior to credit approval. Second mortgage loans may also be made behind
adjustable or variable rate first mortgage loans if the maximum payment (on a
fully indexed basis) is used when calculating the debt ratio, and the note and
mortgage relating to such first mortgage loan accompany the loan application
file for consideration during the credit review process. Any first lien
adjustable or variable rate loan is required to have been in existence for at
least one year and to have experienced at least one rate adjustment.
27
Income Verification. Loan applications are considered through a combination
of reviews of credit bureau reports and/or individual certifications. Income is
verified through various means, including, without limitation, applicant
interviews, written verification, review of paycheck stubs and tax returns, and
the potential borrower's demonstration of sufficient levels of disposable income
to satisfy debt repayment requirements. The following are certain of the key
factors considered by BOFS.
Employment. A loan applicant's employer is contacted (except for "No Income
Verification" loans, for which the Loan-to-Value or Combined Loan-to-Value Ratio
for each loan is limited to no greater than 65%) to verify employment and
employee compensation in addition to receipt of the potential borrower's W-2s,
last two to four paycheck stubs and similar items of verification.
Self Employed Applicants - Commissions / Bonuses / Tax-Returns. Federal tax
returns for the most recent two years (with schedules) signed by the potential
borrower are required from self-employed applicants and applicants who derive
100% of their income from commissions or 25% or more of their total income from
commissions and/or bonuses. Consistency in commission and/or bonus income must
be established. Self-employed applicants must also submit financial statements
including an income statement and a balance sheet reflecting the applicant's or
the applicant's business's financial condition no more than six months prior to
the date of the loan application. BOFS' underwriters may, in the exercise of
their judgment, either accept personal and business related financial statements
prepared by the borrower or require financial statements prepared by a certified
public accountant. Checking account statements are used solely as additional
verification of income.
Rental Income. Rental income must be documented by leases, rental
agreements, tenant letters, or tax returns for the two most recent years. BOFS
calculates monthly rental income by taking bottom line gain/loss information
from Schedule E, then adding back interest and depreciation, dividing by 12. A
two year average is utilized. If the subtraction of the mortgage payment from
the rental income results in a negative cash flow, such amount is subtracted
from the applicant's monthly income.
Social Security and Veterans Compensation. Compensation from the Social
Security Administration or the Department of Veterans Affairs must be supported
by an awards letter from the appropriate Agency. If such a letter is
unavailable, either copies of checks received from the appropriate Agency or
eight to twelve months of checking account statements indicating equal deposit
amounts are required.
Retirement Income. Retirement income must be supported by an annuity letter
or similar awards document describing all details of income. If such a letter or
document is unavailable, either copies of checks received from the source of
income or eight to twelve months of checking account statements indicating equal
deposit amounts are required.
Child and / or Spousal Support. A loan applicant must submit to the Company
a copy of the final decree of divorce specifically setting forth the amount and
term, if any, of support. If such award is a substantial portion of the
applicant's total monthly income, either copies of canceled checks from the
former spouse, collection receipts paid through a court ordered public service
office or checking account statements indicating equal monthly or otherwise
periodic deposit amounts are required.
Appraisals; Title Companies and Closing Agents. All properties are required to
be appraised by independent fee appraisers approved by BOFS in advance of
funding. Appraisers are approved by BOFS based upon a review of sample
appraisals, professional experience, education, membership in
28
related professional organizations, clients and typical or specific properties
appraised. All appraisers must be approved by BOFS' Vice President or Assistant
Vice President of Real Estate Underwriting and must be independent from
borrowers, referral brokers used by BOFS and any other mortgage loan originator
from which BOFS acquires mortgage loans. Management reviews references,
credentials and examples of prior appraisals before approving an appraiser. If
an appraisal with respect to a mortgaged property appears to be inconsistent
with appraisals previously conducted on comparable properties by the same or
other appraisers, BOFS requires the appraiser to explain the discrepancies. If
the problems continue or are not resolved to BOFS' satisfaction, the appraisal
firm is removed from BOFS' approved appraiser list.
Full appraisals are completed on standard FNMA / FHLMC forms and conform to
current FNMA / FHLMC secondary market requirements for one to four family
residential appraisals. Each such appraisal includes, among other things, an
inspection of the exterior of the subject property, obtaining front , side and
street view photographs and obtaining data from three recent sales of similar
properties within the same general location as such subject property.
Loans are closed by BOFS personnel at one of the branches of BOFS, together
with approved attorneys, title insurers or agents of title insurers. Title
insurance is issued by one of several nationally recognized title companies.
Specific Underwriting Criteria; Underwriting Programs. Since January 1995, BOFS
has originated and purchased mortgage loans under one of the four underwriting
programs summarized below, which may change from time to time, as described in
the related Prospectus Supplement. The underwriting programs used prior to
January 1995 limited Loan-to-Value or Combined-Loan-to-Value ratios to no
greater than 90% and, in almost all originations or purchases, only first
mortgage loans were funded. Management permits deviations from the specific
criteria of an Underwriting Program to reflect local economic trends and real
estate valuations, as well as other credit factors specific to each loan
application. From time to time, BOFS grants loans to applicants whose
creditworthiness may not coincide with Program criteria. In such circumstances,
BOFS strives to maintain the overall integrity of these Programs and
simultaneously provide its real estate underwriters with the flexibility to
consider the specific circumstances of the loan application.
Each separate Underwriting Program reflects deviations in the allowable
credit criteria. As such, each Program is priced according to the additional
risk.
The related Prospectus Supplement will set forth the distribution of the
Mortgage Loans among the Underwriting Programs as of the related Cut-off-Date.
BOFS Retail Underwriting Programs
Class A Plus Program. BOFS requires both direct creditor verification and a
credit report on the borrower by one independent credit reporting agency
reflecting the borrower's complete credit history. An excellent credit history
of at least one year is required, and prior credit history may be rated on a
case-by-case basis. The credit history should reflect that existing and previous
debts were paid in a timely manner. A Chapter 7 bankruptcy or a Chapter 13
bankruptcy that has been discharged for a minimum of more than five years (for
loans having a Combined Loan-to-Value Ratio of 70% or less) is acceptable if the
borrower has since re-established a payment history, notwithstanding such
bankruptcy. No unpaid collections, liens or judgments are allowed with the
exception of medical collections less than $250. Unless otherwise specified
below, mortgage payment history may not reflect any 30-day delinquency during
the most recent 12-month period. In addition, no more than one revolving credit
account or installment credit account, may reflect a 30-day delinquency in the
most recent 12-month period. Generally, the borrower must have been employed
29
for not less than two years with the same employer or have established
comparable stability in a particular field of work. Combined Loan-to-Value
Ratios (1) and Debt-to-Income Ratios (2) must conform to the following criteria:
Maximum Maximum
Combined Debt-to- Additional
Loan-to-Value Income Criteria or
Property Type Ratio Ratio Variation(s)
------------- ----- ----- ------------
Owner Occupied, One- to
Two Family Dwellings... 90% 50% Mortgage payment history
must be historically
current with no late
payments of 30 days or
more in the last 12
months. Mortgage loans
originated or acquired
under these criteria
must not exceed $180,000
for first mortgage loans
or $50,000 for second
mortgage loans. The
loans are fixed rate,
with a maximum term of
15 years. Self employed
applicants, do not
qualify for this
Program.
Owner Occupied One- to
Two-Family Dwellings... 85% 50% Mortgage Payment history
must be historically
current with no late
payments of 30 days or
more in the last 12
months. First mortgage
loans and second
mortgage refinance loans
originated under these
criteria must not exceed
$250,000 and $125,000,
respectively, and must
have fixed rates. The
maximum term of any
first mortgage loans
originated or acquired
under these criteria is
30 years. Self employed
applicants do not
qualify for this
Program.
Owner Occupied One-
to Two-Family Dwellings 80% 50% Mortgage payment history
must be historically
current with no late
payments of 30 days or
more in the last 12
months. The first
mortgage loans and
second mortgage
refinanced loans,
originated under these
criteria must not exceed
$350,000 and $180,000,
respectively and must
have a fixed rate. The
maximum term of any
first mortgages
originated or acquired
under these criteria is
30 years. Maximum of 47%
Debt-to-Income Ratio
for self employed
borrowers or against a
mobile/
30
modular home which is
permanently affixed to
land.
Owner and Non-Owner Occupied
One-to Four-Family
Dwellings.............. 70% 50% Mortgage payment history
must be historically
current with no late
payments of 30 days or
more in the last 12
months. The first
mortgage loan and second
mortgage refinanced
loans originated under
these criteria, must not
exceed $450,000 and
$250,000, respectively,
and must have a fixed
rate. The maximum term
of any first mortgage
originated or acquired
under these criteria is
30 years. Mobile/modular
homes must be
permanently affixed to
land, both property and
land are included in the
mortgage and must be
owner occupied. Former
bankruptcy will be
allowed, if 5 years
since discharge and
customer has
re-established good
credit.
(1) Combined Loan-to-Value" consists of all mortgage balance amounts divided by
the appraisal value of the property financed.
(2) "Debt-to Income Ratio" under all of the Underwriting Programs generally is
calculated as that ratio, stated as a percentage, which results from
dividing a mortgagor's fixed monthly debt by his or her gross monthly
income. "Fixed monthly debt" includes: (i) in the case of second mortgages,
the monthly payment under the first lien (which generally includes an
escrow of real estate taxes), (ii) the related mortgage loan monthly
payment, (iii) other installment debt service payment, including, in
respect of revolving credit debt, the required monthly payment thereon, or,
if no such payment is specified, the greater of the amount equal to 3% of
the balance, or $10.00. "Fixed monthly debt" does not include any of the
debt (other than revolving credit debt) described above that matures within
less than ten months from the date of the calculation, (iv) the related
homeowner insurance and association fees related to the common area, (v)
child support or alimony payments.
The mortgaged property is required to be an owner occupied one-to-two
family or single family dwelling, as specified above, which may include
condominiums, townhouses or row homes in at least average repair, comparable to
neighboring properties and in compliance with zoning regulations. If the
mortgaged property is non-owner occupied, then the CLTV will be limited to 70%.
One- to four-family dwellings are allowed at 70% CLTV. For this program, second
mortgages are amortized for a period no longer than 180 months.
Generally, the borrower must have resided on the property that will secure
the loan for at least two years.
Class A Program. BOFS requires both direct creditor verification and a credit
report on the borrower by one independent credit reporting agency reflecting the
borrower's complete credit history. An excellent credit history of at least one
year is required, and prior credit history may be rated on a case-by-case basis.
The credit history should reflect that existing and previous debts were paid in
a
31
timely manner. A Chapter 7 bankruptcy or a Chapter 13 bankruptcy that has been
discharged for a minimum of more than three years (for loans having a CLTV less
than or equal to 70%), is acceptable if the borrower has since re-established a
payment history, notwithstanding such bankruptcy. No unpaid collections, liens
or judgments are allowed, with the exception of medical collections less than
$250. Unless otherwise specified below, mortgage payment history may reflect not
more than one 30-day delinquency during the most recent 12-month period with the
mortgage being current as of origination. In addition, no more than two
revolving major credit accounts or installment credit accounts, may reflect
30-day delinquencies in the most recent 12 month period. Further, no more than
one 60-day delinquency on minor trades (gasoline cards, specialty retailer,
etc.) in the most recent 12 month period. Generally, the borrower must have been
employed for not less than two years with the same employer or have established
comparable stability in a particular field of work. Combined Loan-to-Value
Ratios and Debt-to-Income Ratios must conform to the following criteria.
Maximum Maximum
Combined Debt-to- Additional
Loan-to-Value Income Criteria or
Property Type Ratio Ratio Variation(s)
------------- ----- ----- ------------
Owner Occupied, One- to
Two Family Dwellings... 90% 50% Mortgage loans
originated or acquired
under these criteria
must not exceed $180,000
for first mortgage loans
or $50,000 for second
mortgage loans. The
loans are fixed rate,
with a maximum term of
15 years. Self employed
applicants, do not
qualify for this
program.
Owner Occupied One- to
Two-Family Dwellings... 85% 50% First mortgage loans and
second mortgage
refinance loans
originated under these
criteria must not exceed
$250,000 and $125,000,
respectively and must
have fixed rates. The
maximum term of any
first mortgage loans
originated or acquired
under these criteria is
30 years. Self employed
applicants do not
qualify for this
program.
Owner Occupied One-
to Two-Family Dwellings 80% 50% The first mortgage loans
and second mortgage
refinanced loans,
originated under these
criteria must not exceed
$350,000 and $180,000,
respectively and must
have a fixed rate. The
maximum term
32
of any first mortgages
originated or acquired
under these criteria is
30 years. Maximum of 47%
Debt-to-Income Ratio
for self employed
borrowers or against
mobile/ modular homes
that are permanently
fixed to land.
Owner and Non-Owner Occupied
One-to Four-Family
Dwellings.............. 70% 50% The first mortgage loan
and second mortgage
refinanced loans
originated under these
criteria, must not
exceed $450,000 and
$250,000, respectively,
and must have a fixed
rate. The maximum term
of any first mortgage
originated or acquired
under these criteria is
30 years. Mobile/modular
homes permanently
affixed to land, both
property and land are
included in the mortgage
and must be owner
occupied. Former
bankruptcy will be
allowed, if 5 years
since discharge and
customer has re-
established good credit.
The mortgaged property is required to be an owner occupied one-to-two
family or single family dwelling, as specified above, which may include
condominiums, townhouses or row homes, in at least average repair, comparable to
neighboring properties and in compliance with zoning regulations. If the
mortgaged property is non-owner occupied, the CLTV will be limited to 70%. One-
to-four-family dwellings are allowed at 70% CLTV. For this program, second
mortgages are amortized for a period no longer than 180 months. Generally, the
borrower must have resided on the property that will secure the loan for at
least two years.
Class B Program. BOFS requires both direct creditor verification and a credit
report on the borrower by one independent credit reporting agency reflecting the
borrower's complete credit history. A credit history of at least one year is
required and prior credit history may be rated on a case-by-case basis. The
credit history should reflect that existing and previous debts were paid in a
predominantly timely manner. Generally, 30-day delinquencies will be allowed.
Collections up to $500 are acceptable as well as greater amounts if a
satisfactory explanation is provided. Any open collections must be paid from the
proceeds. Unless otherwise specified below, the mortgage payment history is
required to reflect no more than three 30-day delinquencies during the most
recent 12-month period, with the mortgage being current as of origination. Prior
mortgage payment history may be rated on a case-by-case basis; provided that
consecutive or "rolling' delinquencies are counted as one occurrence. A Chapter
7 bankruptcy or a Chapter 13 bankruptcy that has been discharged for a minimum
of more than two years (for loans having a CLTV less than or equal to 70% CLTV),
is acceptable if the borrower has since re-established a payment history,
notwithstanding such
33
bankruptcy, consistent with the Class A Underwriting Program. Generally, the
borrower must have been employed with the same employer for at least two years
or held two jobs in the same field of work in the most recent two year period.
The Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to the
following criteria:
Maximum Maximum
Combined Debt-to- Additional
Loan-to-Value Income Criteria or
Property Type Ratio Ratio Variation(s)
------------- ----- ----- ------------
Owner Occupied One-
to Two-Family ......... 80% 50% Maximum loan amount of
$200,000 and $125,000
for first and second
mortgages, respectively.
Owner Occupied One-to
Four-Family ........... 70% 50% Mortgage payment history
may reflect no more than
four 30-day
delinquencies during the
most recent 12 months,
maximum loan amount of
$200,000 and $125,000
for first and second
mortgages, respectively.
The mortgaged property is required to be an owner-occupied, one-to-two
family dwelling, which may include condominiums, townhouses or row homes, in at
least average repair, comparable to neighboring properties and in compliance
with zoning regulations. If the mortgaged property is non-owner occupied, the
CLTV will be limited to 70%. Self employed individuals are limited to 70% CLTV
on owner occupied properties. For this program, second mortgages are amortized
for a period no longer than 180 months.
Class C Program. BOFS requires both direct creditor verification and a credit
report on the borrower by an independent credit reporting agencies reflecting
the borrower's complete credit history. Generally, a credit history of at least
two years is required and should reflect that existing and previous debts were
paid in a generally satisfactory manner. 90-day delinquencies in the most recent
12-month period are considered, with explanations. Collections must be paid from
the proceeds of the loan. Mortgage payment history may not reflect 60 day
delinquencies during the most recent 12-month period; unless otherwise
specified. Bankruptcy that has been discharged is acceptable if the borrower has
since re-established good payment history, notwithstanding such bankruptcy.
Generally, the borrower must have been employed with the same employer for at
least two years or held two jobs in the same field of work in the most recent
two year period. The Combined Loan-to-Value Ratios and Debt-to-Income Ratios
must conform to the following criteria:
Maximum Maximum
Combined Debt-to- Additional
Loan-to-Value Income Criteria or
Property Type Ratio Ratio Variation(s)
------------- ----- ----- ------------
Owner Occupied, One-
to Four-Family ........ 75% 50% Maximum loan amount is
$120,000 and $80,000 for
first
34
and second mortgages,
respectively, no
self-employed borrowers
and no former bankruptcy
is allowed..
Owner Occupied, One- to
Four-Family ........... 70% 55% Mortgage payment history
may reflect no more than
one 60-day delinquency
during the most recent
12 months. A maximum
loan amount is $120,000
and $80,000 for first
and second mortgages,
respectively.
Owner Occupied, One- to
Four-Family ........... 60% 55% Mortgage payment history
may reflect no more than
one 60-day delinquency
during the most recent
12 months. A maximum
loan amount is $90,000
and $50,000 for first
and second mortgages,
respectively.
The mortgaged property is required to be an owner occupied, one- to-four
family dwellings, which may include condominiums, townhouses or row homes, in at
least average repair, comparable to neighboring properties and in compliance
with zoning regulations. This program does not include modular or mobile homes.
However, loans with a CLTV of 50% or below, will be reviewed on a case-by-case
basis. Self-employed individuals are limited to 70% CLTV on owner occupied
property.
BOFS Wholesale Underwriting Programs
BOFS currently offers three wholesale programs; Full Documentation, Limited
Documentation, and Stated Income from the application. As with the retail
program, wholesale underwriting requires both direct creditor verification and a
credit report on the borrower by one independent credit reporting agency
reflecting the borrower's complete credit history. A credit history of at least
three years is required and prior credit history may be rated on a case-by-case
basis. The credit history should reflect that existing and previous debts were
paid in a predominantly timely manner. All delinquent consumer debt not paid off
must be brought current by borrower (with proof supplied) or through loan
proceeds. Tax liens and property taxes that are past due do not affect grade but
must be paid off at closing. Past due child support or alimony but must be
brought current prior to loan closing.
Generally, BOFS evaluates a borrower's credit history for the last 12
months and then grades the borrower A, A-, B, C or D and looks at the last 24
months on the A program according to guidelines outlined below.
Mortgaged properties may not include mobile homes, log or dome homes,
condominiums not approvable by FNMA or in excess of four stories, commercially
zoned property, cooperatives and any property which suffers any form of
obsolescence.
Regular Credit Guidelines
35
"A" CREDIT
- --------------------------------------------------------------------------------
Full Limited Stated
A GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 90% 80% 75%
================================================================================
Non Owner and Second Homes - CLTV 80% 75% 70%
================================================================================
Maximum Loan Amount - Owner Occupied $300,000 $300,000 $300,000
================================================================================
Maximum Loan Amount - Non Owner and $300,000 $300,000 $300,000
Second Homes
================================================================================
Cash Out Owner Occupied $ 50,000 $ 50,000 $ 50,000
================================================================================
Cash Out Non Owner and Second Homes $ 25,000 $ 25,000 $ 25,000
================================================================================
Maximum Debt Ratios 45% 45% 45%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit One 30-day delinquency in past 12 months;
two 30-day delinquencies in past 24 months;
Mortgage must be current
================================================================================
Acceptable Consumer Credit 3 30-day delinquencies in the past 12 months; 5
(Revolving & Installment) 30-day delinquencies or 2 60-day delinquencies in
past 24 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 5 years starting from the date of
Repossessions discharge or date foreclosure filed.
- --------------------------------------------------------------------------------
"A-" CREDIT
- --------------------------------------------------------------------------------
Full Limited Stated
A- GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 85% 80% 75%
================================================================================
Non Owner and Second Homes - CLTV 75% 70% 70%
================================================================================
Maximum Loan Amount - Owner Occupied $300,000 $300,000 $300,000
================================================================================
Maximum Loan Amount - Non Owner and $250,000 $250,000 $250,000
Second Homes
================================================================================
Cash Out Owner Occupied $150,000 $150,000 $150,000
================================================================================
Cash Out Non Owner and Second Homes $50,000 $50,000 $50,000
================================================================================
Maximum Debt Ratios 45%* 45%* 45%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit 2 30-day delinquencies in past 12 months; mortgage
must be current
================================================================================
Acceptable Consumer Credit 5 30-day or 2 60-day delinquencies in the past 12
(Revolving & Installment) months.
- --------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
Bankruptcy/Foreclosure/ None in the past 2 years starting from the date of
Repossessions discharge or date foreclosure filed.
- --------------------------------------------------------------------------------
* For Loan-to-Value ratio greater than 75%, 50%
"B" CREDIT
- --------------------------------------------------------------------------------
Full Limited Stated
B GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 80% 75% 70%
================================================================================
Non Owner and Second Homes - CLTV 70% 70% 65%
================================================================================
Maximum Loan Amount - Owner Occupied $300,000 $300,000 $300,000
================================================================================
Maximum Loan Amount - Non Owner and $250,000 $250,000 $250,000
Second Homes
================================================================================
Cash Out Owner Occupied $100,000 $100,000 $100,000
================================================================================
Cash Out Non Owner and Second Homes $50,000 $50,000 $50,000
================================================================================
Maximum Debt Ratios 50%* 50%* 50%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit 3 30-day delinquencies and 1 60-day
delinquency in past 12 months; No more than 40 days
past due at funding and must be paid off at
closing.
================================================================================
Acceptable Consumer Credit 8 30-day or 4 60-day delinquencies or 2 90-day
(Revolving & Installment) delinquencies in the past 12 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 18 years starting from the date of
Repossessions discharge or date foreclosure filed.
- --------------------------------------------------------------------------------
* For Loan-to-Value ratios greater than 70%, 55%
"C" CREDIT
- --------------------------------------------------------------------------------
Full Limited Stated
C GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 75% 70% 65%
================================================================================
Non Owner and Second Homes - CLTV 70% 65% 60%
================================================================================
Maximum Loan Amount - Owner Occupied $250,000 $250,000 $250,000
================================================================================
Maximum Loan Amount - Non Owner and $200,000 $200,000 $200,000
Second Homes
================================================================================
Cash Out Owner Occupied $75,000 $75,000 $75,000
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
Cash Out Non Owner and Second Homes $50,000 $50,000 $50,000
================================================================================
Maximum Debt Ratios 55%* 55%* 55%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit Maximum 6 30-day delinquencies ** in the past 12
months.
================================================================================
Acceptable Consumer Credit 12 30-day, 6 60-day or 4 90-day delinquencies in
(Revolving & Installment) the past 12 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 12 months starting from the date
Repossessions of discharge or date foreclosure filed. Chapter
13's are reviewed on a case by case basis.
- --------------------------------------------------------------------------------
* For Loan-to-Value ratios greater than 65%, 60%.
** One 60-day delinquency is considered the equivalent of two consecutive 30-day
delinquencies; one 90-day delinquency is considered the equivalent of three
consecutive 30-day delinquencies.
"D" CREDIT
- --------------------------------------------------------------------------------
Full Limited Stated
D GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 65% 60% 55%
================================================================================
Non Owner and Second Homes - CLTV N/A N/A N/A
================================================================================
Maximum Loan Amount - Owner Occupied $250,000 $175,000 $150,000
================================================================================
Maximum Loan Amount - Non Owner and N/A N/A N/A
Second Homes
================================================================================
Cash Out Owner Occupied $500 $500 $500
================================================================================
Cash Out Non Owner and Second Homes N/A N/A N/A
================================================================================
Maximum Debt Ratios 60%* 60%* 60%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit Maximum 120 days delinquent in the past 12 months.
Borrowers over 120 days delinquent and not in
foreclosure will be considered on a case by case
basis.
================================================================================
Acceptable Consumer Credit Reviewed on a case by case basis
(Revolving & Installment)
================================================================================
Bankruptcy/Foreclosure/ Current bankruptcy or foreclosure acceptable
Repossessions (bankruptcy must be discharged). Head Underwriter
approval required to bring borrower out of
foreclosure. Clear documentation is required to
support delinquency resolution.
- --------------------------------------------------------------------------------
*For Loan-to-Value ratios greater than 60%, 65%.
38
Wholesale Second Mortgage Guidelines
"A" CREDIT (Second Mortgage)
- --------------------------------------------------------------------------------
A GRADE Full HLTV Stated Limited
Documentation Income Documentation
================================================================================
Owner Occupied - CLTV 85% 86-100% 75% 75%
================================================================================
Non Owner and Second Homes - CLTV 75% N/A 70% 70%
================================================================================
Maximum Loan Amount - Owner Occupied $150,000 $45,000 $150,000 $150,000
================================================================================
Maximum Loan Amount - Non Owner and $100,000 N/A $100,000 $100,000
Second Homes
================================================================================
Cash Out Owner Occupied $50,000 $45,000 $50,000 $50,000
================================================================================
Cash Out Non Owner and Second Homes $25,000 N/A $25,000 $25,000
================================================================================
Maximum Debt Ratios 45% 45% 45% 45%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit 1 30-day delinquency in past 12 months; 2 30-day
delinquencies in past 24 months; Mortgage must be
current. For loans with Loan-to-Value Ratios
greater than 85%, no delinquencies on mortgages
in the last 24 months)
================================================================================
Acceptable Consumer Credit 3 30-day delinquencies in the past 12 months; 5
(Revolving & Installment) 30-day delinquencies or 2 60-day delinquencies in
past 24 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 5 years starting from the date of
Repossessions discharge or date foreclosure filed.
- --------------------------------------------------------------------------------
"A-" CREDIT (Second Mortgage)
- --------------------------------------------------------------------------------
Full Limited Stated
A- GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 85% 80% 75%
================================================================================
Non Owner and Second Homes - CLTV 75% 70% 70%
================================================================================
Maximum Loan Amount - Owner Occupied $150,000 $150,000 $150,000
================================================================================
Maximum Loan Amount - Non Owner and $100,000 $100,000 $100,000
Second Homes
================================================================================
Cash Out Owner Occupied $50,000 $50,000 $50,000
================================================================================
Cash Out Non Owner and Second Homes $25,000 $25,000 $25,000
================================================================================
Maximum Debt Ratios * 45%* 45%* 45%*
- --------------------------------------------------------------------------------
39
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit 2 30-day delinquencies in past 12 months; Mortgage
must be current
================================================================================
Acceptable Consumer Credit 5 30-day delinquencies or 2 60-day delinquencies in
(Revolving & Installment) the past 12 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 2 years starting from the date of
Repossessions discharge or date foreclosure filed.
- --------------------------------------------------------------------------------
* For Loan-to-Value Ratios greater than or equal to 75%, 50%
"B" Credit (Second Mortgage)
- --------------------------------------------------------------------------------
Full Limited Stated
B GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 80% 75% 70%
================================================================================
Non Owner and Second Homes - CLTV 70% 70% 65%
================================================================================
Maximum Loan Amount - Owner Occupied $150,000 $100,000 $100,000
================================================================================
Maximum Loan Amount - Non Owner and $100,000 $75,000 $75,000
Second Homes
================================================================================
Cash Out Owner Occupied $50,000 $35,000 $35,000
================================================================================
Cash Out Non Owner and Second Homes $35,000 $25,000 $25,000
================================================================================
Maximum Debt Ratios 50%* 50%* 50%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit 3 30-day and 1 60-day delinquency in past 12
months; No more than 40 days past due at funding
and must be paid off at closing.
================================================================================
Acceptable Consumer Credit 8 30-day, 4 60-day or 2 90-day delinquency in past
(Revolving & Installment) 12 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 18 years starting from the date of
Repossessions discharge or date foreclosure filed.
- --------------------------------------------------------------------------------
*For Loan-to-Value Ratios greater than or equal to 70%, 55%.
"C" CREDIT (Second Mortgage)
- --------------------------------------------------------------------------------
Full Limited Stated
C GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 75% 70% 65%
================================================================================
Non Owner and Second Homes - CLTV 70% 65% 60%
================================================================================
Maximum Loan Amount - Owner Occupied $100,000 $65,000 $65,000
- --------------------------------------------------------------------------------
40
- --------------------------------------------------------------------------------
Maximum Loan Amount - Non Owner and $75,000 60,000 $60,000
Second Homes
================================================================================
Cash Out Owner Occupied $35,000 $25,000 $25,000
================================================================================
Cash Out Non Owner and Second Homes $25,000 $20,000 $20,000
================================================================================
Maximum Debt Ratios 55%* 55%* 55%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit No more than 6 30-day delinquencies [in the past __
months][Can roll any number of consecutive 30-day
delinquencies one time only.] Non-consecutive 30,
60 or 90-day delinquencies are considered.** No
more than 40 days past due at funding and must be
paid off at closing.
================================================================================
Acceptable Consumer Credit 12 30-day, 6 60-day or 4 90-day delinquencies in
(Revolving & Installment) the past 12 months.
================================================================================
Bankruptcy/Foreclosure/ None in the past 12 months starting from the date
Repossessions of discharge or date foreclosure filed. Chapter
13's are reviewed on a case by case basis.
- --------------------------------------------------------------------------------
* For Loan-to-Value Ratios greater than or a equal to 65%, 60%.
** 2 30-day delinquencies are the equivalent of one 60-day delinquency; three
30-day delinquencies are the equivalent of one 90-day delinquency.
"D" CREDIT (Second Mortgage)
- --------------------------------------------------------------------------------
Full Limited Stated
C GRADE Documentation Documentation Income
================================================================================
Owner Occupied - CLTV 65% 60% 55%
================================================================================
Non Owner and Second Homes - CLTV N/A N/A N/A
================================================================================
Maximum Loan Amount - Owner Occupied $50,000# $30,000 $25,000
================================================================================
Maximum Loan Amount - Non Owner and N/A N/A N/A
Second Homes
================================================================================
Cash Out Owner Occupied $500 $500 $500
================================================================================
Cash Out Non Owner and Second Homes N/A N/A N/A
================================================================================
Maximum Debt Ratios 60%* 60%* 60%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acceptable Mortgage Credit Maximum 120 days delinquent in the past 12 months.
Borrowers over 120 days delinquent and not in
foreclosure will be considered on a case by case
basis.
================================================================================
Acceptable Consumer Credit Reviewed on a case by case basis
(Revolving & Installment)
- --------------------------------------------------------------------------------
41
- --------------------------------------------------------------------------------
Bankruptcy/Foreclosure/ Current bankruptcy or foreclosure acceptable
Repossessions (bankruptcy must be discharged). Head Underwriter
approval required to bring borrower out of
foreclosure. Clear documentation is required to
support delinquency resolution.
- --------------------------------------------------------------------------------
*For Loan-to-Value Ratios greater than 60%, 65%.
Certain Calculations Relating to Combined Loan-to-Value Ratios. Under all
of the Underwriting Programs, the balance of the related Senior Lien, if
any, is used to determine the Combined Loan-to-Value Ratio for the mortgage
loan is based on the judgment of BOFS' underwriters. In determining the
Combined Loan-to-Value Ratio in cases where the related Senior Lien, if
any, secures an adjustable rate mortgage loan, BOFS' underwriters also
consider the historical performance of the index from which the mortgage
interest rate is derived under the first mortgage and other credit factors.
In addition, the maximum amount of any revolving credit line prior and
superior to any mortgage loan is included in any calculation to determine
the Combined Loan-to-Value Ratio.
Quality Control and Audit Procedures. BOFS' quality control and audit
procedures consist of post-funding examinations at the operational level
and through independent verification by the Quality Assurance group.
Examinations are performed on a sample basis and include reviews of legal
documentation, credit documentation and underwriting of all loan
applications whether originated or purchased by BOFS. Those reviews
specifically include the following items.
Legal Documentation: The mortgage note, mortgage, deed of trust,
Truth-in-Lending disclosures, Real Estate Settlement Procedures Act and
Equal Credit Opportunity Act documents, title abstract, affidavits, riders,
and all other documents required pursuant to statutory law are reviewed for
existence, accuracy and proper signatures.
Credit documentation: All credit verifications (such as verification of
mortgage, verification of employment and verification of income), credit
applications, and credit reports are reviewed for existence, accuracy and
proper signatures as appropriate based on credit policies.
Underwriting: BOFS verifies that all loan conditions required by its
Underwriting Department have been satisfied. Some loans are reviewed for
compliance with BOFS' credit underwriting standards based on BOFS' Tier
Pricing Guidelines of Credit Policy. Further, a Second Review Policy exists
to ensure established credit policies and underwriting guidelines and
exceptions to them are consistently applied. The Second Review process is
applied to all of the denied loan applications and 5 - 10% of approved
loans.
Documentation examinations are performed on all loans originated by the
Loan Operations Centers in Indianapolis and Phoenix and on approximately
50% of loans originated in the branch network. Reports with major
exceptions noted are distributed to the senior management team of the
company for review and pursuit of action plans.
Collection Procedures. It is expected that BOFS will act as Sub-Servicer
with respect to Mortgage Loans purchased by the Depositor from BOFS and
VNFSC. The related Prospectus Supplement will set forth the number and
aggregate principal amount of mortgage loans owned by BOFS as of the end of
the prior year and any completed calendar quarters in the current year.
Such statistics may include loans originated or acquired and
re-underwritten by BOFS.
42
The following describes collection procedures generally employed by BOFS.
Any significant deviations therefrom with respect to a pool of Mortgage Loans
will be described in the related Prospectus Supplement. The centralized
collection offices are located in Indianapolis, Indiana, and Phoenix, Arizona.
In addition, BOFS utilizes additional collection assistance from its branch
office network when an account becomes seriously past due. Delinquent accounts
are divided into groups of accounts of 0-29, 30-59 and 60 or more days past due.
All collection activity on 1-29 day accounts is handled by branch personnel.
When an account becomes 10 days past due, the mortgagor is generally called by
phone. When an account becomes 30-59 days delinquent, it is assigned to a higher
level collector experienced in default accounts in either Phoenix or
Indianapolis. Thereafter, all accounts delinquent for 60 or more days are
administered by pre-foreclosure specialists in Phoenix or Indianapolis. Any such
delinquent account will remain under central servicing control supervision until
it is either reduced to at most a 30-day delinquency. Prior to submitting an
account for foreclosure, a 30 day right-to-cure letter is sent certified mail to
the customer. If the delinquency is not cured, the account is referred to the
Centralized Real-Estate Collection area located in Phoenix or Indianapolis, and
the Collection Department attempts personal contact with the borrower to
determine that all avenues of resolution have been considered. Accounts
delinquent for 90 or more days are actively supervised by the vice president of
Centralized Collections. Branch offices are not responsible for the management
of accounts in foreclosure, bankruptcy, litigation or otherwise designated for
special consideration, all of which are the responsibility of the Centralized
Collection department or its legal department.
If foreclosure is necessary, BOFS' Centralized Collection department
supervises and monitors all related procedures (including bankruptcy
proceedings) conducted by its foreclosure attorneys. If title to the mortgaged
property is taken in the name of the mortgagee, BOFS' real estate owned area
attempts to insure that the property is preserved and protected. After review
and analysis, a disposition strategy is developed and the property is marketed
for sale.
Delinquency and Loss Experience. The related Prospectus Supplement will set
forth BOFS' delinquency and charge-off experience at the dates indicated on
mortgage loans included in its portfolio, including loans in foreclosure
proceedings.
Outstanding Real Estate Owned. The related Prospectus Supplement will set forth
the number and value of properties acquired by BOFS through foreclosure, which
were owned by BOFS for its own account at the end of the immediately preceding
calendar year and at the end of the most recently completed calendar quarter.
VNFSC
The Underwriting criteria used by VNFSC with respect to mortgage loans
originated or purchased and re-underwritten by VNFSC are substantially similar
to those described above with respect to BOFS. To the extent that such
underwriting criteria differ materially with respect to Mortgage Loans
transferred to the Depositor by VNFSC with respect to a Series of Certificates,
the related Prospectus Supplement will describe such differences.
DESCRIPTION OF THE CERTIFICATES
General
The following summary describes certain terms of the Certificates, common
to each Pooling and Servicing Agreement. Forms of the Pooling and Servicing
Agreements and the Transfer Agreement providing for the transfer of Mortgage
Loans from the Originator to the Depositor have
43
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the provisions of the
Certificates, the Pooling and Servicing Agreement and the Transfer Agreement for
each Trust and the related Prospectus Supplement. Where particular provisions or
terms used in any of such documents are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summaries.
The Certificates will represent beneficial interests in the assets of the
related Trust, including (i) the Mortgage Loans and all proceeds thereof, (ii)
REO Property, (iii) amounts on deposit in the funds and accounts established
with respect to the related Trust, including all investments of amounts on
deposit therein, (iv) certain rights of the Depositor under the Transfer
Agreement and (v) certain other property, as described in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, one or more
Classes of Certificates of a Series may have the benefit of one or more of a
letter of credit, financial guaranty insurance policy, reserve fund, spread
account, cash collateral account, overcollateralization or other form of credit
enhancement. If so specified in the related Prospectus Supplement, a Series of
Certificates may have the benefit of one or more of a mortgage pool insurance
policy, bankruptcy bond, special hazard insurance policy or similar credit
enhancement. Any such credit enhancement may be included in the assets of the
related Trust. See "Description of Credit Enhancement" herein.
A Series of Certificates may include one or more Classes entitled to
distributions of principal and disproportionate, nominal or no interest
distributions or distributions of interest and disproportionate, nominal or no
principal distributions. The principal amount of any Certificate may be zero or
may be a notional amount as specified in the related Prospectus Supplement. A
Class of Certificates of a Series entitled to payments of interest may receive
interest at a specified rate (a "Certificate Interest Rate") which may be fixed,
variable or adjustable and may differ from other Classes of the same Series, may
receive interest based on the weighted average Mortgage Interest Rate on the
related Mortgage Loans, or may receive interest as otherwise determined, all as
described in the related Prospectus Supplement. One or more Classes of a Series
may be Certificates upon which interest will accrue but not be currently paid
until certain other Classes have received principal payments due to them in full
or until the occurrence of certain events, as set forth in the related
Prospectus Supplement. One or more Classes of Certificates of a Series may be
entitled to receive principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments based on a notional
principal amount which reduces in accordance with a planned amortization
schedule. A Series may also include one or more Classes of Certificates entitled
to payments derived from a specified group or groups of Mortgage Loans held by
the related Trust. The rights of one or more Classes of Certificates may be
senior or subordinate to the rights of one or more of the other Classes of
Certificates. A Series may include two or more Classes of Certificates which
differ as to the timing, sequential order, priority of payment or amount of
distributions of principal or interest or both.
Each Class of Certificates of a Series will be issued in the denominations
specified in the related Prospectus Supplement. Each Certificate will represent
a percentage interest (a "Percentage Interest") in the Certificates of the
respective Class, determined by dividing the original dollar amount (or Notional
Principal Amount, in the case of certain Certificates entitled to receive
interest only) represented by such Certificate by the Original Principal Balance
of such Class.
One or more Classes of Certificates of a Series may be issuable in the form
of fully registered definitive certificates or, if so specified in the related
Prospectus Supplement, one or more Classes of Certificates of a Series (the
"Book-Entry Securities") may initially be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and available only in the form of book-entries
on the records of DTC,
44
participating members thereof ("Participants") and other entities, such as
banks, brokers, dealers and trust companies, that clear through or maintain
custodial relationships with a Participant, either directly or indirectly
("Indirect Participants"). Certificates representing the Book-Entry Securities
will be issued in definitive form only under the limited circumstances described
herein and in the related Prospectus Supplement. With respect to Book-Entry
Securities, all references herein to "holders" of Certificates shall reflect the
rights of owners of the Book-Entry Securities, as they may indirectly exercise
such rights through DTC and Participants, except as otherwise specified herein.
See "-- Registration of Certificates" herein.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date, there shall be paid to each person in whose name a Certificate is
registered on the related Record Date (which in case of the Book-Entry
Securities initially will be only Cede, as nominee of DTC), the portion of the
aggregate payment to be made to holders of such Class to which such holder is
entitled, if any, based on the Percentage Interest, held by such holder of such
Class.
Interest
Unless otherwise specified in the related Prospectus Supplement, interest
will accrue on each Class of Certificates of a Series (other than a Class of
Certificates entitled to receive only principal) during each period specified in
the related Prospectus Supplement (each, an "Accrual Period") at the Certificate
Interest Rate for such Class specified in the related Prospectus Supplement.
Interest accrued on each Class of Certificates at the applicable Certificate
Interest Rate during each Accrual Period will be paid, to the extent monies are
available therefor, on each Payment Date, commencing on the day specified in the
related Prospectus Supplement and will be distributed in the manner specified in
such Prospectus Supplement, except for any Class of Certificates ("Accrual
Certificates") on which interest is to accrue and not be paid until the
principal of certain other Classes has been paid in full or the occurrence of
certain events as specified in such Prospectus Supplement. If so described in
the related Prospectus Supplement, interest that has accrued but is not yet
payable on any Accrual Certificates will be added to the principal balance
thereof on each Payment Date and will thereafter bear interest at the applicable
Certificate Interest Rate. Payments of interest with respect to any Class of
Certificates entitled to receive interest only or a disproportionate amount of
interest and principal will be paid in the manner set forth in the related
Prospectus Supplement. Payments of interest (or accruals of interest, in the
case of Accrual Certificates) with respect to any Series of Certificates or one
or more Classes of Certificates of such Series, may be reduced to the extent of
interest shortfalls not covered by Advances or by any applicable credit
enhancement.
Principal
On each Payment Date, commencing with the Payment Date specified in the
related Prospectus Supplement, principal with respect to the related Mortgage
Loans during the period specified in the related Prospectus Supplement (each
such period, a "Due Period") will be paid to holders of the Certificates of the
related Series (other than a Class of Certificates of such Series entitled to
receive interest only) in the priority, manner and amount specified in such
Prospectus Supplement, to the extent funds are available therefor. Unless
otherwise specified in the related Prospectus Supplement, such principal
payments will generally include (i) the principal portion of all scheduled
payments ("Monthly Payments") received on the related Mortgage Loans during the
related Due Period, (ii) any principal prepayments of any such Mortgage Loans in
full ("Principal Prepayments") and in part ("Curtailments") received during the
related Due Period or such other period (each, a "Prepayment Period") specified
in the related Prospectus Supplement, (iii) the principal portion of (A) the
proceeds of any insurance policy relating to a Mortgage Loan, a Mortgaged
Property (defined herein) or a REO Property (defined herein), net of any amounts
applied to the repair of the Mortgaged Property or released to the Mortgagor
(defined herein) and net of
45
reimbursable expenses (such net proceeds, "Insurance Proceeds"), (B) proceeds
received in connection with the liquidation of any defaulted Mortgage Loans
("Liquidation Proceeds"), net of fees and advances reimbursable therefrom ("Net
Liquidation Proceeds") and (C) proceeds received in connection with a taking of
a related Mortgaged Property by condemnation or the exercise of eminent domain
or in connection with any partial release of any such Mortgaged Property from
the related lien ("Released Mortgaged Property Proceeds"), (iv) the principal
portion of all amounts paid by the Depositor (which are limited to amounts paid
by an Originator pursuant to the related Transfer Agreement, unless otherwise
specified in the related Prospectus Supplement) in connection with the purchase
of or substitution for a Mortgage Loan as to which there is defective
documentation or a breach of a representation or warranty contained in the
Transfer Agreement and assigned to the related Trust under the related Pooling
and Servicing Agreement and (v) the principal balance of each defaulted Mortgage
Loan or REO Property as to which the Servicer has determined that all amounts
expected to be recovered have been recovered (each, a "Liquidated Mortgage
Loan"), to the extent not included in the amounts described in clauses (i)
through (iv) above (the aggregate of the amounts described in clauses (i)
through (v), the "Basic Principal Amount"). Payments of principal with respect
to a Series of Certificates or one or more Classes of such Series may be reduced
to the extent of delinquencies or losses not covered by advances or any
applicable credit enhancement.
Assignment of the Mortgage Loans
At the time of issuance of a Series of Certificates, the Originators,
pursuant to a Transfer Agreement (the "Transfer Agreement") among the
Originators and the Depositor, will assign the Mortgage Loans to the Depositor
together with all principal and interest received on or with respect to the
Mortgage Loans, other than principal and interest received before the related
Cut-off Date (and interest received on or after the Cut-off Date but accrued
prior to the Cut-off Date). On such date, the Depositor will assign the Mortgage
Loans to the Trust pursuant to a Pooling and Servicing Agreement.
Each Mortgage Loan will be identified in a schedule included as an exhibit
to the related Transfer Agreement and the related Pooling and Servicing
Agreement (the "Mortgage Loan Schedule"). The Mortgage Loan Schedule will set
forth certain information with respect to each Mortgage Loan, including, among
other things, the principal balance as of the Cut-off Date, the Mortgage
Interest Rate, the scheduled monthly payment of principal and interest, the
maturity of the Mortgage Note, the Combined Loan-to-Value Ratio at origination
and, as applicable, the Home Equity Loan Ratio at origination.
In addition, if so specified in the related Prospectus Supplement, the
Originators will, with respect to each Mortgage Loan, deliver to the Depositor
the Mortgage Note endorsed to the order of the Depositor or a Custodian or in
blank, the mortgage with evidence of recording thereon, an assignment of the
mortgage to the Depositor or a Custodian or in blank, evidence of title
insurance, intervening assignments of the mortgage, assumption and modification
agreements and, in the case of Mortgage Loans secured by Mortgaged Property
improved by a manufactured housing unit, the certificate of title, if any
(collectively, the "Mortgage File"). The Depositor shall simultaneously deliver
such Mortgage Note, Mortgage and assignment of Mortgage to the Trust, endorsed
as set forth in the related Pooling and Servicing Agreement. It is expected that
each such transfer will be effected by endorsement and delivery to a Custodian,
which Custodian shall hold such instruments and documents for the Depositor and
the Trust, as their interests may appear. The assignment of Mortgage shall be
recorded in the name of the Trustee. With respect to a loan on a unit in a
cooperative, the related Mortgage Note, the original security agreement, the
proprietary lease or occupancy agreement, the related stock certificate
evidencing the ownership interest in the cooperative association and blank stock
powers and a copy of the original filed financing statement and assignments
thereof in form sufficient for filing shall be so delivered and, where required,
filed.
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Unless otherwise specified in the related Prospectus Supplement, under the terms
of each Pooling and Servicing Agreement, during the period that the related
Certificates are outstanding and so long as the conditions set forth in the
related Prospectus Supplement are satisfied, each Originator will hold the
Mortgage File as custodian and agent for the Trustee and will not be required to
record assignments of the Mortgages in favor of the Trustee. If such conditions
are no longer satisfied, the Mortgage Files will be required to be delivered as
described above. If the Mortgage Notes are retained by the respective
Originators, as custodian for the Trustee, if an Insolvency Event occurs with
respect to an Originator or, in certain circumstances, the lapse of certain time
periods, the Trust may not have a perfected interest in such Mortgage Notes and,
in such event, the Trust may suffer a loss of all or part of such collections
which may result in a loss to Certificateholders.
If Mortgage Files are required to be delivered and if, , with respect to
any Mortgage Loan, the Originators are unable to deliver to the Depositor on the
Closing Date the mortgage or any assignment with evidence of recording thereon
because they have not yet been returned from the public recording office, the
Originators are required to deliver or cause to be delivered on the Closing Date
a certified true copy of such mortgage or assignment, which certification may be
that of an officer of the respective Originator. If, with respect to any
Mortgage Loan, the Depositor is unable to deliver an original policy of title
insurance, if required, because such policy has not yet been delivered by the
insurer, the Depositor is required to deliver or cause to be delivered the
commitment or binder to issue the title insurance. If Mortgage Files are
required to be delivered, the Depositor is required to deliver or cause to be
delivered the mortgage or assignment with evidence of recording thereon and an
original title insurance policy within five Business Days after receipt thereof
and in any event within one year after the Closing Date, provided, however, that
if a mortgage or assignment has not been returned from the appropriate public
recording office, the respective Originator is required to deliver a certified
copy of the mortgage and a receipted copy of the assignment from the appropriate
public recording office prior to the expiration of such one year period. If
Mortgage Files are required to be delivered, the Servicer is required to cause
the assignments of mortgage to be recorded in the appropriate public recording
offices. With respect to loans on units in cooperatives, the Trustee or the
Servicer, as specified in the related Prospectus Supplement, will also be
required to use its best efforts to file continuation statements.
If Mortgage Files are required to be delivered, pursuant to the Pooling and
Servicing Agreement, the Trustee will agree, for the benefit of the holders of
the related Certificates to review (or cause to be reviewed) each Mortgage File
within 45 days (or such other time period as may be specified in the related
Prospectus Supplement) after the Closing Date to ascertain that all required
documents have been executed and received.
If Mortgage Files are required to be delivered and if the Trustee (or if
specified in the related Prospectus Supplement, any Credit Provider (defined
herein)) during such 45-day period finds any document constituting a part of a
Mortgage File which is not executed, has not been received or is unrelated to
the Mortgage Loans, or that any Mortgage Loan does not conform to the delivery
requirements described above or to the description thereof as set forth in the
Mortgage Loan Schedule (other than certain descriptive items set forth in the
Mortgage Loan Schedule), the Trustee (or the Credit Provider) is required to
promptly so notify the Depositor, the Servicer, the Originators, the Credit
Provider, if any, and the Trustee. The Servicer is required to use reasonable
efforts to cause to be remedied a material defect in a document constituting
part of a Mortgage File of which it is so notified. If the Servicer has not
caused the defect to be remedied within 60 days (or such other time period as
may be specified in the related Prospectus Supplement) after notice thereof and
the defect materially and adversely affects the interests of the holders of the
Certificates in the related Mortgage Loan or the interests of the Credit
Provider, the Servicer is required, on the immediately following Determination
Date (defined herein), to either (i) cause the respective Originator to
substitute in lieu of such Mortgage Loan a mortgage loan that meets certain
criteria set forth in the Pooling and
47
Servicing Agreement (a "Qualified Substitute Mortgage Loan") and, if the then
outstanding principal balance of such Qualified Substitute Mortgage Loan plus
accrued and unpaid interest thereon is less than the outstanding principal
balance of the substituted Mortgage Loan as of the date of such substitution
plus accrued and unpaid interest thereon and the amount of any unreimbursed
Servicing Advances, cause the respective Originator to deliver to the Servicer,
to become part of the amount remitted by the Servicer on the related Payment
Date, the amount of any such shortfall (a "Substitution Adjustment") or (ii)
cause the respective Originator to purchase such Mortgage Loan at a 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
Interest Rate, net of the Servicing Fee if such Originator is the Servicer, plus
the amount of any unreimbursed Servicing Advances made by the Servicer, which
purchase price is required to be deposited in the Principal and Interest Account
on the next succeeding Determination Date (after deducting therefrom any amounts
received in respect of such repurchased Mortgage Loan or Loans and being held in
the Principal and Interest Account for future distribution).
If the Mortgage Files are retained by the respective Originators, as
custodian for the Trustee, and assignments by the Originators to the Trustee are
not recorded, it may be possible for an Originator to transfer the Mortgage
Loans to bona fide purchasers for value without notice, notwithstanding and in
derogation of the rights of the Trustee. See "Special Considerations."
Representations and Warranties of the Originators and the Depositor
Unless otherwise specified in the related Prospectus Supplement, each
Originator will represent, among other things, that as to each Mortgage Loan
conveyed by any Originator to the Depositor as of the related Closing Date:
1. The information with respect to each Mortgage Loan set forth in the
Mortgage Loan Schedule is true and correct;
2. All of the original or certified documentation constituting the Mortgage
Files (including all material documents related thereto) is in the
possession of the Originator or, if required to be delivered in connection
with the issuance of a Series of Certificates, has been or will be
delivered to the Depositor or to the custodian appointed to hold the
Mortgage Files (the "Custodian"), if any, on the Closing Date or as
otherwise provided in the Agreement;
3. Each Mortgage Loan is principally secured by the related Mortgaged
Property. Each Mortgaged Property is improved by a one- to four-family
residential dwelling, including, if and to the extent specified in the
related Prospectus Supplement, cooperatives or mobile homes;
4. All of the Balloon Loans, if any, provide for monthly payments based on
an amortization schedule specified in the related Mortgage Note and have a
final balloon payment no earlier than the number of months following the
date of origination set forth in the related Prospectus Supplement and no
later than at the end of the year following the date of origination set
forth in the related Prospectus Supplement. Each other fixed-rate Mortgage
Note will provide for a schedule of substantially equal monthly payments
which are, if timely paid, sufficient to fully amortize the principal
balance of such Mortgage Note on or before its maturity date;
5. Each Mortgage is a valid and subsisting first, second or, if so
specified in the related Prospectus Supplement, more junior lien of record
on the Mortgaged Property subject, in the case of any second or more junior
Mortgage Loan, only to the Senior Lien or Liens on such Mortgaged Property
and subject in all cases to the exceptions to title set forth in the title
insurance policy, or the other evidence of title delivered pursuant to the
Transfer Agreement, with respect to the related
48
Mortgage Loan, which exceptions are generally acceptable to second mortgage
lending companies, and such other exceptions to which similar properties
are commonly subject and which do not individually, or in the aggregate,
materially and adversely affect the benefits of the security intended to be
provided by such Mortgage;
6. Except with respect to liens released immediately prior to the transfer
contemplated in the Transfer Agreement, immediately prior to the transfer
and assignment contemplated in the Transfer Agreement, the Originator held
good and indefeasible title to, and was the sole owner of, each Mortgage
Loan conveyed by the Originator subject to no liens, charges, mortgages,
encumbrances or rights of others; and immediately upon the transfer and
assignment herein contemplated, the Depositor will hold good and
indefeasible title to, and be the sole owner of, each Mortgage Loan (other
than amounts received on or after the Cut-off Date in respect of interest
accrued prior to the Cut-off Date) subject to no liens, charges, mortgages,
encumbrances or rights of others;
7. With respect to each Mortgage Loan secured by a second or more junior
Mortgage, the related Senior Lien requires equal monthly payments, or if it
bears an adjustable interest rate, the monthly payments for the related
Senior Lien may adjust, but not more frequently than every six months;
8. The percentage of the Mortgage Loans which are secured by an Owner
Occupied Mortgaged Property; and
9. Each Mortgage Loan conforms, and all Mortgage Loans in the aggregate
conform, to the description thereof set forth in this Prospectus and the
related Prospectus Supplement.
Such Originator will also make representations as to the percentage of
Mortgage Loans which are Balloon Loans, the percentage of Mortgage Loans secured
by Mortgaged Properties located within any single zip code area and the
percentage of the Mortgage Loans which were 30 or more days contractually
delinquent and 60 or more days contractually delinquent. For purposes of this
representation, "30 or more days contractually delinquent" means that a monthly
payment due on a due date was unpaid as of the end of the month in which
occurred the next succeeding due date and "60 or more days contractually
delinquent" means that a monthly payment due on a due date was unpaid as of the
end of the month in which occurred the second due date following the due date on
which such monthly payment was due.
In addition, each Originator will, with respect to each Bankruptcy Mortgage
Loan, make certain representations regarding (i) the number of payments made
under the related Bankruptcy Plan and (ii) the ratio of (a) the outstanding
principal balance of the Bankruptcy Mortgage Loan (plus the outstanding
principal balance of any Senior Lien) divided by (b) the current appraised value
of the related Mortgaged Property, as determined within 30 days after the
Closing Date. If there is a breach of these representations as to any Bankruptcy
Mortgage Loan which is not waived by the Trustee or any Credit Provider, the
Originators may, as described below, be required to repurchase such Bankruptcy
Mortgage Loan. Such repurchases would have the effect of increasing the rate of
prepayment of the Mortgage Loans.
Pursuant to the related Pooling and Servicing Agreement, the Depositor will
make substantially identical representations and warranties with respect to the
Mortgage Loans conveyed by the Depositor thereunder. Upon the discovery by the
Depositor, any Originator, the Servicer, any Subservicer, the Custodian, the
Credit Provider, if any, the Trustee or any other party specified in such
Pooling and Servicing Agreement that any of the representations and warranties
described above have been breached in any material respect as of the Closing
Date, with the result that the interests of
49
the holders of the related Certificates in the related Mortgage Loan or the
interests of the Credit Provider or any party specified in such Pooling and
Servicing Agreement are materially and adversely affected, the party discovering
such breach is required to give prompt written notice to the other parties.
Within 60 days (or such other period as may be specified in the related
Prospectus Supplement) of the earlier to occur of its discovery or its receipt
of notice of any such breach, the Servicer is required to (i) cause the
respective Originator to cure such breach in all material respects, (ii) cause
the respective Originator to substitute one or more Qualified Substitute
Mortgage Loans and, if the outstanding principal balance of such Qualified
Substitute Mortgage Loans plus accrued and unpaid interest thereon as of the
date of such substitution is less than the outstanding principal balance, plus
accrued and unpaid interest thereon and any unreimbursed Servicing Advances, of
the replaced Mortgage Loans as of the date of substitution, cause the respective
Originator to deliver a Substitution Adjustment to the Servicer, to become part
of the amount remitted by the Servicer to the Trustee on the related Payment
Date, or (iii) cause the respective Originator to purchase such Mortgage Loan at
a price equal to the outstanding principal balance of such Mortgage Loan as of
the date of purchase plus all accrued and unpaid interest on such outstanding
principal balance computed at the Mortgage Interest Rate, net of the Servicing
Fee if such Originator is the Servicer, plus the amount of any unreimbursed
Servicing Advances made by the Servicer, and deposit such purchase price into
the Principal and Interest Account on the next succeeding Determination Date or
other date specified in the related Pooling and Servicing Agreement. The
obligation of the Depositor and the Originators to cure, substitute or purchase
any Mortgage Loan as described above will constitute the sole remedy respecting
a material breach of any such representation or warranty to the holders of the
related Certificates or the Trustee. The obligation of the Depositor to so cure,
substitute or purchase shall be limited to the obligation of the Servicer to
cause the Originators to do so. The Depositor will have no substantial assets
other than certain Certificates retained by them issued by trusts formed by the
Depositor.
Payments on the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Servicer to cause to be
established and maintained an account (the "Principal and Interest Account") at
an institution meeting certain ratings and other criteria set forth in the
Pooling and Servicing Agreement (an "Eligible Account"), into which it is
required to deposit certain payments received in respect of the Mortgage Loans,
as more fully described below. Unless otherwise specified in the related
Prospectus Supplement, all funds in the Principal and Interest Account are
required to be held (i) uninvested, either in trust or insured by the Federal
Deposit Insurance Corporation up to the limits provided by law, (ii) invested in
certain permitted investments, which are generally limited to United States
government securities and other high-quality investments and repurchase
agreements or similar arrangements with respect to such investments, (iii)
invested in certain asset management accounts maintained by the Trustee or (iv)
invested in such other investments which the Insurer and the Rating Agencies may
approve ("Permitted Instruments"). Such investments may include securities or
other obligations issued by BANC ONE or its affiliates or trusts originated by
BANC ONE or its affiliates. Unless otherwise specified in the related Prospectus
Supplement, any investment earnings on funds held in the Principal and Interest
Account will be for the account of the Servicer.
Unless otherwise specified in the related Prospectus Supplement, if certain
conditions set forth in the related Prospectus Supplement are satisfied, the
Servicer is required to deposit into the Principal and Interest Account monthly
all Monthly Payments received on or after the related Cut-off Date (other than
amounts received on or after the Cut-off Date in respect of interest accrued on
the Mortgage Loans prior to the Cut-off Date) and all Principal Prepayments and
Curtailments collected on or after the Cut-off Date (net of the Servicing Fee
with respect to each Mortgage Loan and other servicing compensation payable to
the Servicer as permitted by the Pooling and Servicing
50
Agreement), all Net Liquidation Proceeds, Insurance Proceeds, Released Mortgaged
Property Proceeds, any amounts paid in connection with the repurchase of any
Mortgage Loan, the amount of any Substitution Adjustments, the amount of any
losses incurred in connection with investments in Permitted Instruments and
certain amounts relating to insufficient insurance policies and REO Property. If
such conditions are not satisfied or if otherwise specified in the related
Prospectus Supplement, the Servicer will be required to use its reasonable
efforts to make such deposits within one business day of receipt and in any
event within two business days of receipt.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may make withdrawals from the Principal and Interest Account only for
the following purposes:
(i) for deposit to the Collection Account no later than the third
business day preceding each Payment Date, the Excess Spread (defined
below), if any, and the Available Payment Amount for the related Monthly
Period (defined below). "Excess Spread" means generally the aggregate
excess, if any, of interest accrued on the related Mortgage Loans during
the Due Period over interest accrued on the related Certificates at the
applicable Certificate Interest Rates on the related Payment Date. A
"Monthly Period" is the calendar month preceding the month in which the
related Payment Date occurs and may be identical to the Due Period;
(ii) to reimburse itself for any accrued unpaid Servicing Fees and
unreimbursed Servicing Advances. Unless otherwise specified in the related
Prospectus Supplement, the Servicer's right to reimburse itself for unpaid
Servicing Fees and unreimbursed Servicing Advances will be limited to late
collections on the related Mortgage Loan, including Liquidation 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;
The Servicer's rights to such reimbursement will be prior to the
rights of holders of the related Certificates unless an Originator is the
Servicer and such Originator is required to purchase or substitute a
Mortgage Loan pursuant to the Pooling and Servicing Agreement and the
Transfer Agreement, in which case the Servicer's right to such
reimbursement shall be junior to the payment to such holders of the
purchase price or Substitution Adjustment;
(iii) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having competent
jurisdiction;
(iv) to make investments in Permitted Instruments and, after effecting
the remittance described in clause (i) above, to pay itself interest earned
in respect of Permitted Instruments or on funds deposited in the Principal
and Interest Account;
(v) to withdraw any funds deposited in the Principal and Interest
Account that were not required to be deposited therein (such as servicing
compensation) or were deposited therein in error;
(vi) to pay itself the Servicing Fee and any other permitted servicing
compensation to the extent not previously retained or paid;
(vii) to withdraw funds necessary for the conservation and disposition
of REO Property;
51
(viii) to make Servicing Advances, as more fully described below;
(ix) with respect to a Bankruptcy Loan, to remit to the applicable
Depositor certain payments, as provided in the Pooling and Servicing
Agreement; and
(x) to clear and terminate the Principal and Interest Account upon the
termination of the Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is required to wire transfer to the Collection Account the amount
described in clause (i) above no later than the third business day preceding
each Monthly Deposit Date, if any, and each Payment Date.
Advances; Servicing Advances
Unless otherwise specified in the related Prospectus Supplement, not later
than the close of business on the third business day prior to each Payment Date,
the Servicer is required to deposit in the Collection Account an amount (each,
an "Advance"), to be distributed on the related Payment Date, equal to the sum
of the interest portions of the aggregate amount of Monthly Payments (net of the
Servicing Fee and if so specified in the related Pooling and Servicing
Agreement, the Excess Spread) accrued during the related Monthly Period, but
uncollected as of the close of business on the last day of the related Monthly
Period, which obligation, if so specified in the related Prospectus Supplement,
may be limited to the obligation to withdraw such amounts from amounts held in
the Principal and Interest Account for distribution in future periods. The
Servicer is not required to make any Advances which it determines in its
discretion would be a Nonrecoverable Advance. Unless otherwise specified in the
related Prospectus Supplement, the Servicer shall not be required to make such
Advance from its own funds or be liable for the recovery thereof from
collections on the related Mortgage Loans or otherwise but such obligation shall
be limited to amounts on deposit in the Principal and Interest Account and held
for future distribution.
In the course of performing its servicing obligations, the Servicer will
pay all reasonable and customary "out-of-pocket" costs and expenses incurred in
the performance of its servicing obligations ("Servicing Advances"), including,
but not limited to, the cost of (i) maintaining REO Properties; (ii) any
enforcement or judicial proceedings, including foreclosures; and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage. Unless otherwise provided in the related Pooling and Servicing
Agreement, the Servicer may pay all or a portion of any Servicing Advance out of
excess amounts on deposit in the Principal and Interest Account and held for
future distribution on the date on which such Servicing Advance is made. Any
such excess amounts so used will be required to be replaced by the Servicer by
deposit to the Principal and Interest Account no later than the date specified
in the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may recover Servicing Advances to the extent permitted by the Mortgage
Loans or, if not theretofore recovered from the Mortgagor on whose behalf such
Servicing Advance was made, from late collections on the related Mortgage Loan,
including Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Servicer from the
Mortgagor or otherwise relating to the Mortgage Loan. To the extent the
Servicer, in its good faith business judgment, determines that certain Servicing
Advances, as described in the Pooling and Servicing Agreement, will not be
ultimately recoverable from late collections, Insurance Proceeds, Liquidation
Proceeds on the related Mortgage Loans or otherwise ("Nonrecoverable Advances"),
the Servicer may reimburse itself from the amounts available after distributions
to the holders of Certificates and payment of certain other fees and expenses.
The Servicer is not required to make any Servicing Advance which it determines
in its discretion would be a Nonrecoverable Advance.
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Distributions
The Trustee is required to establish a trust account (referred to herein as
the "Collection Account", but which may have such other designation as is set
forth in the related Prospectus Supplement) into which there shall be deposited
amounts transferred by the Servicer from the Principal and Interest Account. The
Collection Account is required to be maintained as an Eligible Account. Amounts
on deposit in the Collection Account may be invested in Permitted Instruments
and other investments specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date, the Trustee is required to withdraw from the Collection Account
and distribute the amounts set forth in the related Prospectus Supplement, to
the extent available, in the priority set forth therein, which generally will
include (in no particular order of priority):
(i) deposits into any account established for the purpose of paying
credit enhancement fees and premiums;
(ii) if a Spread Account, Reserve Fund or similar account is
established with respect to a Series of Certificates, deposits into such
fund or account of the Excess Spread or other amounts required to be
deposited therein;
(iii) payments to the holders of the Certificates on account of
interest and principal, in the order and manner set forth in the related
Prospectus Supplement;
(iv) reimbursement of the Servicer for amounts expended by the
Servicer and reimbursable thereto under the related Pooling and Servicing
Agreement but not previously reimbursed;
(v) payments to the Servicer of an amount equal to Nonrecoverable
Advances previously made by the Servicer and not previously reimbursed; and
(vi) after the payments and deposits described above and in the
related Prospectus Supplement, the balance, if any, to the persons
specified in the related Prospectus Supplement.
The amount available to make the payments described above will generally
equal (a) the sum of (i) the Available Payment Amount for the related Due Period
and (ii) the amount available under any credit enhancement, including amounts
withdrawn from any Spread Account or Reserve Fund, less (b) the amount of the
premiums or fees payable to the Credit Provider, if any, during the related Due
Period.
Generally, to the extent a Credit Provider makes payments to holder of
Certificates, such Credit Provider will be subrogated to the rights of such
holders with respect to such payments and shall be deemed, to the extent of the
payments so made, to be a registered holder of such Certificates.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Payment Date.
"Available Payment Amount" generally means the result of (a) collections on
or with respect to the Mortgage Loans received by the Servicer during each month
in the related Due Period, net of the Servicing Fee paid to the Servicer during
each month in the related Due Period and reimbursements for accrued unpaid
Servicing Fees and for certain expenses paid by the Servicer, plus
53
(b) the amount of any Advances, less, if so specified in the related Prospectus
Supplement, (c) the Excess Spread or other amounts specified in such Prospectus
Supplement.
"Basic Principal Amount" means the sum of (i) the principal portion of each
Monthly Payment received by the Servicer or any Subservicer during the related
Due Period, (ii) all Curtailments and all Principal Prepayments received during
such Due Period (or the applicable period (the "Prepayment Period") specified in
the related Prospectus Supplement), (iii) the principal portion of all Insurance
Proceeds, Released Mortgaged Property Proceeds and Net Liquidation Proceeds
received during the related Due Period, (iv) (a) that portion of the purchase
price of any purchased Mortgage Loans which represents principal and (b) any
Substitution Adjustments deposited into the Collection Account as of the related
Determination Date and (v) the Principal Balance of each Mortgage Loan as of the
beginning of the related Due Period which became a Liquidated Mortgage Loan
during such Due Period (exclusive of any principal payments in respect thereof
described in the preceding clauses (i) through (iv)).
"Mortgage Loan Losses" means, for Mortgage Loans that become Liquidated
Mortgage Loans during the related Due Period, the amount, if any, by which (i)
the sum of the outstanding principal balance of each such Mortgage Loan
(determined immediately before such Mortgage Loan became a Liquidated Mortgage
Loan) and accrued and unpaid interest thereon at the Mortgage Interest Rate to
the date on which such Mortgage Loan became a Liquidated Mortgage Loan exceeds
(ii) the Net Liquidation Proceeds received during such Due Period in connection
with the liquidation of such Mortgage Loan which have not theretofore been used
to reduce the Principal Balance of such Mortgage Loan.
"Payment Date" means the monthly, quarterly or other periodic date
specified in the related Prospectus Supplement on which payments will be made to
holders of the related Certificates.
Optional Disposition of Mortgage Loans
If so specified in the related Prospectus Supplement, the Servicer, the
Depositor or the holders of the Class of Certificates or such other person
specified in such Prospectus Supplement may cause the Trust to sell all of the
Mortgage Loans and all REO Properties when the Pool Principal Balance declines
to the percentage of the Original Pool Principal Balance specified in the
related Prospectus Supplement, when the outstanding principal balance of a Class
of Certificates specified in the related Prospectus Supplement declines to the
percentage of the original principal balance of such Class specified in the
related Prospectus Supplement or at such other time as is specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the related Pooling and Servicing Agreement will
establish a minimum price at which such Mortgage Loans and REO Properties may be
sold generally equal to the principal amount thereof plus accrued interest
thereon. Such minimum price may include certain expenses and other amounts or
such party as is specified in the related Prospectus Supplement may be required
to pay all or a portion of such expenses or other amounts at the time of sale.
Unless otherwise specified in the related Prospectus Supplement, the proceeds of
any such sale will be distributed to holders of the Certificates on the Payment
Date next following the date of disposition.
Mandatory Disposition of Mortgage Loans
If so specified in the related Prospectus Supplement, the Servicer, the
Depositor or such other entities as may be specified in such Prospectus
Supplement may be required to effect early retirement of a Series of
Certificates by soliciting competitive bids for the purchase of the assets of
the related Trust or otherwise, under the circumstances set forth in such
Prospectus Supplement. The procedures for the solicitation of such bids will be
described in the related Prospectus Supplement. Unless
54
otherwise specified in the related Prospectus Supplement, the Servicer, the
Originators and any Underwriter (defined herein) will be permitted to submit
bids. If so specified in the related Prospectus Supplement, a minimum bid or
reserve price may be established. If so specified in the related Prospectus
Supplement, the Underwriter or such other entity specified in such Prospectus
Supplement will be required to confirm that the accepted bid will result in the
sale of the assets of the Trust at their fair market value.
Forward Commitments; Prefunding
If so specified in the related Prospectus Supplement, a Pooling and
Servicing Agreement or other agreement may provide for the transfer by the
Depositor of additional Mortgage Loans to the related Trust after the Closing
Date for the related Certificates. In such case, it is expected that the related
Transfer Agreement will provide for a concurrent transfer of such additional
Mortgage Loans from one or more Originators to the Depositor. Such 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 such
transfer. As specified in the related Prospectus Supplement, such transfer may
be funded by the application for a specified period of all or a portion of
payments on the Mortgage Loans originally included in the related Mortgage Pool
or by the establishment of a Prefunding Account (a "Prefunding Account"). If a
Prefunding Account is established, all or a portion of the proceeds of the sale
of one or more Classes of Certificates of the related Series will be deposited
in such account to be released as additional Mortgage Loans are transferred.
Unless otherwise specified in the related Prospectus Supplement, a Prefunding
Account will be required to be maintained as an Eligible Account. The related
Pooling and Servicing Agreement or other agreement providing for the transfer of
additional Mortgage Loans will generally establish a specified period of time
within which such transfers must be made. Unless otherwise specified in the
related Prospectus Supplement, amounts set aside to fund such transfers (whether
in a Prefunding 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 such Prospectus Supplement.
Reports to Holders
On each Payment Date, there will be forwarded to each holder a statement
setting forth, among other things, the information as to such Payment Date
required by the related Pooling and Servicing Agreement, which generally will
include, except as otherwise provided therein, if applicable:
(i) the Available Payment Amount (and any portion of the Available
Payment Amount that has been deposited in the Collection Account but may
not be withdrawn therefrom pursuant to an order of a United States
bankruptcy court of competent jurisdiction imposing a stay pursuant to
Section 362 of the United States Bankruptcy Code);
(ii) the principal balance of each class of Certificates as reported
in the report for the immediately preceding Payment Date, or, with respect
to the first Payment Date for a Series of Certificates, the Original
Principal Balance of such Class;
(iii) the number and Principal Balances of all Mortgage Loans which
were the subject of Principal Prepayments during the related Due Period;
(iv) the amount of all Curtailments which were received during the
related Due Period;
55
(v) the principal portion of all Monthly Payments received during the
related Due Period;
(vi) the amount of interest received on the Mortgage Loans during the
related Due Period;
(vii) the aggregate amount of the Advances to be made with respect to
the Payment Date;
(viii) certain delinquency and foreclosure information as described
more fully in the related Pooling and Servicing Agreement, and the amount
of Mortgage Loan Losses during the related Due Period;
(ix) the amount of interest and principal due to the holders of each
Class of Certificates of such Series on such Payment Date;
(x) the amount then available in any Spread Account or Reserve
Account;
(xi) the amount of the payments, if any, to be made from any credit
enhancement on the Payment Date;
(xii) the amount to be distributed to the holders of any subordinated
or residual certificates on the Payment Date;
(xiii) the principal balance of each Class of Certificates of such
Series after giving effect to the payments to be made on the Payment Date;
(xiv) with respect to the Mortgage Pool, the weighted average maturity
and the weighted average Mortgage Interest Rate of the Mortgage Loans as of
the last day of the related Due Period;
(xv) the amount of all payments or reimbursements to the Servicer for
accrued unpaid Servicing Fees, unreimbursed Servicing Advances and interest
in respect of Permitted Instruments or funds on deposit in the Principal
and Interest Account and certain other amounts during the related Due
Period;
(xvi) the Pool Principal Balance as of the immediately preceding
Payment Date, the Pool Principal Balance after giving effect to payments
received and Mortgage Loan Losses incurred during the related Due Period
and the ratio of the Pool Principal Balance to the Original Pool Principal
Balance. As of any Payment Date, the "Pool Principal Balance" equals the
aggregate outstanding principal balance of all Mortgage Loans, as reduced
by the aggregate Mortgage Loan Losses, at the end of the related Due
Period;
(xvii) certain information with respect to the funding, availability
and release of monies from any Spread Account or Reserve Fund;
(xviii) the number of Mortgage Loans outstanding at the beginning and
at the end of the related Due Period;
(xiv) the amounts that are reimbursable to the Servicer or the
Depositor, as appropriate; and
56
(xv) such other information as the holders reasonably require.
Description of Credit Enhancement
To the extent specified in the related Prospectus Supplement, credit
enhancement for one or more Classes of a Series of Certificates may be provided
by one or more of a letter of credit, financial guaranty insurance policy,
reserve fund, spread account, cash collateral account, mortgage pool insurance
policy, bankruptcy bond, special hazard insurance policy or other type of credit
enhancement. Credit enhancement may also be provided by overcollateralization or
by subordination of one or more Classes of Certificates of a Series to one or
more other Classes of Certificates of such Series. Any credit enhancement will
be limited in amount and scope of coverage. Unless otherwise specified in the
related Prospectus Supplement, credit enhancement for a Series of Certificates
will not be available for losses incurred with respect to any other Series of
Certificates. To the extent credit enhancement for any Series of Certificates is
exhausted, or losses are incurred which are not covered by such credit
enhancement, the holders of the Certificates will bear all further risk of loss.
The amounts and types of credit enhancement, as well as the provider
thereof (the "Credit Provider"), if applicable, with respect to each Series of
Certificates will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the related Pooling
and Servicing Agreement, any credit enhancement may be periodically modified,
reduced or substituted for as the aggregate principal balance of the related
Mortgage Pool decreases, upon the occurrence of certain events or otherwise.
Unless otherwise specified in the related Prospectus Supplement, to the extent
permitted by the applicable Rating Agencies and provided that the then current
rating of the affected Certificates is not reduced or withdrawn as a result
thereof, any credit enhancement may be cancelled or reduced in amount or scope
of coverage or both.
The descriptions of credit enhancement arrangements included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which will be available upon
request.
Financial Guaranty Insurance Policy. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond (a
"Certificate Insurance Policy") may be obtained and maintained for a Class or
Series of Certificates. The issuer of the Certificate Insurance Policy (the
"Insurer") will be described in the related Prospectus Supplement and a copy of
the form of Certificate Insurance Policy will be filed with the related Current
Report on Form 8-K.
Unless otherwise specified in the related Prospectus Supplement, a
Certificate Insurance Policy will be unconditional and irrevocable and will
guarantee to holders of the applicable Certificates that an amount equal to the
full amount of distributions due to such holders will be received by the Trustee
or its agent on behalf of such holders for distribution on each Payment Date.
The specific terms of any Certificate Insurance Policy will be set forth in
the related Prospectus Supplement. A Certificate Insurance Policy may have
limitations and generally will not insure the obligation of the Depositor or any
Originator to purchase or substitute for a defective Mortgage Loan and will not
guarantee any specific rate of principal prepayments.
Unless otherwise specified in the related Prospectus Supplement, the
Insurer will be subrogated to the rights of each holder to the extent the
Insurer makes payments under the Certificate Insurance Policy.
57
Letter of Credit. If so specified in the related Prospectus Supplement, all
or a component of credit enhancement for a Class or a Series of Certificates may
be provided by a letter of credit (a "Letter of Credit") issued by a bank or
other financial institution (a "Letter of Credit Issuer") identified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, each Letter of Credit will be irrevocable. A Letter of
Credit may provide coverage with respect to one or more Classes of Certificates
or the underlying Mortgage Loans or, if specified in the related Prospectus
Supplement, may support a specified obligation or be provided in lieu of the
funding with cash of a Reserve Fund or Spread Account (each as defined below).
The amount available, conditions to drawing, if any, and right to reimbursement
with respect to a Letter of Credit will be specified in the related Prospectus
Supplement. A Letter of Credit will expire on the date specified in the related
Prospectus Supplement, unless earlier terminated or extended in accordance with
its terms.
Mortgage Pool Insurance Policy. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Certificates may be
provided by a mortgage pool insurance policy (a "Pool Insurance Policy") issued
by the insurer (a "Pool Insurer") specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
each Pool Insurance Policy will, subject to limitations described in such
Prospectus Supplement, insure against losses due to defaults in the payment of
principal or interest on the underlying Mortgage Loans up to the amount
specified in such Prospectus Supplement (or in a Current Report on Form 8-K).
The Pooling and Servicing Agreement with respect to any Series of Certificates
for which a Pool Insurance Policy is provided will require the Servicer or other
party specified therein to use reasonable efforts to maintain the Pool Insurance
Policy and to present claims to the Pool Insurer in the manner required thereby.
No Pool Insurance Policy will be a blanket policy against loss and will be
subject to the limitations and conditions precedent described in the related
Prospectus Supplement.
Special Hazard Insurance Policy. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Certificates may be
provided in part by an insurance policy (a "Special Hazard Policy") covering
losses due to physical damage to a Mortgaged Property other than a loss of the
type covered by a standard hazard insurance policy or flood insurance policy or
losses resulting from the application of co-insurance clauses contained in
standard hazard insurance policies. The Prospectus Supplement relating to a
Series of Certificates for which a Special Hazard Policy is provided will
identify the issuer of such policy and any limitations on coverage. No Special
Hazard Policy will cover extraordinary losses such as those due to war, civil
insurrection, governmental action, errors in design or workmanship, chemical
contamination or similar causes. Each Special Hazard Policy will contain an
aggregate limit on claims specified in the related Prospectus Supplement. No
claim will be paid under any Special Hazard Policy unless hazard insurance on
the Mortgaged Property is in force and protection and preservation expenses have
been paid.
Spread Account and Reserve Fund. If so specified in the related Prospectus
Supplement, all or any component of credit enhancement for a Series of
Certificates may be provided by a reserve fund (a "Reserve Fund") or a spread
account (a "Spread Account"). A Reserve Fund or Spread Account may be funded by
a combination of cash, one or more letters of credit or one or more Permitted
Instruments provided by the Depositor or other party identified in the related
Prospectus Supplement, amounts otherwise distributable to one or more Classes of
Certificates subordinated to one or more other Classes of Certificates or all or
any portion of Excess Spread. If so specified in the related Prospectus
Supplement, a Reserve Fund for a Series of Certificates may be funded in whole
or in part on the applicable Closing Date. If so specified in the related
Prospectus Supplement, cash deposited in a Reserve Fund or a Spread Account may
be withdrawn and replaced with one or more letters of credit or Permitted
Instruments. A Reserve Fund or Spread Account may be pledged or otherwise made
available to a Credit Provider. If so specified in the related Prospectus
Supplement, a Reserve Fund or Spread Account may not be deemed part of the
assets of the related Trust or may be
58
deemed to be pledged or provided by one or more of the Depositor, the holders of
the Class of Certificates otherwise entitled to the amounts deposited in such
account or such other party as is identified in such Prospectus Supplement.
Cash Collateral Account. If so specified in the related Prospectus
Supplement, all or any portion of credit enhancement for a Series of
Certificates may be provided by the establishment of a cash collateral account
(a "Cash Collateral Account"). A Cash Collateral Account will be similar to a
Reserve Fund or Spread Account except that generally a Cash Collateral Account
is funded initially by a loan from a cash collateral lender (the "Cash
Collateral Lender"), the proceeds of which are invested with the Cash Collateral
Lender or other eligible institution. Unless otherwise specified in the related
Prospectus Supplement, the Cash Collateral Account will be required to be
maintained as an Eligible Account. The loan from the Cash Collateral Lender will
be repaid from Excess Spread, if any, or such other amounts as are specified in
the related Prospectus Supplement. Amounts on deposit in the Cash Collateral
Account will be available in generally the same manner described above with
respect to a Spread Account or Reserve Fund. As specified in the related
Prospectus Supplement, a Cash Collateral Account may be deemed to be part of the
assets of the related Trust, may be deemed to be part of the assets of a
separate cash collateral trust or may be deemed to be property of the party
specified in the related Prospectus Supplement and pledged for the benefit of
the holders of one or more Classes of Certificates of a Series.
Subordination. If so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, Curtailments,
interest or any combination thereof otherwise payable to one or more Classes of
Certificates of a Series ("Subordinated Certificates") may instead be payable to
holders of one or more other Classes of Certificates of such Series ("Senior
Certificates") under the circumstances and to the extent specified in such
Prospectus Supplement. A Class of Certificates may be subordinated to one or
more Classes of Certificates and senior to one or more other Classes of
Certificates of a Series. If so specified in the related Prospectus Supplement,
delays in receipt of scheduled payments on the Mortgage Loans and losses on
defaulted Mortgage Loans will be borne first by the various Classes of
Subordinated Certificates and thereafter by the various Classes of Senior
Certificates, in each case under the circumstances and subject to the
limitations specified in such Prospectus Supplement. The aggregate losses in
respect of defaulted Mortgage Loans which must be borne by the Subordinated
Certificates by virtue of subordination and the amount of the distributions
otherwise distributable to the Subordinated Certificates that will be
distributable to Senior Certificates on any Payment Date may be limited as
specified in the related Prospectus Supplement or the availability of
subordination may otherwise be limited as specified in the related Prospectus
Supplement. If losses or delinquencies were to exceed the amounts payable and
available to holders of Subordinated Certificates of a Series or if such amounts
were to exceed any limitation on the amount of subordination available, holders
of Senior Certificates of such Series could experience losses.
In addition, if so specified in the related Prospectus Supplement, amounts
otherwise payable to holders of Subordinated Certificates on any Payment Date
may be deposited in a Reserve Fund or Spread Account, as described above. Such
deposits may be made on each Payment Date, on each Payment Date for a specified
period or to the extent necessary to cause the balance in such account to reach
or maintain a specified amount, as specified in the related Prospectus
Supplement, and thereafter, amounts may be released from such Reserve Fund or
Spread Account in the amounts and under the circumstances specified in such
Prospectus Supplement.
Distributions may be allocated as among Classes of Senior Certificates and
as among Classes of Subordinated Certificates in order of their final scheduled
payment dates, in accordance with a schedule or formula or otherwise, as
specified in the related Prospectus Supplement. As between Classes of
Subordinated Certificates, payments to holders of Senior Certificates on account
of
59
delinquencies or losses and deposits to any Reserve Fund or Spread Account will
be allocated as specified in the related Prospectus Supplement. Principal
Prepayments and Curtailments may be paid disproportionately to Classes of Senior
Certificates pursuant to a "shifting interest" structure or otherwise, as
specified in the related Prospectus Supplement.
Other Credit Enhancement. Credit enhancement may also be provided for a
Series of Certificates in the form of overcollateralization, surety bond,
insurance policy or other type of credit enhancement approved by the applicable
Rating Agencies to cover one or more risks with respect to the Mortgage Loans or
the Certificates, as specified in the related Prospectus Supplement.
Payment of Certain Expenses
If so specified in the related Prospectus Supplement, in order to provide
for the payment of the fees of the Credit Provider, if any, the Trustee may be
required to establish a Credit Enhancement Account and to deposit therein on the
dates specified in the related Prospectus Supplement, from amounts on deposit in
the Collection Account, in the priority indicated, an amount that is sufficient
to pay the premiums or fees due to the Credit Provider.
If so specified in the related Prospectus Supplement, each Pooling and
Servicing Agreement will require the Servicer to pay to the Trustee(s) from time
to time their respective fees and the reasonable expenses, disbursements and
advances incurred or made by them. The Trustee will be permitted under the
Pooling and Servicing Agreement on each Payment Date to pay, from amounts on
deposit in the Collection Account and after making any required distributions to
holders, any amounts then due and owing representing fees of the Trustee(s) that
have not been paid by the Servicer after written demand therefor.
Servicing Compensation
As compensation for servicing and administering the Mortgage Loans, the
Servicer is entitled to a fee in the amount specified in the related Prospectus
Supplement (the "Servicing Fee"), payable monthly from the interest portion of
monthly payments on the related Mortgage Loans, Liquidation Proceeds, Released
Mortgaged Property Proceeds, Insurance Proceeds and certain other late
collections on the related Mortgage Loans. In addition to the Servicing Fee, the
Servicer will generally be entitled under the related Pooling and Servicing
Agreement to retain as additional servicing compensation any assumption and
other administrative fees (including bad check charges, late payment fees and
similar fees) and interest paid on funds on deposit in the Principal and
Interest Account.
Servicing Standards
General Servicing Standards. It is expected that BOFS will act as
Sub-servicer with respect to Mortgage Loans originated by BOFS and VNFSC. The
following discussion describes the practices of BOFS in servicing loans owned by
BOFS, VNFSC and Bank One, Utah, N.A. The Servicer will agree to service the
Mortgage Loans in accordance with the Pooling and Servicing Agreement and, in
servicing and administering the Mortgage Loans, to employ or cause to be
employed procedures, including collection, foreclosure and REO Property
management procedures, and exercise the same care it customarily employs and
exercises in servicing and administering mortgage loans for its own account, in
accordance with accepted first, second and more junior mortgage servicing
practices of prudent lending institutions and giving due consideration to the
holders', and any Credit Provider's reliance on the Servicer. The interests of
the holders of each Class of Certificates of any Series and the Credit Provider,
if any, may differ with respect to servicing decisions which may affect the rate
at which prepayments are received. For example,
60
holders of certain Classes of Certificates may prefer that "due-on-sale" clauses
be waived in the event of a sale of the underlying Mortgaged Property, that
delinquent Mortgagors be granted extensions or other accommodations and that
liquidations of Mortgage Loans be deferred, if an increase in the rate of
principal prepayments would have an adverse effect on the yield to investors in
such Certificates. Depending on the timing of such prepayments, holders of other
classes of Certificates may prefer that "due-on-sale" clauses be enforced or
that other actions be taken which would increase prepayments. No holder of a
Certificate will have the right to make any decisions with respect to the
underlying Mortgage Loans. The Servicer will have the right and obligation to
make such decisions in accordance with its normal servicing procedures and the
standards set forth in the related Pooling and Servicing Agreement. In certain
cases, the consent or approval of the Credit Provider, if any, may be permitted
or required. The interests of the Credit Provider, if any, with respect to,
among other things, matters which affect the timing of payments and prepayments
may not be the same as those of the holders of each Class of Certificates of
such Series.
Hazard Insurance. The Servicer will cause to be maintained fire and hazard
insurance with extended coverage (sometimes referred to as "standard hazard
insurance") customary in the area where the Mortgaged Property is located, in an
amount which is at least equal to the least of (i) the outstanding Principal
Balance owing on the Mortgage Loan, (ii) the full insurable value of the
premises securing the Mortgage Loan and (iii) the minimum amount required to
compensate for damage or loss on a replacement cost basis. Generally, if (i) the
Mortgaged Property is in an area identified in the Federal Register by the Flood
Emergency Management Agency as Flood Zone "A", (ii) flood insurance has been
made available and (iii) the Servicer determines that such insurance is
necessary in accordance with accepted first, second and more junior mortgage
servicing practices of prudent lending institutions, the Servicer will be
required to cause to be purchased a flood insurance policy with a generally
acceptable insurance carrier, in an amount representing coverage not less than
the least of (a) the outstanding principal balance of the Mortgage Loan, (b) the
full insurable value of the Mortgaged Property, or (c) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
The Servicer will also be required to maintain on REO Property, to the extent
such insurance is available, fire and hazard insurance in the applicable amounts
described above, liability insurance and, to the extent required and available
under the National Flood Insurance Act of 1968, as amended, and the Servicer
determines that such insurance is necessary in accordance with accepted first,
second and more junior mortgage servicing practices of prudent lending
institutions, flood insurance in an amount equal to that required above. Any
amounts collected by the Servicer under any such policies (other than amounts to
be applied to the restoration or repair of the Mortgaged Property, or to be
released to the Mortgagor in accordance with customary first and second mortgage
servicing procedures) will be deposited in the Principal and Interest Account,
subject to retention by the Servicer to the extent such amounts constitute
servicing compensation or to withdrawal pursuant to the related Pooling and
Servicing Agreement.
If the Servicer obtains and maintains a blanket policy insuring against
fire and hazards of extended coverage on all of the Mortgage Loans, then, to the
extent such policy names the Servicer as loss payee and provides coverage in an
amount equal to the aggregate outstanding principal balance on the Mortgage
Loans without co-insurance, the Servicer will be deemed conclusively to have
satisfied its obligations with respect to fire and hazard insurance coverage.
Enforcement of Due on Sale Clauses. When a Mortgaged Property has been or
is about to be conveyed by the Mortgagor, the Servicer, on behalf of the
Trustee, is required, to the extent it has knowledge of such conveyance or
prospective conveyance, to enforce the rights of the Trustee as the mortgagee of
record to accelerate the maturity of the related Mortgage Loan under any
"due-on-sale" clause contained in the related Mortgage or Mortgage Note;
provided, however, that the Servicer will not be permitted to exercise any such
right if the "due-on-sale" clause, in the reasonable belief of the Servicer, is
not enforceable under applicable law. In such event, the Servicer will be
required to enter
61
into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and, unless prohibited by applicable law
or the Mortgage Note or Mortgage, the Mortgagor remains liable thereon. The
Servicer will also be authorized (with the prior approval of any Credit
Provider, if required) to enter into a substitution of liability agreement with
such person, pursuant to which the original Mortgagor is released from liability
and such person is substituted as Mortgagor and becomes liable under the
Mortgage Note.
Realization Upon Defaulted Mortgage Loans. The Servicer is required to
foreclose upon or otherwise comparably effect the ownership in the name of the
Trustee on behalf of the holders of the related Certificates of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments; provided,
however, that the Servicer will not be required to foreclose if it determines
that foreclosure would not be in the best interests of the holders or any Credit
Provider. In connection with such foreclosure or other conversion, the Servicer
is required to exercise collection and foreclosure procedures with the same
degree of care and skill in its exercise or use as it would exercise or use
under the circumstances in the conduct of its own affairs.
Collection of Mortgage Loan Payments. Each Pooling and Servicing Agreement
will require the Servicer to make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans. Consistent with
the foregoing, the Servicer may at its own discretion waive any late payment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Mortgage Loan or any other fee or charge which the Servicer would be
entitled to retain as Servicing Compensation and may waive, vary or modify any
term of any Mortgage Loan or consent to the postponement of strict compliance
with any such term or in any matter grant indulgence to any Mortgagor, subject
to the limitations set forth in the related Pooling and Servicing Agreement.
Use of Subservicers
The Servicer will be permitted under each Pooling and Servicing Agreement
to enter into Subservicing Agreements for any servicing and administration of
Mortgage Loans with any institution which is in compliance with the laws of each
state necessary to enable it to perform its obligations under such Subservicing
Agreement and is either (i) designated by the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") as
an approved Seller-Servicer for first and second mortgage loans or (ii) is an
affiliate or a wholly owned subsidiary of the Servicer.
Notwithstanding any Subservicing Agreement, unless otherwise specified in
the related Prospectus Supplement, the Servicer will not be relieved of its
obligations under a Pooling and Servicing Agreement, and the Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans. The Servicer will be
entitled to enter into any agreement with a subservicer for indemnification of
the Servicer by such subservicer and nothing contained in any Pooling and
Servicing Agreement shall be deemed to limit or modify such indemnification.
Servicing Certificates and Audits
The Servicer is required to deliver, not later than the last day of the
fourth month following the end of the Servicer's fiscal year, commencing in the
year specified in the related Pooling and Servicing Agreement, an Officers'
Certificate stating that (i) the Servicer has fully complied with the provisions
of the Pooling and Servicing Agreement which relate to the servicing and
administration of
62
the Mortgage Loans, (ii) a review of the activities of the Servicer during such
preceding year and of performance under the Pooling and Servicing Agreement has
been made under such officers' supervision, and (iii) to the best of such
officers' knowledge, based on such review, the Servicer has fulfilled all its
obligations under the Pooling and Servicing Agreement for such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officers and the nature and status thereof
including the steps being taken by the Servicer to remedy such default.
The Servicer is required to cause to be delivered, not later than the last
day of the fourth month following the end of the Servicer's fiscal year,
commencing in the year set forth in the related Pooling and Servicing Agreement,
a letter or letters of a firm of independent certified public accountants
reasonably acceptable to the Trustee and any Owner Trustee stating that such
firm has, with respect to the Servicer's overall servicing operations, examined
such operations in accordance with the requirements of the Uniform Single Audit
Program for Mortgage Bankers, and stating such firm's conclusions relating
thereto.
Limitations on Liability of the Servicer and Its Agents
Each Pooling and Servicing Agreement will provide that neither the Servicer
nor any of its directors, officers, employees and agents shall be under any
liability to the Trust or the Certificateholders for taking any action or for
refraining from taking any action pursuant to the Pooling and Servicing
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful malfeasance, bad faith or negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties thereunder.
Each Pooling and Servicing Agreement will provide that the Servicer and any
director, officer, employee or agent of the Servicer may rely on any document of
any kind that is reasonably and in good faith believed to be genuine and adopted
or signed by the proper authorities respecting any matters arising under the
Pooling and Servicing Agreement. In addition, the Servicer will not be required
to appear with respect to, prosecute or defend any legal action that is not
incidental to the Servicer's duty to service the Mortgage Loans in accordance
with the related Pooling and Servicing Agreement, other than certain claims made
by third parties with respect to such Pooling and Servicing Agreement.
Removal and Resignation of Servicer
Unless otherwise specified in the related Prospectus Supplement, any Credit
Provider or the holders of Certificates of a Series representing a majority in
principal amount of Certificates of such Series, voting as a single class (a
"Majority in Aggregate Voting Interest"), with the consent of any Credit
Provider, may, pursuant to the related Pooling and Servicing Agreement, remove
the Servicer upon the occurrence and continuation beyond the applicable cure
period of any of the following events (each a "Servicer Termination Event"):
(i) (A) If so specified in the related Prospectus Supplement, an Event
of Nonpayment (defined below); (B) the failure by the Servicer to make any
required Servicing Advance, to the extent such failure materially and
adversely affects the interests of any Credit Provider or the holders of
the Certificates of such Series; or (C) any other failure by the Servicer
to remit to holders of the Certificates of such Series or to the Trustee
for the benefit of the holders of the Certificates of such Series, any
payment required to be made under the terms of the related Pooling and
Servicing Agreement which continues unremedied after the date upon
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which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer; or
(ii) failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in the related Pooling and Servicing Agreement, which
failure continues unremedied for a period of 60 days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer; provided that the Trustee may, with
the consent of any Credit Provider, extend the time for such cure to a
period not to exceed 120 days after notice if such failure is capable of
cure and the Servicer is diligently pursuing the same; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its inability to pay its debts
as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations; or
(vi) the Servicer shall fail for 60 days to pay, or bond against, an
unappealable, undischarged, unvacated and unstayed final judgment by a
court of competent jurisdiction in an aggregate amount set forth in the
related Pooling and Servicing Agreement; or
(vii) If so specified in the related Prospectus Supplement, under
certain circumstances, the aggregate Mortgage Loan Losses on the related
Mortgage Pool shall exceed certain thresholds described in the related
Pooling and Servicing Agreement.
"Event of Nonpayment" means, with respect to any Payment Date, unless
otherwise specified in the related Prospectus Supplement, the failure of the sum
of (i) the amounts withdrawn from the Principal and Interest Account during the
related Accrual Period, (ii) income accrued on the amounts in the Collection
Account during such Accrual Period, (iii) Advances made during such Accrual
Period and (iv) amounts withdrawn from any Reserve Fund or Spread Account on
such Payment Date, when taken together (but not including any amounts subject to
any automatic stay under applicable bankruptcy law), to be sufficient to pay all
amounts due to holders of such Certificates on such Payment Date; together with
any fees or premiums due to any Credit Provider; provided, that an Event of
Nonpayment shall not occur if such insufficiency results from a failure by any
Credit Provider to perform in accordance with the terms of the related Pooling
and Servicing Agreement and credit enhancement documents or the failure by the
Trustee to perform in accordance with the related Pooling and Servicing
Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor may, with the consent of any Credit Provider and holders representing
a majority in aggregate Percentage Interest of each Class of Certificates of a
Series, remove the Servicer upon 90 days' prior written notice. No such removal
shall be effective until the appointment and acceptance of a successor Servicer
other
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than the Trustee (unless the Trustee agrees to serve) meeting the requirements
described below and otherwise acceptable to any Credit Provider and majority in
Percentage Interest of each Class of Certificates of such Series.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may not assign the related Pooling and Servicing Agreement nor resign
from the obligations and duties thereby imposed on it except by mutual consent
of the Servicer, any Credit Provider, the Trustee and the Majority in Aggregate
Voting Interest or upon the determination that the Servicer's duties thereunder
are no longer permissible under applicable law or if such resignation is
required by regulatory authorities and such incapacity cannot be cured by the
Servicer. No such resignation shall become effective until the earlier of a
successor having assumed the Servicer's responsibilities and obligations in
accordance with the Pooling and Servicing Agreement or the date upon which any
regulatory authority requires such resignation.
Unless otherwise specified in the related Prospectus Supplement, upon
removal or resignation of the Servicer other than as described in the second
preceding paragraph, the Trustee will be the successor servicer (the "Successor
Servicer"). The Trustee, as Successor Servicer, is obligated to make Servicing
Advances and certain other advances unless it determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Trustee is
unwilling or unable to act as Successor Servicer, or if the Majority in
Aggregate Voting Interest or any Credit Provider so requests in writing, the
Trustee may appoint, or petition a court of competent jurisdiction to appoint,
any established mortgage loan servicing institution acceptable to such Credit
Provider having a net worth of not less than the amount set forth in the related
Pooling and Servicing Agreement and which is approved as a servicer by FNMA and
FHLMC as the Successor Servicer in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer.
The Trustee and any other Successor Servicer in such capacity is entitled
to the same reimbursement for advances and other Servicing Compensation as the
Servicer. See "Servicing Compensation" above.
Registration and Transfer of the Certificates
If so specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series will be issued in definitive certificated form and
will be transferable and exchangeable at the office of the registrar identified
in the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, no service charge will be made for any such registration
or transfer of such Certificates, but the owner may be required to pay a sum
sufficient to cover any tax or other governmental charge.
If so specified in the related Prospectus Supplement, Book-Entry Securities
may be initially represented by one or more certificates registered in the name
of DTC or other securities depository and be available only in the form of
book-entries. Any Book-Entry Securities will initially be registered in the name
of Cede, the nominee of DTC. DTC is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act. DTC accepts securities for deposit from
Participants and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also available
to Indirect Participants.
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Beneficial owners ("Owners") that are not Participants but desire to
purchase, sell or otherwise transfer ownership of Book-Entry Offered
Certificates may do so only through Participants (unless and until Definitive
Certificates, as defined below, are issued). In addition, Owners will receive
all distributions of principal of, and interest on, the Book-Entry Securities
from the Trustee or any Trustee, as the case may be, through DTC and
Participants. Owners will not receive or be entitled to receive certificates
representing their respective interests in the Book-Entry Offered Certificates,
except under the limited circumstances described below.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only "holder" of Book-Entry Securities of any Series
will be Cede, as nominee of DTC. Owners will only permitted to exercise the
rights of holders indirectly through Participants and DTC.
While any Book-Entry Securities of a Series are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Securities and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Securities.
Participants with whom Owners have accounts with respect to Book-Entry
Securities are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Owners. Accordingly,
although Owners will not possess certificates, the Rules provide a mechanism by
which Owners will receive distributions and will be able to transfer their
interests.
Unless and until Definitive Certificates are issued, Owners who are not
Participants may transfer ownership of Book-Entry Securities of a Series only
through Participants by instructing such Participants to transfer Book-Entry
Securities, by book-entry transfer, through DTC for the account of the
purchasers of such Book-Entry Securities, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of Book-Entry Securities will be executed
through DTC and the accounts of the respective Participants at DTC will be
debited and credited. Similarly, the respective Participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Owners.
Book-Entry Securities of a Series will be issued in registered form to
Owners, or their nominees, rather than to DTC (such Book-Entry Securities being
referred to herein as "Definitive Certificates") only under the circumstances
provided in the related Pooling and Servicing Agreement, which generally will
include, except if otherwise provided therein, if (i) DTC or the Servicer
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Book-Entry Securities of such Series and the Servicer is unable to locate
a qualified successor, (ii) the Servicer, at its sole option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
Servicer Termination Event, a majority of the aggregate Percentage Interest of
any Class of Certificates of such Series advises DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) to the
exclusion of any physical certificates being issued to Owners is no longer in
the best interests of Owners of such Class of Certificates. Upon issuance of
Definitive Certificates of a Series to Owners, such Book-Entry Securities will
be transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee with respect to
transfers, notices and distributions.
DTC has advised the Servicer and the Depositor that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by a holder only at the direction of one or more Participants to whose DTC
accounts the Certificates are credited. DTC has advised the Servicer and the
Depositor that DTC will take such action with respect to any Percentage
Interests of the Book-Entry Securities of a Series only at the direction of and
on behalf of such Participants with respect to such Percentage Interests of the
Book-Entry Securities. DTC may take actions, at the
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direction of the related Participants, with respect to some Book-Entry
Securities which conflict with actions taken with respect to other Book-Entry
Securities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state laws (which laws may differ substantially
from one another), the summaries do not purport to be complete nor to reflect
the laws of any particular state nor to encompass the laws of all states in
which the Mortgage Properties may be situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
General
The Mortgage Loans will be secured by either deeds of trust or mortgages,
depending upon the prevailing practice in the state in which the Mortgaged
Property subject to a Mortgage Loan is located. A mortgage conveys legal title
to or creates a lien upon the property to the mortgagee subject to a condition
subsequent, i.e., the payment of the indebtedness secured thereby. There are two
parties to a mortgage, the mortgagor, who is the borrower and homeowner, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust has three parties, the
borrower-homeowner called the trustor (similar to a mortgagor), a lender called
the beneficiary (similar to a mortgagee), and a third-party grantee called the
trustee. Under a deed of trust, the borrower grants the property, irrevocably
until the debt is paid, in trust, generally with a power of sale, to the trustee
to secure payment of the obligation. The trustee's authority under a deed of
trust and the mortgagee's authority under a mortgage are governed by law, the
express provisions of the deed of trust or mortgage, and, in some cases, the
directions of the beneficiary. Some states use a security deed or deed to secure
debt which is similar to a deed of trust except that it has only two parties: a
grantor (similar to a mortgagor) and a grantee (similar to a mortgagee).
Mortgages, deeds of trust and deeds to secure debt are not prior to liens for
real estate taxes and assessments and other charges imposed under governmental
police powers. Priority between mortgages, deeds of trust and deeds to secure
debt and other encumbrances depends on their terms in some cases and generally
on the order of recordation of the mortgage, deed of trust or the deed to secure
debt in the appropriate recording office.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
include loans on units in cooperatives ("Cooperative Loans"). Cooperative Loans
are evidenced by notes secured by security interests in shares issued by
cooperatives, which are corporations entitled to be treated as housing
cooperatives under federal tax law, and in the related proprietary leases or
occupancy agreements granting rights to occupy specific dwelling units within
the cooperative buildings. The security agreement will create a lien upon or
grant a title interest in the property which it covers, the priority of which
lien will depend on the terms of the agreement and the order of recordation in
the appropriate recording office. Ownership of a unit in a cooperative is held
through the ownership of stock in the corporation, together with the related
proprietary lease or occupancy agreement. Such ownership interest is generally
financed through a cooperative share loan evidenced by a promissory note and
secured by an assignment of and a security interest in the proprietary lease or
occupancy agreement and a security interest in the related cooperative shares.
Each cooperative owns in fee or has a leasehold interest in the real
property and improvements, including all separate dwelling units therein. The
cooperative is responsible for property management and generally for the payment
of real estate taxes, insurance and similar
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charges, the cost of which is shared by the owners. The cooperative building or
underlying land may be subject to one or more mortgages (generally incurred in
connection with the construction or purchase of the building) for which the
cooperative is responsible. The interest of an occupant under proprietary leases
or occupancy agreements is generally subordinate to that of the holder of such a
mortgage or land lease. If the cooperative is unable to meet the payment
obligations under such mortgage or any land lease, the holder of such mortgage
or land lease could foreclose the mortgage or terminate the land lease, which
may have the effect of terminating all proprietary leases or occupancy
agreements. In the event of such foreclosure or termination, the value of any
collateral held by a lender which financed the purchase by a tenant/shareholder
of cooperative shares or, in the case of the Mortgage Loans, the collateral
securing the Cooperative Loans could be eliminated or significantly reduced.
Foreclosure in General
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 real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties defendant.
Judicial foreclosure proceedings are often not contested by any of the parties
defendant.
Foreclosure of a deed of trust or a security deed is generally accomplished
by a non-judicial trustee's sale under a specific provision in the deed of trust
or security deed which authorizes the sale of the property to a third party upon
any default by the borrower under the terms of the note, deed of trust or
security deed. In some states, the trustee must record a notice of default and
send a copy to the borrower-trustor and to any person who has recorded a request
for a copy of a notice of default and notice of sale. In addition, the trustee
must provide notice in some states to any other individual having an interest in
the real property, including any junior lienholders. The borrower, or any other
person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligations. Generally,
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.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is often a public
sale. Because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property subject to the lien of the mortgage or the deed of trust may have
deteriorated during the foreclosure proceedings, a third party may be unwilling
to purchase the property at a foreclosure sale. Potential buyers may further
question the prudence of purchasing property at a foreclosure sale as a result
of several court decisions permitting such a sale to be rescinded as a
fraudulent conveyance. However, in light of the United States Supreme Court
decision in BFP v. Resolution Trust Corporation, as Receiver of Imperial Federal
Savings Ass'n., the ability to rescind a sale under fraudulent conveyance
theories should be limited to state law. The Supreme Court in BFP held that a
non-collusive, regularly-conducted foreclosure sale under applicable state law
was not a fraudulent transfer under Section 548 of the current United States
Bankruptcy Code and, therefore, could not be rescinded in favor of the
bankrupt's estate, even though the foreclosure sale was held while the debtor
was insolvent and not more than one year prior to the filing of the bankruptcy
petition, because the price paid at such a foreclosure sale is conclusively
presumed to constitute "reasonably equivalent value" under the United States
Bankruptcy Code.
For these reasons, it is common for the lender to purchase the property
from the trustee or referee for an amount equal to the principal amount of the
indebtedness secured by the mortgage or deed of trust, accrued and unpaid
interest and the expenses of foreclosure. The lender thereby assumes the burdens
of ownership, including the obligation to pay taxes, obtain casualty insurance
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and to make such repairs at its own expense as are necessary to render the
property suitable for sale. In some states there is a statutory minimum purchase
price which the lender may offer for the property. 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.
Under the Pooling and Servicing Agreement and the REMIC Provisions of the
Code, the Servicer may hire an independent contractor to operate any REO
Property. The costs of such operation may be significantly greater than the cost
of direct operation by the Servicer.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See
"Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
Junior Mortgages
Some of the Mortgage Loans may be secured by second or more junior
mortgages or deeds of trust, which are subordinate to first or more senior
mortgages or deeds of trust held by other lenders. The rights of the holders, as
the holders of a junior deed of trust or a junior mortgage, are subordinate in
lien and in payment to those of the holder of the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive and apply hazard insurance and condemnation proceeds and, upon default
of the mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
mortgagee satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "Foreclosure in General"
herein.
Furthermore, the terms of the second or more junior mortgage or deed of
trust are subordinate to the terms of the first or senior mortgage or deed of
trust. In the event of a conflict between the terms of the senior mortgage or
deed of trust and the junior mortgage or deed of trust, the terms of the senior
mortgage deed of trust will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage or deed of trust, may have the right
to perform the obligation itself. Generally, all sums so expended by the
mortgagee or beneficiary become part of the indebtedness secured by the mortgage
or deed of trust. To the extent a senior mortgagee expends such sums, such sums
will generally have priority over all sums due under the junior mortgage. See
"Special Considerations -- Risks of the Mortgages -- Nature of Certificate" for
a further discussion of certain risks associated with junior mortgage loans.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser 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 expired.
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Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, a court with
federal bankruptcy jurisdiction may permit a debtor through his or her Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court provided no sale of the residence
had yet occurred prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
13 except with respect to mortgage payment arrearages, which may be cured within
a reasonable time period. As a result of an amendment to the federal bankruptcy
laws effective for cases filed after October 22, 1995, a Chapter 11 plan
similarly may not modify the terms of a mortgage loan secured only by a mortgage
on real property that is the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
related statutes. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the applicable laws. In some cases, this liability may affect assignees of
the Mortgage Loans.
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Enforceability of Certain Provisions
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will include a debt-acceleration clause, which permits the lender
to accelerate the debt upon a monetary default of the borrower, after the
applicable cure period. The courts of all states will enforce clauses providing
for acceleration in the event of a material payment default. However, courts of
any state, exercising equity jurisdiction, may refuse to allow a lender to
foreclose a mortgage or deed of trust when an acceleration of the indebtedness
would be inequitable or unjust and the circumstances would render the
acceleration unconscionable.
Some courts have imposed general equitable principles to limit the remedies
available in connection with foreclosure. These equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. For example, some courts have required that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lenders' judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lenders to foreclose if the default under the mortgage instrument or deed of
trust is not monetary, such as the borrower's failure to maintain adequately the
property or the borrower's execution of a second mortgage or deed of trust
affecting the property. Finally, some courts have been willing to relieve a
borrower from the consequences of the default if the borrower has not received
adequate notice of the default.
The Mortgage Loans will generally contain due-on-sale clauses, which permit
the lender to accelerate the maturity of the Mortgage Loan if the borrower
sells, transfers, or conveys the related Mortgaged Property. The enforceability
of these clauses has been the subject of legislation or litigation in many
states. Some jurisdictions automatically enforce such clauses, while others
require a showing of reasonableness and hold, on a case-by-case basis, that a
"due on sale" clause may be invoked only where a sale threatens the legitimate
security interests of the lender.
The Garn-St. Germain Depository Institutions Act of 1982 purports to
preempt state laws which prohibit the enforcement of "due-on-sale" clauses in
certain loans made after October 15, 1982. The Servicer may thus be able to
accelerate the Mortgage Loans that were originated after that date and contain a
"due-on-sale" provision, upon transfer of an interest in the related Mortgaged
Property, regardless of its ability to demonstrate that a sale threatens its
legitimate security interest. Each Pooling and Servicing Agreement will provide
that the Servicer, on behalf of the Trustee, will enforce any right of the
Trustee as the mortgagee of record to accelerate a Mortgage Loan in the event of
a sale or other transfer of the related Mortgaged Property unless, in the
Servicer's reasonable judgment, doing so would materially increase the risk of
default or delinquency on, or materially impair the security for, such Mortgage
Loan.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March, 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. In addition, even where Title
V is not so rejected, any state is authorized by the law to adopt a provision
limiting discount points or other charges on mortgage loans covered by Title V.
Certain states have
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taken action to reimpose interest rate limits and/or to limit discount points or
other charges. The Depositors will represent and warrant in each Pooling and
Servicing Agreement that each related Mortgage Loan was originated in compliance
with applicable state law in all material respects.
Environmental Legislation
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and possibly under state law in a number of states, a secured party
which takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a secured lender (such as the related Trust).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Certificates.
This summary does not purport to address all federal income tax matters that may
be relevant to purchasers of Certificates, and is directed solely to investors
that hold the Certificates as capital assets within the meaning of section 1221
of the Internal Revenue Code of 1986 (the "Code") and to investors that do not
hold the Certificates as part of a larger transaction such as a hedge, straddle
or conversion transaction. It does not address tax consequences that may be
relevant to particular holders subject to special treatment under federal income
tax law (such as, banks and other financial institutions, insurance companies,
regulated investment companies, real estate investment trusts, dealers in
securities, tax-exempt entities, or investors whose "functional currency" is not
the United States dollar). Prospective investors are urged to consult their own
tax advisers in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the
Certificates. The following summary is based upon current provisions of the
Code, the Treasury regulations promulgated thereunder and judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
No ruling on any of the issues discussed below will be sought from the Internal
Revenue Service ("IRS"). A Trust or any segregated pool of assets therein as to
which one or more REMIC elections will be made will be referred to as a "REMIC
Pool".
REMIC Elections
Upon issuance of each series of Certificates, special federal tax counsel
to the Trust specified in the related Prospectus Supplement ("Tax Counsel") will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the Agreement, each related REMIC Pool will qualify as a REMIC,
and the related Certificates will be treated either as regular interests in the
REMIC ("Regular Certificates") or as residual interests in the REMIC ("Residual
Certificates"). Regular Certificates generally will be treated as debt
instruments issued by the REMIC. The holder of a Residual Certificate will be
subject to the special rules described below under which the holder generally
will take into account for Federal income tax purposes its pro rata share of the
net income or loss of the REMIC.
If a REMIC Pool fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, the Code
provides that the REMIC Pool will not be treated as a REMIC for such year and
thereafter. In that event, such REMIC Pool may be taxable as
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a separate corporation under Treasury regulations, and the related Certificates
may not be accorded the status or given the tax treatment described below.
Although the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of REMIC status, no
such regulations have been issued. Any such relief, moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the REMIC Pool's income for the period in which the requirements for such status
are not satisfied. The Agreement will include provisions designed to maintain
the REMIC Pool's status as a REMIC. It is not anticipated that the status of any
REMIC Pool as a REMIC will be terminated.
Status of Certificates
It is unclear whether property acquired by foreclosure held pending sale
and the amount held in a Spread Account or Reserve Fund (or similar accounts)
would be considered to be part of the Mortgage Loans, or whether such assets
otherwise would receive the same treatment as the Mortgage Loans, for purposes
of sections 593(d)(1), 856(c)(6)(B) and 7701(a)(19)(C) of the Code.
Regular Certificates
General. In general, stated interest, original issue discount and market
discount received or accrued on a Regular Certificate will be ordinary income,
and principal payments on a Regular Certificate will be a return of capital to
the extent of the Certificateholder's basis in the Regular Certificate allocable
to those payments. A holder of a Regular Certificate must use the accrual method
of accounting with respect to that Certificate regardless of the method of
accounting otherwise used.
Original Issue Discount. Certain Regular Certificates may be issued with
"original issue discount" within the meaning of section 1273(a) of the Code.
A holder of a Regular Certificate having original issue discount generally
must include original issue discount in ordinary income as it accrues in advance
of receipt of the cash attributable to the discount regardless of the method of
accounting otherwise used. Section 1272(a)(6) of the Code requires that a
prepayment assumption be used with respect to Mortgage Loans held by a REMIC in
computing the accrual of original issue discount on Regular Certificates issued
by that REMIC, and that adjustments be made in the amount and rate of accrual of
such discount to reflect differences between the actual prepayment rate and the
prepayment assumption. The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; those regulations have not been issued. The
legislative history of the REMIC provisions indicates that the regulations will
provide that the prepayment assumption used with respect to a Regular
Certificate must be the same as that used in pricing the initial offering of
such Regular Certificate. The prepayment assumption used by the Company in
reporting original issue discount for each series of Regular Certificates (the
"Prepayment Assumption") will be consistent with this standard and will be
disclosed in the related Prospectus Supplement. The Company makes no
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The amount of original issue discount, if any, on a Regular Certificate is
the excess of its "stated redemption price at maturity" over its "issue price."
The issue price of a Regular Certificate in a particular class is the first
price at which a substantial amount of the Regular Certificates of that class is
first sold to the public (excluding bond houses, brokers and underwriters).
Unless specified otherwise in the Prospectus Supplement, the Company will
determine original issue discount by including the amount paid by an initial
Regular Certificateholder for accrued interest that relates to a period prior to
the issue date of the Regular Certificate in the issue price of a Regular
Certificate and will include in the stated redemption price at maturity any
interest paid on the first Payment Date to the extent such interest is
attributable to a period in excess of the number of days between the issue
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date and such first Payment Date. The stated redemption price of a Regular
Certificate is equal to the total of all payments due on the Regular Certificate
other than payments of qualified stated interest. "Qualified stated interest"
includes interest that is unconditionally payable at least annually at a single
fixed rate, or in the case of a variable rate debt instrument, at a "qualified
floating rate," an "objective rate," a combination of a single fixed rate and
one or more "qualified floating rates" or one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that generally does not operate
in a manner that accelerates or defers interest payments on such Regular
Certificate.
In the case of Regular Certificates bearing adjustable interest rates, the
determination of the total amount of original issue discount and the timing of
the inclusion thereof will vary according to the characteristics of such Regular
Certificates. Generally, original issue discount will accrue on the Certificates
at the same rate it would accrue if the Certificates were to bear interest at a
fixed rate based on the rate that would be in effect if the index remained
constant after the Closing Date (or, possibly, the pricing date).
Notwithstanding the general definition, under a statutory de minimis rule,
original issue discount on a Regular Certificate will be treated as zero if such
discount is less than 0.25 percent of the stated redemption price at maturity of
such Regular Certificate multiplied by its weighted average life. The weighted
average life of a Regular Certificate is apparently computed for this purpose as
the sum, for all distributions included in the stated redemption price at
maturity of the Regular Certificate, of the amounts determined by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until the date on which each such distribution is scheduled to be
made (presumably taking into account the Prepayment Assumption) by (ii) a
fraction, the numerator of which is the amount of such distribution and the
denominator of which is the Regular Certificate's stated redemption price at
maturity.
The Treasury regulations pertaining to original issue discount (the "OID
Regulations") provide a special application of the de minimis rule for certain
debt instruments where the interest payable for the first period is at a rate
less than that which applies in all other periods. In such cases, the OID
Regulations provide that the Regular Certificate would be treated as having de
minimis original issue discount if the greater of (i) the excess of its stated
principal amount over its issue price or (ii) the amount of the "foregone
interest" does not exceed the amount that would otherwise be treated as de
minimis original issue discount under the rules described above, but treating as
the stated redemption price at maturity for that purpose, the sum of the issue
price and the greater of the amounts in clauses (i) or (ii). Foregone interest
for this purpose is the amount of additional stated interest that would be
required to be payable on the Regular Certificate during the period of the
teaser rate, interest holiday or other shortfall so that all stated interest
would be qualified stated interest. If original issue discount is treated as
zero under these rules, all stated interest payments are treated as qualified
stated interest and the actual amount of original issue discount must be
allocated to the principal distributions on the Regular Certificate and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
One or more classes of Regular Certificates may entitle the holder to
payments of a portion of the interest but not a corresponding portion of the
principal of Mortgage Loans held in the REMIC Pool ("Stripped REMIC
Certificates") or otherwise provide for interest that is disproportionately high
relative to the principal amount. Although the matter is not free from doubt,
the Company intends to treat all of the payments on such Certificates as part of
their stated redemption price at maturity. If such Certificates are not treated
as having original issue discount, it is likely that such Certificates will be
treated as having been issued at a premium. See "Regular Certificates --
Premium" below. In addition, the holder of such a Certificate may be entitled to
recognize a loss (which may be treated as a capital loss) at such time and in
such amount as it is determined that the Certificateholder's adjusted
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basis exceeds all future payments to be received on such Certificates, assuming
no future prepayments occur with respect to the Mortgage Loans.
A Certificateholder generally must include in gross income for any taxable
year the sum of the "daily portions" of the original issue discount that accrue
on the Regular Certificate for each day during the Certificateholder's taxable
year on which the Regular Certificate is held. A calculation will be made of the
portion of the original issue discount that accrues on each Regular Certificate
during each "accrual period," which in general is the period corresponding to
the period between Payment Dates or other interest compounding periods. Under
the OID Regulations, the accrual periods may be of any length and may vary in
length over the term of the debt instrument, provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
occurs on the final day of an accrual period or on the first day of an accrual
period. The original issue discount accruing during any accrual period is
divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the period.
For a Regular Certificate, original issue discount accruing in an accrual
period is the excess, if any, of (i) the sum of (a) the present value of the
remaining payments to be made on the Regular Certificate as of the end of that
accrual period and (b) the payments made on the Regular Certificate during the
accrual period that are included in the stated redemption price at maturity of
the Regular Certificate, over (ii) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. For this purpose, the
present value of the remaining payments to be made on a Regular Certificate is
calculated based on (i) the Prepayment Assumption, (ii) the yield to maturity of
the Regular Certificate as of the Closing Date (taking into account the
Prepayment Assumption) and (iii) events (including actual prepayments) that have
occurred prior to the end of the accrual period. The adjusted issue price of a
Regular Certificate at the beginning of any accrual period equals the issue
price of the Regular Certificate increased by the aggregate amount of original
issue discount that accrued on that Regular Certificate in all such prior
periods and reduced by the amount of payments included in the stated redemption
price at maturity of the Regular Certificate in prior accrual periods. In
general, the daily portions of original issue discount required to be included
in income by the holder of a Regular Certificate (other than a Stripped REMIC
Certificate) will increase if prepayments on the Mortgage Loans exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if those prepayments are slower than the Prepayment Assumption.
A subsequent purchaser of a Regular Certificate at a price greater than the
Regular Certificate's "adjusted issue price" but less than its remaining stated
redemption price also will be required to include in gross income the daily
portions of the original issue discount on the Regular Certificate. With respect
to such a purchaser, the daily portion for any day is reduced by an amount equal
to the product of (i) such daily portion and (ii) a fraction, the numerator of
which is the amount, if any, by which the price paid by such purchaser for the
Regular Certificate exceeds the adjusted issue price and the denominator of
which is the excess of the sum of all amounts payable on the Regular Certificate
after the purchase date, other than payments of qualified stated interest, over
the Regular Certificate's adjusted issue price. The adjusted issue price of a
Regular Certificate on any given day is equal to its issue price, increased by
all original issue discount previously includible with respect to such Regular
Certificate and reduced by the amount of all previous distributions with respect
to such Regular Certificate included in such Regular Certificate's stated
redemption price at maturity.
Market Discount. The holder of a Regular Certificate purchased at a market
discount will be subject to the market discount provisions of the Code. In
general, "market discount" is the amount by which the stated redemption price at
maturity (or, in the case of a Regular Certificate issued with original issue
discount, the revised issue price) of the Regular Certificate exceeds the
purchaser's basis in a Regular Certificate. The holder of a Regular Certificate
that has market discount generally
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will be required to include accrued market discount in ordinary income to the
extent payments includible in the stated redemption price at maturity of such
Regular Certificate are received. The purchaser of a Regular Certificate that
has market discount also will be required to treat a portion of any gain on a
sale or exchange of the Regular Certificate as ordinary income to the extent of
the market discount that accrued to the date of disposition and was not
previously included in ordinary income. Unless otherwise provided in Treasury
regulations that have not yet been issued, it is anticipated that market
discount on a Regular Certificate will accrue at the holder's option (i) on the
basis of a constant interest rate, (ii) ratably based on the ratio of stated
interest payable in the current period to all interest remaining to be paid in
the case of a Regular Certificate issued without original issue discount, or
(iii) ratably based on the ratio of the amount of original issue discount
accrued in the current period to all remaining original issue discount in the
case of a Regular Certificate issued with original issue discount, in each case
computed taking into account the Prepayment Assumption.
A purchaser of a Regular Certificate that has market discount may be
required to defer recognition of a portion of interest expense attributable to
any indebtedness incurred or continued to purchase or carry the Regular
Certificate. The amount of this deferred interest expense in any taxable year
generally would not exceed the accrued market discount for the year, and the
deferred expense generally is allowed as a deduction not later than the year in
which the related market discount income is recognized. Alternatively, a
Certificateholder may elect to include market discount in income currently as it
accrues on all market discount obligations that the Certificateholder acquires
in that taxable year or thereafter, in which case the rules described above
relating to the treatment of market discount, as well as the interest deferral
rule will not apply. Notwithstanding the above rules, market discount on a
Regular Certificate will be considered to be zero under a de minimis rule that
is similar to the de minimis rule applied for purposes of determining whether a
Regular Certificate has original issue discount.
Premium. A Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity is considered to be purchased at a
premium. The holder of such a Regular Certificate may elect under section 171 of
the Code to amortize the premium under the constant interest method. That
election will apply to all premium obligations that the holder owns or
subsequently acquires. In addition, it appears that the same rules that apply to
the accrual of market discount on installment obligations are intended to apply
in amortizing premium on installment obligations such as the Regular
Certificates, although it is unclear whether the alternatives to the constant
interest method described above under "Market Discount" are available. The
portion of the premium deductible pursuant to an election under section 171 of
the Code and allocable to a particular period will be treated as a reduction in
interest payments on the Regular Certificate during that period. A
Certificateholder who neither has in place nor makes an election to amortize
bond premium could be required to allocate that premium among the principal
payments to be received on that instrument and recognize the premium as a loss
(which would be a capital loss if the Certificate is held as a capital asset) as
those principal payments are received.
Interest Election. Under the OID Regulations, Regular Certificateholders
generally may elect to include all accrued interest on a Regular Certificate in
gross income using the constant yield to maturity method. For purposes of this
election, interest includes stated interest, original issue discount, de minimis
original issue discount, market discount, de minimis market discount and
unstated interest, as adjusted by any premium. If a Certificateholder makes such
an election and (i) the Regular Certificate has amortizable bond premium, the
Certificateholder is deemed to have made an election to amortize bond premium or
(ii) the Regular Certificate has market discount, the Certificateholder is
deemed to have made an election to include market discount in income currently.
See "Premium" and "Market Discount" above. A Regular Certificateholder should
consult its tax adviser before making this election.
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Sale or Exchange of Regular Certificates. If a holder sells or exchanges a
Regular Certificate, the Certificateholder will recognize gain or loss equal to
the difference, if any, between the amount realized and its adjusted basis in
the Regular Certificate. The adjusted basis of a Regular Certificate generally
will equal its initial cost, increased by any original issue discount or market
discount previously included in the seller's gross income with respect to the
Regular Certificate and reduced by the payments previously received on the
Regular Certificate, other than payments of qualified stated interest, and by
any amortized premium.
In general, except as described above with respect to market discount, and
except for certain financial institutions subject to section 582(c) of the Code,
any gain or loss on the sale or exchange of a Regular Certificate recognized by
an investor who holds the Regular Certificate as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Regular Certificate has been
held for more than one year. Gain from the disposition of a Regular Certificate
that otherwise might be capital gain will be treated as ordinary income to the
extent that the gain does not exceed the excess, if any, of (i) the amount that
would have been includible in the gross income of the holder if the yield on the
Regular Certificate were 110% of the applicable federal rate under section
1274(d) of the Code as of the date of purchase, over (ii) the amount of income
actually includible in the gross income of such holder with respect to the
Regular Certificate.
Treatment of Subordinated Certificates. As described above under
"Description of the Certificates -- Credit Enhancement -- Subordination,"
certain series of Certificates may contain one or more classes of Regular
Certificates that are subordinate to one or more other classes of Regular
Certificates (the "Subordinated Certificates" and "Senior Certificates,"
respectively), Holders of Subordinated Certificates will be required to report
income with respect to such Certificates on the accrual method of accounting
without giving effect to delays or reductions in distributions attributable to
defaults and delinquencies on the Mortgage Loans, except to the extent it can be
established that such amounts are uncollectible. In addition, holders of
Subordinated Certificates will be required to treat amounts transferred to any
Reserve Fund as having been distributed to them. 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 generally will be allowed a loss (or will be allowed to
report less income) where either principal or previously accrued interest are
determined to be uncollectible with respect to the Subordinated Certificate,
although the timing and character of such losses (or reductions in income) are
uncertain.
Taxation of Residual Certificates
General. Generally, holders of Residual Certificates ("Residual
Certificateholders") will take into account as ordinary income or loss for
federal income tax purposes, the "daily portions" of REMIC taxable income or net
loss. The daily portions of REMIC taxable income or net loss for a Residual
Certificateholder are determined by allocating to each day in any calendar
quarter its ratable portion of the REMIC's taxable income or net loss for such
calendar quarter, and by allocating such daily portion among the Residual
Certificateholders in proportion to their respective holdings of Residual
Certificates of a series on that day. A Residual Certificateholder also must
include in income any distributions from the REMIC in excess of the Residual
Certificateholder's adjusted basis in the Residual Certificate. Certain
adjustments to the income of a subsequent holder of a Residual Certificate may
be required when the Residual Certificate was purchased at a price that is
greater or less than the adjusted basis (determined in the manner discussed
below) that the Residual Certificate would have if held by an initial holder.
Nevertheless, in the absence of Treasury regulations or clarifying legislation,
it is uncertain whether any adjustments would be required.
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Method of Computing REMIC Taxable Income. In general, REMIC taxable income
is determined in the same manner as the taxable income of an individual having
the calendar year as the taxable year and using the accrual method of
accounting, with certain exceptions. For these purposes, REMIC taxable income
generally means the excess of (i) the REMIC's gross income (including interest,
original issue discount and market discount, if any) on the Mortgage Loans owned
by the REMIC, plus income on reinvestment of cash flows and investment of assets
in the Reserve Fund and amortization of any premium with respect to the Regular
Certificates, over (ii) deductions, including interest and original issue
discount on the Regular Certificates, servicing fees on the Mortgage Loans,
other administrative expenses, and deduction or amortization of premium, if any,
with respect to the Mortgage Loans or the mortgage loans. Under the Treasury
regulations pertaining to the REMIC provisions of the Code (the "REMIC
Regulations"), section 163(d) of the Code does not apply to limit a REMIC's
deductions for any interest expense, and for purposes of determining a REMIC's
bad debt deduction, debt owed to the REMIC is not treated as nonbusiness debt
under section 166(d) of the Code. In addition, under the REMIC Regulations, any
gain or loss from the disposition of any asset, including a qualified mortgage
(as defined in section 860G(a)(3) of the Code) or a permitted investment (as
defined in section 860G(a)(5) of the Code) is treated as ordinary gain or loss.
For purposes of determining REMIC taxable income or net loss, the REMIC's
aggregate basis in the collateral is the fair market value thereof immediately
after transfer to the REMIC. Under the REMIC Regulations, that basis is equal to
the aggregate of the issue prices of all regular and residual interests in the
REMIC.
Generally, the REMIC's deductions for original issue discount will be
determined in the same manner as original issue discount income on Regular
Certificates as described above under "Regular Certificates -- Original Issue
Discount," without regard to the de minimis rule described therein. The REMIC
will have discount income in respect of a Mortgage Loan if, in general, the
basis of the REMIC allocable thereto is exceeded by the unpaid principal balance
thereof. In respect of Mortgage Loans that have discount, REMIC taxable income
will take into account discount that accrues during the taxable year as it
accrues under a constant yield method. Generally, if the REMIC's basis allocable
to a Mortgage Loan exceeds the unpaid principal balance thereof, the REMIC will
be considered to have acquired the Mortgage Loan at a premium equal to the
amount of the excess, which premium may be amortized under a constant interest
method as described above under "Regular Certificates -- Premium."
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount and market
discount income (or amortization of premium) with respect to Mortgage Loans, and
the timing of deductions for interest (including original issue discount) on the
Regular Certificates. Where the Mortgage Loans bear interest at a fixed rate,
mismatching of that timing may result from the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of the
Regular Certificates, will increase over time as the earlier classes of Regular
Certificates are paid, whereas interest income with respect to any given
Mortgage Loan generally will remain constant over time as a percentage of the
outstanding principal amount of that loan. When there is more than one class of
Regular Certificates that pay principal sequentially, this mismatching of income
and deductions is likely to occur in the early years following issuance of the
Certificates when principal payments are being made in respect of the earlier
classes of Regular Certificates particularly if the Mortgage Loans were acquired
at a discount. In those circumstances, Residual Certificateholders may require
sufficient other sources of cash to pay any federal, state or local income or
franchise taxes due as a result of the mismatching. The mismatching of income
and deductions described in this paragraph, if present with respect to a series
of Certificates, may have a significant adverse effect upon a Residual
Certificateholder's after-tax rate of return.
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Losses. The amount of any net loss of the REMIC that may be taken into
account by a Residual Certificateholder is limited to the Residual
Certificateholder's adjusted basis of the Residual Certificate as of the close
of the quarter (or time of disposition of the Residual Certificate, if earlier)
determined without taking into account the net loss for the quarter. Any loss so
disallowed may be carried over indefinitely, and may be used only to offset any
income generated by the Residual Certificate. The adjusted basis of a Residual
Certificate is equal to the amount paid therefor, increased by the amount of any
income allocated to the Residual Certificateholder and decreased (but not below
zero) by the amount of cash distributed, the fair market value of property
distributed and any loss allocated to the Residual Certificateholder. The
ability of a Residual Certificateholder that is an individual or a closely held
corporation to take into account losses from the REMIC also may be subject to
other limitations under the Code.
Limitations on Offset or Exemption of REMIC Income. A portion of the REMIC
taxable income includible in determining the Federal income tax liability of a
Residual Certificateholder will be subject to special treatment. That portion,
referred to as the "excess inclusion," is equal to the excess, if any, of the
Residual Certificateholder's allocable share of REMIC taxable income for a
calendar quarter, over the sum of the "daily accruals" with respect to the
Residual Certificate for days during the calendar quarter that the Residual
Certificateholder held the Residual Certificate. The daily accruals for each day
during a calendar quarter generally are determined by allocating to each day in
the calendar quarter its ratable portion of the product of (i) 120% of the
long-term applicable federal rate that would have applied to the Residual
Certificate (if it were a debt instrument issued on the day the REMIC was
formed) under section 1274(d) of the Code, and (ii) the adjusted issue price of
the Residual Certificate at the beginning of the quarterly period. The adjusted
issue price of the Residual Certificate at the beginning of a quarter is the
issue price of the Residual Certificate (generally determined as if the Residual
Certificate were a debt instrument), increased by the amount of the daily
accruals of REMIC income for all prior quarters and decreased (but not below
zero) by any distributions made with respect to the REMIC Residual Certificate
prior to the beginning of the quarterly period.
To the extent provided in Treasury regulations that have not yet been
issued if the aggregate value of the Residual Certificates is not considered to
be "significant," then a Residual Certificateholder's entire share of REMIC
taxable income will be treated as excess inclusions. Unless otherwise stated in
the Prospectus Supplement with respect to any Residual Certificates offered by
such Prospectus Supplement, it is expected that the value of the Residual
Certificates will not be significant.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the "excess inclusion" may not be offset by other deductions,
including net operating losses or net operating loss carryforwards, on the
Residual Certificateholder's federal income tax return. Further, if the Residual
Certificateholder is an organization subject to the tax on unrelated business
income imposed by section 511 of the Code, the Residual Certificateholder's
excess inclusion will be treated as unrelated business taxable income of the
Residual Certificateholder. Pursuant to the REMIC Regulations, if a Residual
Certificateholder is a member of an affiliated group filing a consolidated
income tax return, the taxable income of the affiliated group cannot be less
than the sum of the excess inclusions attributable to all residual interests
held by the members of the affiliated group. In addition, under Treasury
regulations that have not yet been issued, if a real estate investment trust
owns a Residual Certificate, a portion of dividends paid by the real estate
investment trust would be treated as excess inclusions in the hands of its
shareholders with the same consequences as excess inclusions attributed directly
to a Residual Certificateholder. Similar rules will apply to Residual
Certificates that are held by regulated investment companies, common trust funds
or certain cooperative corporations.
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Prohibited Transactions and Other Taxes on the REMIC. Income from certain
transactions by the REMIC, called prohibited transactions, will not be part of
the calculation of income or loss includible in the federal income tax returns
of Residual Certificateholders, but rather will be taxed directly to the REMIC
at a 100% rate. In addition, no loss or deduction allocable to a prohibited
transaction is taken into account in determining the taxable income or net loss
of the REMIC. Prohibited transactions generally include (i) subject to certain
limited exceptions (which exceptions include the liquidation of the REMIC, a
"clean-up call" of one class of interests and the repurchase of a defective
mortgage loan), the disposition of any mortgage loan; (ii) the receipt of income
attributable to any asset that is not the type of mortgage loan or other
investment that the REMIC is permitted to hold; (iii) the receipt of
compensation for services; or (iv) the receipt of gain from disposition of
temporary investments between Payment Dates other than pursuant to a qualified
liquidation. In addition, a 100% tax is imposed on the amount of any
contribution of property made to the REMIC after its initial formation
(excluding certain specified contributions such as cash payments in the nature
of guarantees). An additional tax may be imposed on income from property
acquired by the REMIC upon foreclosure of a Mortgage Loan.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
Residual Certificate, the Residual Certificateholder will recognize gain or loss
equal to the excess, if any, of the amount realized over the adjusted basis (as
described above under "Losses") of the Residual Certificate at the time of the
sale or exchange. In addition, a cash distribution to a Residual
Certificateholder from the REMIC is treated as gain from the sale or exchange of
the Residual Certificate to the extent that the amount of the distribution
exceeds such adjusted basis. For corporate taxpayers, there is no preferential
rate afforded to long-term capital gains. For individual taxpayers, all
long-term capital gains are subject to a maximum nominal rate of tax of 28%
(although the effective rate may be somewhat higher in certain circumstances).
In addition, in certain circumstances, if a Residual Certificate is transferred
to a "Disqualified Organization" (as defined below), a tax will be imposed on
the transferor. See "Residual Certificates Transferred to or Held by
Disqualified Organizations."
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person is disregarded for all federal tax purposes unless no
significant purpose of the transfer was to impede the assessment or collection
of tax. A Residual Certificate is treated as constituting a noneconomic residual
interest for this purpose unless, at the time of the transfer, (i) the present
value of the expected future distributions on the Residual Certificate is no
less than the product of the present value of the "anticipated excess
inclusions" with respect to the Residual Certificate and the highest rate
applicable to domestic corporations for the year in which the transfer occurs
and (ii) the transferor reasonably expects that the transferee will receive
distributions from the REMIC in an amount sufficient to satisfy the income tax
liability on any "excess inclusions" at or after the time the liability accrues.
The anticipated excess inclusions are the excess inclusions that are anticipated
to accrue to each calendar quarter, or portion thereof, following the transfer
of the Residual Certificate, determined as of the date the Residual Certificate
is transferred and based on events that have occurred up to the time of the
transfer and on the Prepayment Assumption and any required or permitted clean up
calls or required liquidation. See "Taxation of REMIC Certificates -- Original
Issue Discount" and "Limitations on Offset or Exemption of REMIC Income."
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
(had "improper knowledge") that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC. Under the REMIC
Regulations, a transferor is presumed not to have improper knowledge if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and, as a result of the investigation,
the transferor found that the transferee had historically paid its debts as they
came due and found no significant evidence to indicate that the
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transferee will not continue to pay its debts as they come due in the future;
and (ii) the transferee represents to the transferor that it understands that,
as the holder of the noneconomic residual interest, the transferee may incur tax
liabilities in excess of any cash flows generated by the interest and that the
transferee intends to pay taxes associated with holding the residual interest as
they become due.
Under the REMIC Regulations, a transfer of a Residual Certificate that has
"tax avoidance potential" to a person who is not a U.S. Person is disregarded
for all federal tax purposes. For this purpose a Residual Certificate has tax
avoidance potential unless at the time of the transfer (i) the transferor
reasonably expects that, for each excess inclusion, the REMIC will distribute to
the transferee Residual Certificateholder, an amount that will equal at least
thirty percent of the excess inclusion, and that each such amount will be
distrusted at or after the time at which the excess inclusion accrues and not
later than the close of the calendar year following the calendar year of
accrual. The REMIC Regulations provide that a transferor has a reasonable
expectation if the thirty percent test would be satisfied were the REMIC's
qualified mortgages to prepay at each rate within a range of rates from fifty
percent to two hundred percent of the rate assumed under section 1272(a)(6) of
the Code with respect to the qualified mortgages (or the rate that would have
been assumed had the mortgages been issued with original issue discount). A
transfer of a Residual Certificate to a person who is not a U.S. Person,
however, is not disregarded if income from the Residual Certificate is subject
to tax under section 871(b) or section 882 of the Code in the hands of the
transferee. Moreover, if a person who is not a U.S. Person transfers a Residual
Certificate to a U.S. Person, and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
Residual Certificate for purposes of sections 871(a), 881, 1441 and 1442 of the
Code. As used herein, a U.S. Person is a citizen or resident of the United
States, a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust the
income of which is includible in gross income for U.S. tax purposes regardless
of its source. See "Limitations on Offset or Exemption of REMIC Income" and
"Other Matters Relating to REMIC Certificates -- Taxation of Certain Foreign
Investors -- Residual Certificates."
Except as provided in Treasury regulations that have not yet been issued,
the wash sale rules of section 1091 of the Code will apply to the disposition of
a Residual Certificate where, during the period beginning six months before the
sale or disposition of the Residual Certificate and ending six months after the
sale or disposition, the seller of the Residual Certificate acquires (or enters
into any other transaction that results in the application of section 1091) any
residual interest in any REMIC or any interest in a "taxable mortgage pool"
(such as a non-REMIC owner trust) that is comparable to a Residual Certificate.
Application of these wash sale rules would result in the deferral of recognition
of any loss on the sale of the Residual Certificate.
Residual Certificates Transferred to or Held by Disqualified Organizations
Regardless of whether any gain or loss is recognized on the transfer of a
Residual Certificate, a tax is imposed on the transferor of a Residual
Certificate where the transfer is to certain specified entities generally
including governmental entities or any other entities that are exempt from U.S.
tax including the tax on unrelated business income (collectively, "Disqualified
Organizations"). If a transfer of a Residual Certificate to a Disqualified
Organization is made through an agent for the Disqualified Organization
(including a nominee, broker or middleman), then the tax is imposed on the
agent. The tax is imposed at the highest rate applicable to domestic
corporations based on the present value of expected excess inclusions (see
"Limitations on Offset or Exemption of REMIC Income" above). The REMIC
Regulations provide that the anticipated excess inclusions must be determined as
of the date the Residual Certificate is transferred and must be based on (i)
events that have occurred up to the time of the transfer, (ii) the Prepayment
Assumption, and (iii) any required or permitted clean up calls, or required
qualified liquidation. In addition, the REMIC Regulations provide that the
81
present value of the anticipated excess inclusions is determined by discounting
the anticipated excess inclusions from the end of each remaining calendar
quarter in which those excess inclusions are expected to accrue to the date the
disqualified organization acquires the Residual Certificate. The discount rate
to be used for this present value computation is the applicable Federal rate as
specified in section 1274(d)(1) of the Code that would apply to a debt
instrument that was issued on the date the disqualified organization acquired
the residual interest and whose term ended on the close of the last quarter in
which excess inclusions were expected to accrue with respect to the Residual
Certificate. The transferor is relieved of the tax liability if it receives in
good faith from the transferee (i) an affidavit stating that the transferee is
not a Disqualified Organization or (ii) the transferee's social security number
and an affidavit stating that the social security number is that of the
transferee. Because a requirement for qualification as a REMIC is that
reasonable efforts must be made to ensure that Residual Certificates are not
held by Disqualified Organizations, the ability of a Residual Certificate to be
transferred may be conditioned upon the Trustee's receipt of an affidavit
representing that the proposed transferee is not a Disqualified Organization.
If a Residual Certificate is held by a "pass-through entity" (such as a
partnership, trust, real estate investment trust, regulated investment company,
or common trust fund), a tax is imposed at the highest rate applicable to
domestic corporations on the pass-through entity if a record holder of interest
in the entity is a Disqualified Organization. The tax would be imposed on the
portion of the excess inclusion income relating to the Residual Certificate
allocable to the Disqualified Organization interest holder. If a nominee holds
an interest in a pass-through entity for a Disqualified Organization, then the
tax is imposed on the nominee. Any tax imposed on a pass-through entity is
deductible against the gross amount of ordinary income of the pass-through
entity. No tax, however, will be imposed during any period if (i) the record
holder of an interest in the pass-through entity furnishes to the pass-through
entity an affidavit that the record holder is not a Disqualified Organization,
(ii) the record holder's social security number and an affidavit stating that
the social security number is that of the record holder, and (iii) during such
period, the pass-through entity does not have actual knowledge that the
affidavit is false.
Other Matters Relating to Certificates
Liquidation of the REMIC. If a REMIC adopts a plan of complete liquidation,
and sells all of its assets (other than cash) within the 90-day period beginning
on the date of the adoption of the plan of liquidation, then the REMIC will not
be subject to an entity-level tax on the sale of its assets, provided that the
REMIC credits or distributes in liquidation all of the sale proceeds plus its
cash (other than amounts retained to meet claims) to holders of all REMIC
Certificates within the 90-day period. It is unclear whether that the
termination of the REMIC will be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, a Residual
Certificateholder would be entitled to recognize a gain (or loss) at that time
equal to the amount of the excess (or shortfall) of the cash or fair market
value of other property distributed in liquidation over the adjusted basis in
the Residual Certificate remaining upon termination of the REMIC. The amount of
such gain (or loss) may be treated as a capital loss for certain taxpayers,
although not for financial institutions subject to the provisions of section
582(c) of the Code.
Reporting and Other Administrative Matters. For federal income tax
purposes, the REMIC must adopt a calendar year as its taxable year and must file
annual federal information and tax returns and other reports with the IRS and
furnish reports to Certificateholders as specified in temporary Treasury
regulations (the "Temporary Regulations") and Treasury regulations. Pursuant to
Treasury regulations, reports will be made annually to the IRS and to holders of
record that are not excepted from the reporting requirements regarding
information with respect to the interest paid or accrued on the Regular
Certificates, original issue discount, if any, accrued on the Regular
Certificates, the portion of the Regular Certificates (and income therefrom)
that is eligible for each special tax status
82
described above, and certain information necessary to compute the accrual of any
market discount or the amortization of any premium on the Regular Certificates.
Quarterly reports will be made to the holders of Residual Certificates with
regard to REMIC taxable income, excess inclusions and allocable investment
expenses of the REMIC required to be taken into account by the holder of the
Residual Certificate. These quarterly reports will be filed with the IRS on an
annual basis. The Temporary Regulations also provide that quarterly reports must
be made of the REMIC's investment expenses to holders of Regular Certificates
where such allocations are required. The REMIC also is subject to the procedural
and administrative rules of the Code applicable to partnerships including the
determination of any adjustments to, among other things, items of REMIC income
gain, loss, deduction or credit by the IRS in a unified administrative
proceeding. In this connection, a holder of a Residual Certificate may be
required to act as the "tax matters person" of the REMIC.
Certain Noncorporate Investors. Under section 67 of the Code, an
individual, estate or trust may deduct certain itemized deductions only to the
extent that the aggregate of these itemized deductions exceeds two percent of
the taxpayer's adjusted gross income. These itemized deductions include expenses
paid or incurred for the production or collection of income, or the management,
conservation or maintenance of property held for the production of income. In
the case of a REMIC, these deductions may include deductions for servicing
expenses with respect to the Mortgage Loans, compensation paid to the Servicer
of a series of Certificates, or other administrative expenses, if any, of the
REMIC. In the case of a REMIC that is similar to a traditional single-class
mortgage pass-through arrangement (including a pass-through arrangement with
senior and subordinated interests), a pro rata portion of the expenses that are
deductible under section 212 of the Code would be allocated among all of the
holders of interests in the REMIC and would be taken into account by holders who
are individuals, estates or trusts (where interests are held either directly or
indirectly through certain pass-through entities) as a "gross-up" to income,
against which deductions for those expenses would be available subject to the
limitations of section 67 of the Code. Nevertheless, for other REMICs, these
deductions would be allocated only to holders of the Residual Certificates.
Taxation of Certain Foreign Investors -- Regular Certificates. For purposes
of this discussion, a "Foreign Holder" is a Certificateholder who holds a
Certificate and who is not (i) a citizen or resident of the United States, (ii)
a corporation or partnership organized in or under the laws of the United States
or any political subdivision thereof or (iii) an estate or trust the income of
which is includible in gross income for U.S. tax purposes regardless of its
source. A Foreign Holder that is not subject to Federal income tax as a result
of any direct or indirect connection with the United States in addition to its
ownership of a Regular Certificate will not be subject to federal income tax on
interest (or original issue discount, if any) on a Regular Certificate (subject
to possible backup withholding of tax, discussed below), provided the Foreign
Holder does not own actually or constructively a 10% or greater interest in the
Residual Certificates. To qualify for this tax exemption, the Foreign Holder
will be required to provide a statement signed under penalties of perjury
certifying that the Foreign Holder meets the requirements for treatment as a
Foreign Holder and providing the Foreign Holder's name and address. The
statement, which may be made on an IRS Form W-8 or substantially similar
substitute form, generally must be provided in the year a payment occurs or in
either of the two preceding years.
Any gain recognized by a Foreign Holder upon a sale, retirement, or other
taxable disposition of a Regular Certificate generally will not be subject to
U.S. Federal income tax unless either (i) the Foreign Holder is a nonresident
alien individual who holds the Regular Certificate as a capital asset and who is
present in the United States for 183 days or more in the taxable year of the
disposition or (ii) the gain is effectively connected with the conduct by the
Foreign Holder of a trade or business within the United States.
83
It appears a Regular Certificate will not be includible in the estate of a
Foreign Holder and would not be subject to U.S. estate taxes.
Taxation of Certain Foreign Investors -- Residual Certificates. Amounts
paid to Residual Certificateholders who are Foreign Holders are treated as
interest for purposes of the 30% U.S. withholding tax. The U.S. Department of
the Treasury has promulgated regulations that provide that interest payments to
the holder of a Residual Certificate is treated as having been paid with respect
to the obligations held by the REMIC for purposes of determining whether the
payments are eligible for the portfolio interest exemption. Such regulations do
not allow any payments representing the "excess inclusion" portion of the
REMIC's income to be eligible for the portfolio interest exemption. In addition,
a Residual Certificateholder will not be entitled to any exemption from the 30%
withholding tax or a reduced treaty rate to the extent of that portion of REMIC
taxable income that constitutes an "excess inclusion." See "Taxation of
Certificates -- Taxation of Residual Certificates -- Limitations on Offset or
Exemption of REMIC Income." If the amounts allocable to Residual
Certificateholders who are Foreign Holders are effectively connected with the
conduct of a trade or business within the United States by such Foreign Holders,
30% (or lower treaty rate) withholding will not apply. Instead, the amounts
allocable to such Foreign Holders will be subject to U.S. federal income tax at
regular graduated rates. It is possible that the activities of the REMIC could
by themselves result in the Residual Certificateholder's being considered to be
conducting a trade or business in which case amounts paid to Residual
Certificateholders would be so effectively connected. If 30% (or lower treaty
rate) withholding is applicable, such amounts will be taken into account for
purposes of withholding only when paid or otherwise distributed (or when the
Residual Certificate is disposed of) under rules similar to those that govern
withholding upon disposition of debt instruments that have original issue
discount. However, the Code grants the U.S. Department of the Treasury authority
to issue regulations requiring that the amounts includible be taken into account
earlier than otherwise provided where necessary to prevent avoidance of tax.
This latter rule may apply where the Residual Certificates do not have
significant value.
Backup Withholding. Under certain circumstances interest (and original
issue discount, if any), principal or proceeds of the sale of a Regular
Certificate may be subject to "backup withholding" of U.S. Federal income tax at
a 31% rate. Backup withholding does not apply to corporations and certain other
exempt recipients, which may be required to establish their exempt status.
Backup withholding generally applies if, among other circumstances, a non-exempt
Regular Certificateholder who is a U.S. person fails to furnish its taxpayer
identification number or, when applicable, a Form 4224. Backup withholding
generally does not apply to a Foreign Holder if the Foreign Holder provides the
statement necessary to establish the exemption from federal income tax on
interest on the Regular Certificate. Special backup withholding rules may apply
when a payment is made through one or more financial institutions or by a
custodian, nominee, broker or other agent of the beneficial owner of a Regular
Certificate.
CERTAIN STATE TAX CONSEQUENCES
Each holder of a Certificate may be liable for state and local income taxes
payable in the state or locality in which it is a resident or conducts or is
deemed to conduct business and where an election is not made to treat the Trust
as a REMIC, a holder of a Certificate representing an ownership interest in the
related Trust may also be liable for such taxes in any state or locality in
which the Trust conducts or is deemed to conduct business. The income tax laws
of each state and locality may differ from the above discussion of federal
income tax laws so each prospective purchaser of a Certificate should consult
its own tax counsel with respect to potential state and local income taxes
payable as a result of its purchase of a Certificate.
84
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that are subject to ERISA and/or Section 4975 of the
Code ("Plans"), and on persons who are fiduciaries with respect to such Plans,
in connection with the investment of "plan assets" of such Plans. 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. Generally, any person who has discretionary authority or control
respecting the management or disposition of Plan assets, and any person who
provides investment advice with respect to such assets for a fee, is a fiduciary
with respect to such Plan assets.
ERISA and Section 4975 of the Code also prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to a penalty imposed
under ERISA and/or an excise tax imposed pursuant to Section 4975 of the Code,
unless a statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
Any Plan fiduciary or other investor considering whether to purchase any
Certificates on behalf of or with "plan assets" of any Plan should consult with
its counsel and refer to the applicable Prospectus Supplement for guidance
regarding the ERISA considerations applicable to the Certificates offered
thereby.
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 the requirements of ERISA or Section 4975 of the Code. Accordingly,
assets of such plans may be invested in the Certificates without regard to the
ERISA considerations described herein and in the applicable Prospectus
Supplement, subject to the provisions of other applicable federal and state law.
However, 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.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, no Class
of Certificates of a Series will constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because the
related Mortgage Pool will include Mortgage Loans that are secured by second
Mortgages. Investors should consult their own legal advisers in determining
whether and to what extent any Class of Certificates of a Series constitutes
legal investments for such investors.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from each sale of the
Series of Certificates will be received, directly or indirectly, by the
Depositor. In the aggregate, the Originators will contribute or otherwise
transfer the
85
related Mortgage Loans to the Depositor in return for cash, stock or other
property as specified in the related Prospectus Supplement.
PLAN OF DISTRIBUTION
The Certificates of each Series may be sold to or through underwriters (the
"Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters or such other underwriting arrangement as may be
specified in the related Prospectus Supplement or may be placed either directly
or through agents. The Depositor intends that Certificates will be offered
through such various methods from time to time and that offerings may be made
concurrently through more than one of such methods or that an offering of a
particular Series of Certificates may be made through a combination of such
methods.
The distribution of Certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
In connection with the sale of the Certificates, Underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession to
certain other dealers. Underwriters, dealers and agents that participate in the
distribution of the Certificates of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Depositor or the
related Trust and any profit on the resale of the Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933. Any such Underwriters or agents will be identified, and any such
compensation received from the Depositor or the related Trust will be described,
in the related Prospectus Supplement.
This Prospectus and related Prospectus Supplements may be used by an
affiliate of the Depositor in connection with offers and sales relating to
market-making transactions in the Certificates. Such affiliate may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale.
Under agreements which may be entered into by the Depositor and, if so
specified in the related Prospectus Supplement, by the Originators, Underwriters
and agents who participate in the distribution of the Certificates may be
entitled to indemnification by the Depositor or the Originators, as the case may
be, against certain liabilities, including liabilities under the Securities Act
of 1933.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
RATINGS
Each Class of Certificates of a Series will be rated at their initial
issuance in one of the four highest categories by at least one Rating Agency.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans
86
and the structural, legal and tax aspects associated with the Certificates. The
ratings on the Certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the Mortgage Loans or the possibility
that Certificateholders might realize a lower than anticipated yield.
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
Agency. No person is obligated to maintain the rating on any Certificate, and,
accordingly, there can be no assurance that the ratings assigned to a
Certificate upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor by Orrick, Herrington & Sutcliffe LLP, New York, New York.
Certain federal income tax matters will be passed upon for the Depositor by
Orrick, Herrington & Sutcliffe LLP.
87
INDEX OF PRINCIPAL DEFINITIONS
Term Page
- --------------------------------------------------------------------------------
Accrual Certificates..................................................... 6
Accrual Period .......................................................... 6
Actuarial Mortgage Loan.................................................. 22
Adjustable Rate Mortgages................................................ 21
Advance ................................................................. 11
ARMs .................................................................... 21
Available Payment Amount................................................. 54
Balloon Loans ........................................................... 18
BANC ONE ................................................................ 4, 26
Bankruptcy Plan ......................................................... 22
Basic Principal Amount................................................... 7, 54
Book-Entry Securities.................................................... 8
Cash Collateral Account.................................................. 60
Cash Collateral Lender................................................... 60
Cede .................................................................... 8
Certificate Insurance Policy............................................. 58
Certificate Interest Rate................................................ 5
Certificates ............................................................ 1
Class ................................................................... 2, 5
Closing Date ............................................................ 5
Code .................................................................... 73
Collection Account....................................................... 53
Combined Loan-to-Value Ratio............................................. 22
Commission .............................................................. 3
Cooperative Loans ....................................................... 68
Credit Provider ......................................................... 58
Curtailments ............................................................ 7
Custodian ............................................................... 49
Cut-off Date ............................................................ 4
Debt-to Income Ratio..................................................... 31
Definitive Certificates.................................................. 67
Depositor ............................................................... 4
Determination Date....................................................... 6
Disqualified Organizations............................................... 83
DTC ..................................................................... 8
Due Period .............................................................. 6
Eligible Account ........................................................ 51
Equity Protection Act.................................................... 19
ERISA ................................................................... 12
Event of Nonpayment...................................................... 65
Excess Spread ........................................................... 52
Exchange Act ............................................................ 3
FHLMC ................................................................... 63
Finance One ............................................................. 26
Fitch ................................................................... 11
Fixed monthly debt....................................................... 31
FNMA .................................................................... 63
Gross Margin ............................................................ 23
Home Equity Loan Ratio................................................... 22
Index ................................................................... 23
Indirect Participants.................................................... 8
Insolvency Laws ......................................................... 20
88
Insurance Proceeds....................................................... 7
Insurer ................................................................. 58
IRS ..................................................................... 73
Issuer .................................................................. 4
Letter of Credit ........................................................ 59
Letter of Credit Issuer.................................................. 59
Liquidated Mortgage Loan................................................. 7
Liquidation Proceeds..................................................... 7
Majority in Aggregate Voting Interest.................................... 64
Market discount ......................................................... 77
Maximum Mortgage Rate.................................................... 23
Minimum Mortgage Rate.................................................... 23
Monthly Payments ........................................................ 7
Monthly Period .......................................................... 52
Moody's ................................................................. 11
Mortgage ................................................................ 1, 8
Mortgage File ........................................................... 19
Mortgage Interest Rate................................................... 9
Mortgage Loan ........................................................... 1
Mortgage Loan Losses..................................................... 55
Mortgage Loan Schedule................................................... 47
Mortgage Loans .......................................................... 5, 8
Mortgage Pool ........................................................... 5, 8
Mortgaged Property....................................................... 1, 8
Mortgagor ............................................................... 15
Net Liquidation Proceeds................................................. 7
Nonrecoverable Advances.................................................. 53
OID Regulations ......................................................... 75
Original Issue Discount.................................................. 74
Original Pool Principal Balance.......................................... 8
Originator .............................................................. 1, 4
Owners .................................................................. 67
Participants ............................................................ 8
Parties in Interest...................................................... 86
Payment Cap ............................................................. 23
Payment Date ............................................................ 5
Percentage Interest...................................................... 7
Periodic Cap ............................................................ 23
Permitted Instruments.................................................... 51
Plans ................................................................... 86
Pool Insurance Policy.................................................... 59
Pool Insurer ............................................................ 59
Pool Principal Balance................................................... 57
Pooling and Servicing Agreement.......................................... 26
Prefunding Account....................................................... 10
Prepayment Assumption.................................................... 75
Prepayment Period ....................................................... 7, 55
Principal and Interest Account........................................... 51
Principal Prepayments.................................................... 7
Qualified Substitute Mortgage Loan....................................... 48
Rating Agency ........................................................... 12
Record Date ............................................................. 6
Regular Certificates..................................................... 74
Released Mortgaged Property Proceeds..................................... 7
Relief Act .............................................................. 20
REMIC ................................................................... 12
89
REMIC Regulations ....................................................... 79
REO Properties .......................................................... 9
Reserve Fund ............................................................ 59
Residual Certificateholders.............................................. 79
Residual Certificates.................................................... 74
Rule of 78s Mortgage Loan................................................ 23
Rules ................................................................... 67
S&P ..................................................................... 11
Securities Act .......................................................... 3
Senior Certificates...................................................... 60
Senior Lien ............................................................. 12
Series .................................................................. 1
Servicer ................................................................ 1, 4
Servicer Termination Event............................................... 64
Servicing Advances....................................................... 53
Servicing Fee ........................................................... 11
Simple Interest Mortgage Loan............................................ 23
SMMEA ................................................................... 87
Special Hazard Policy.................................................... 59
Spread Account .......................................................... 59
Standard hazard insurance................................................ 62
Stripped REMIC Certificates.............................................. 76
Subordinated Certificates................................................ 60
Substitution Adjustment.................................................. 48
Successor Servicer....................................................... 66
Tax Counsel ............................................................. 74
Title V ................................................................. 73
Transfer Agreement....................................................... 5
Trust ................................................................... 1, 4
Trustee ................................................................. 4, 26
Underwriters ............................................................ 87
Underwriting Programs.................................................... 29
VNFSC ................................................................... 27
Weighted average life.................................................... 26
90
================================================================================
No dealer, salesman or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or any Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement.
______________
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary of Terms.......................................................... S-
Risk Factors.............................................................. S-
Description of the Mortgage Pool.......................................... S-
Mortgage Pool Statistics.................................................. S-
Certain Yield and Prepayment Considerations............................... S-
Origination, Foreclosure and Loss Experience.............................. S-
Description of the Certificates........................................... S-
The Trustee............................................................... S-
The Certificate Insurance Policy and
the Insurer............................................................. S-
ERISA Considerations...................................................... S-
Legal Investment.......................................................... S-
Use of Proceeds........................................................... S-
Underwriting.............................................................. S-
Experts................................................................... S-
Ratings................................................................... S-
Legal Matters............................................................. S-
Appendix A................................................................ A-1
Appendix B................................................................ B-1
Annex I................................................................... I-1
Prospectus
Additional Information....................................................
Reports to Holders........................................................
Incorporation of Certain Documents by Reference...........................
Summary of Prospectus.....................................................
Risk Factors..............................................................
Description of the Mortgage Pools.........................................
Certain Yield and Prepayment Considerations...............................
The Trusts................................................................
The Depositor, the Servicer and the
Originators............................................................
Description of the Certificates...........................................
Certain Legal Aspects of the Mortgage Loans...............................
Certain Federal Income Tax Consequences...................................
Certain State Tax Consequences............................................
ERISA Considerations......................................................
Legal Investment..........................................................
Use of Proceeds...........................................................
Plan of Distribution......................................................
Ratings...................................................................
Legal Matters.............................................................
Until ___ (90 days after the date of this Prospectus Supplement), all dealers
effecting transactions in the Class A Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus and a Prospectus
Supplement. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus and a Prospectus Supplement when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
Banc One Home Equity
Loan Trust 1996_-_
Banc One ABS Corporation
Deporsitor
Bank One, Indianapolis, N.A.
Servicer
Prospectus Supplement
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below are the expenses expected to be incurred by Banc One ABS
Corporation (the "Registrant") in connection with the issuance and distribution
of the securities being registered other than underwriting discounts and
commissions and costs represented by the salaries and wages of regular employees
and officers of the Registrants. All such expenses, other than the Filing Fee,
are estimated expenses.
Filing Fee for Registration Statement........................... $ 303.03
Legal Fees and Expenses......................................... $ *
Accounting Fees and Expenses.................................... $ *
Trustees' Fees and Expenses (including counsel fees)............ $ *
Printing and Engraving Fees..................................... $ *
Rating Agency Fees.............................................. $ *
Blue Sky and legal investment fees and expenses................. $ *
Miscellaneous................................................... $ *
---------
Total.................................................... $ *
=========
- ----------
* To be completed by amendment
Item 15. Indemnification of Directors and Officers.
Neither any Pooling and Servicing Agreement to be entered into among any of
the trusts to be formed, the Registrant, Bank One, Indianapolis, N.A. as
Servicer and the trustee hereunder (the "Pooling and Servicing Agreement"),
relating to the securities being registered, will provide for the
indemnification of any director, officer, employee or agents of the Registrant
or Bank One Indianapolis, N.A., in its capacity as Servicer thereunder, or in
connection with any loss, liability or expense incurred in connection with legal
action relating to the Pooling and Servicing Agreement and the securities issued
pursuant thereto or related thereto. The Pooling and Servicing Agreement will
provide that any director, officer, employee or agent of Bank One, Indianapolis,
N.A., in its capacity as Servicer thereunder, may rely on any document of any
kind which it in good faith reasonably believes to be genuine and to have been
adopted or signed by the proper authorities respecting any matters arising
thereunder.
Section 1701.13(E) of the Ohio General Corporation Law sets forth
provisions which define the extent which a corporation may indemnity directors,
officers and employees. Those provisions have been adopted by the Registrant in
Article VI of Registrant's Code of Regulations, which provides as follows:
The Corporation may indemnify any director or officer, any former
director or officer of the Corporation and any person who is or has served
at the request of the Corporation as a director, officer or trustee of any
other corporation, partnership, joint venture, trust or other enterprise
(and his heirs, executors and administrators) against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement, actually
and reasonably incurred by him by reason of the fact that he is or was such
director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to the full extent and according to the
procedures and requirements set forth in the Ohio General Corporation Law
as the same may be in effect from time to time. The indemnification
provided for herein shall not be deemed to restrict the right of the
Corporation to (i) indemnify employees, agents and others permitted by such
Law, (ii) purchase and maintain insurance or provide similar protection on
behalf of directors, officers
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or such other persons against liabilities asserted against them or expenses
incurred by them arising out of their service to the Corporation as
contemplated herein, and (iii) enter into agreements with such directors,
officers, employees, agents or others indemnifying them against any and all
liabilities (or such lesser indemnification as may be provided in such
agreement) asserted against them or incurred by them arising out of their
service to the Corporation as contemplated herein.
The Registrant's parent, BANC ONE CORPORATION, has entered into
indemnification agreements with certain directors and executive officers of the
Registrant that provide for indemnification unless the indemnitee's conduct is
finally adjudged by a court be knowingly fraudulent, deliberately dishonest or
willful misconduct.
Item 16. Financial Statements and Exhibits.
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
Item 17. Undertakings.
(a) Undertaking pursuant to Rule 415:
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event 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 volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(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 by the Registrants
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(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.
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(b) Undertaking in respect of documents subsequently filed that are
incorporated by reference:
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed 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) Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Banc One ABS
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Columbus, State of Ohio, on the 15th day of
October, 1996.
BANC ONE ABS CORPORATION
By: /s/ Steven R. Bluhm
-----------------------
Steven R. Bluhm
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven R. Bluhm, Richard D. Lodge or Kenneth L.
Wagner as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments and post-effective
amendments to this Registration Statement, and to file the same with all
exhibits thereto, unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully 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 either of them or their substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Name Title Date
---- ----- ----
/s/ Steven R. Bluhm Director and President October 15, 1996
------------------- (Principal Executive, Financial
Steven R. Bluhm and Accounting Officer)
/s/ Richard D. Lodge Director October 15, 1996
--------------------
Richard D. Lodge
____________________ Director
Ted R. Schindler
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INDEX TO EXHIBITS
Sequentially
Exhibit Number Exhibit Numbered Page
1.1* - Form of Underwriting Agreement
3.1** - Articles of Incorporation of Banc One
ABS Corporation
3.2** - Code of Regulations of Banc One ABS Corporation
4.1** - Form of Pooling and Servicing Agreement
5.1*** - Opinion of Orrick, Herrington & Sutcliffe LLP With
Respect to Legality
8.1*** - Opinion of Orrick, Herrington & Sutcliffe LLP
With Respect to Certain Tax Matters
10.1* - Form of Transfer Agreement
23.1*** - Consent of Orrick, Herrington & Sutcliffe LLP
(included as part of Exhibit 5.1)
23.2*** - Consent of Orrick, Herrington & Sutcliffe LLP
(included as part of Exhibit 8.1)
24**** - Power of Attorney as to Banc One ABS Corporation
- ----------
* To be filed by Amendment.
** Incorporated by reference to the identically numbered exhibit in
Registration Statement No. 333-3457 filed by the Registrant.
*** Filed herewith.
**** Included on the signature page of such Registrant in this Registration
Statement.